Morning Market Update

Inflation and Employment Data Dampen the Start to the Day

The US equity markets are under some pressure to begin the trading session, after falling in the wake of reports that showed consumer price inflation came in slightly hotter than anticipated and weekly initial jobless claims rose more than forecasted. Treasuries are higher following the releases, while reports on manufacturing activity in the Mid-Atlantic region and US Leading Indicators are set to follow the opening bell. Meanwhile, earnings releases are mixed in morning action, with CBS Corp topping expectations, while NetApp Inc offered disappointing EPS guidance and NVIDIA Corp missed the Street’s earnings and revenue projections. Overseas, Asia was mostly higher on some upbeat profit reports, while a mixed bag of earnings announcements has European markets flat.

As of 8:51 a.m. ET, the March S&P 500 Index Globex future is 6 points below fair value, the Nasdaq 100 Index is 11 points below fair value, and the DJIA is 37 points below fair value. Crude oil is $0.02 lower at $84.97 per barrel, and the Bloomberg gold spot price is up $7.69at $1,382.12 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.2% at 78.09.

CBS Corp. (CBS $22) reported 4Q EPS ex-items of $0.46, three cents above the consensus estimate of analysts surveyed by Reuters, with revenues increasing 11% year-over-year (y/y) to $3.9 billion, exceeding the $3.8 billion that the Street had forecasted. The media company said its entertainment, outdoor, and cable networks units all posted revenue growth, while its local broadcasting led the way, with revenues growing 21% y/y. Also, the company said total advertising sales grew 12% y/y.

NetApp Inc. (NTAP $59) is under pressure after the data-storage company issued fiscal 4Q EPS guidance that disappointed analysts, overshadowing its report that 3Q EPS ex-items came in at $0.52, topping the $0.50 estimate that the Street was looking for. Also, the company said 3Q revenues grew 25% y/y to $1.3 billion, roughly inline with expectations.

NVIDIA Corp. (NVDA $23) announced 4Q EPS of $0.23, compared to the $0.29 that analysts were anticipating, with revenues declining 9.8% y/y to $886 million, versus the $895 million that the Street had projected. The chipmaker said it believes some analyst estimates may have recorded its recent settlement with Dow member Intel Corp. (INTC $22) as revenue, rather than as a credit to operating expenses, “artificially raising revenue consensus.”

Consumer prices slightly hotter than expected, while jobless claims rose

The Consumer Price Index showed prices at the consumer level were up 0.4% month-over-month (m/m) in January, above the forecasted gain of 0.3% by economists surveyed by Bloomberg, and the 0.5% increase seen in December. Meanwhile, the core rate, which strips out food and energy, was 0.2% higher m/m in January, compared to the estimate of a 0.1% increase, after rising 0.1% in December. On a year-over-year basis, consumer prices were 1.6% higher in January, up from 1.5% in December, and the core CPI is 1.0% higher y/y, after rising by 0.8% in December. Economists expected headline CPI to come in at 1.6% and a core rate of 0.9% y/y.

Elsewhere, weekly initial jobless claims rose by 25,000 to 410,000, versus last week's figure which was upwardly revised by 2,000 to 385,000, and above the 400,000 level that economists had expected. The four-week moving average, considered a smoother look at the trend in claims, increased by 1,750 to 417,750, and continuing claims rose by 1,000 to 3,911,000, above the forecast of economists, which called for continuing claims to come in at 3,893,000.

Treasuries are higher in morning action following the inflation and employment data, with the yield on the two-year note down 2 bps to 0.81%, the yield on the 10-year note 5 bps lower at 3.57%, and the 30-year bond yield losing 3 bps to 4.65%.

Later this morning, the US economic calendar will yield the releases of the Philadelphia Fed Manufacturing Index, forecasted to improve from 19.3 in January to 21.0 for February, as well as the Index of Leading Economic Indicators, expected to rise 0.2% in January.

Europe flat amid mixed data

The equity markets in Europe are nearly unchanged in afternoon action, amid some profit-taking in the region as traders sift through some mixed earnings reports, while awaiting a read on euro-zone consumer confidence later today. Shares of Nestle SA (NSRGY $55) are higher to lend support to sentiment after the world’s biggest food company, per Bloomberg, posted better-than-expected sales. Moreover, technology shares are higher, aided by a sharp rise in shares of Cap Gemini (CGEMY $27) after the computer-services firm reported full-year profits that exceeded analysts’ forecasts, due to higher demand. However, industrials are one of the biggest drags on the equity markets, amid a solid decline in shares of Schindler Holding (SHLRF $105) after the world’s second-largest elevator maker warned of lower profits in 2011 compared to 2010, on weakening demand and the strength in the Swiss franc. In economic news across the pond, euro-zone construction output fell 1.8% m/m in December, while falling 12% y/y.

The FTSE 100 Index and France’s CAC-40 Index are unchanged, Germany’s DAX Index is down 0.2%, and Switzerland’s Swiss Market Index is declining 0.1%.

Asia mostly higher on continued economic optimism

Stocks in Asia finished mostly higher, shrugging off renewed uneasiness in the Middle East, amid continued optimism regarding the global economy, following some favorable earnings news in the region, with Japan’s Nikkei 225 Index rising 0.3% to the highest level since May 2010. Also, stocks in China gained ground as the Shanghai Composite Index increased 0.1% and the Hong Kong Hang Seng Index rose 0.6%, after Lenovo Group (LNVGY $12) rose solidly after the PC maker posted better-than-expected profits, helping offset further government measures to cool off real estate speculation. Meanwhile, Australia’s S&P/ASX 200 Index increased 0.2%, as weakness in energy issues was offset by a strong gain in shares of Qantas Airways (QUBSF $2) after the air carrier posted a sharp increase in first-half profits. However, South Korea’s Kospi Index fell 0.6%, led by banking issues after the nation reported new measures to support the region’s savings banks. Elsewhere, Taiwan’s Taiex Index declined 0.3% after the nation reported that its 4Q GDP expanded at higher-than-anticipated y/y rate, prompting some uneasiness that tighter monetary policy may follow, while Singapore’s FTSE Straits Times Index decreased 0.4% after the nation increased its inflation outlook and lowered its 2011 economic growth outlook, on the heels of its 4Q GDP report, which came in below expectations.