Morning Market Update

Surging Crude Oil Fueling the Bears’ Bite

The US equity markets continue to be pressured by the sharp rise in crude oil prices, courtesy of exacerbated unrest in the Middle East, but a larger-than-forecasted drop in weekly initial jobless claims is helping sentiment recover in morning trading. Treasuries are higher amid the uneasiness, while a mixed durable goods orders report, which showed disappointing results in January but solid upward revisions to the December data, has traders grappling with the economic outlook. However, a report on new home sales is due out later this morning. In equity news, General Motors and Priceline.com Inc both exceeded the Street’s earnings forecasts, and Kohl’s Corp matched expectations, while Target Corp missed the Street’s revenue and profit projections. Overseas the uneasiness toward the rising oil prices pressured Asia, while also stymieing sentiment in Europe.

As of 8:52 a.m. ET, the March S&P 500 Index Globex future is 3 points below fair value, the Nasdaq 100 Index is 2 points above fair value, and the DJIA is 2 points below fair value. Crude oil is $2.16 higher at $100.26 per barrel, and the Bloomberg gold spot price is up $4.63 at $1,416.94 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.3% at 77.18.

General Motors Co. (GM $35) posted 4Q EPS ex-items of $0.52, above the $0.46 consensus estimate of analysts surveyed by Reuters, with revenues of $36.9 billion topping the $33.0 billion the Street had expected.

Target Corp. (TGT $50) announced 4Q earnings excluding a $0.07 income tax benefit of $1.38 per share, below the $1.40 that analysts anticipated, with revenues increased 2.8% year-over-year (y/y) to $20.3 billion, short of the $20.8 billion that was expected. The company said its same-store sales—sales at stores open at least a year—rose 2.4% y/y.

Kohl’s Corp. (KSS $52) achieved 4Q profits of $1.66 per share, inline with analysts’ forecasts, as revenues, which grew 6.3% y/y to $6.0 billion, also came in roughly where the Street had expected. Same-store sales at the department store rose 4.3% y/y.

Priceline.com Inc. (PCLN $426) reported 4Q EPS ex-items of $3.40, above the $3.09 analyst estimate, with revenues increasing 35% y/y to $731 million, compared to the $735 million that was expected on the Street. The online travel booking company said gross bookings increased 44.2% y/y and its international operations posted revenue growth of 68.2% y/y. The company issued 1Q 2011 guidance that exceeded forecasts.

Durable goods mixed, jobless claims fall, new home sales due out after the opening bell

Durable goods orders rose by a slightly smaller-than-forecasted rate, increasing 2.7% month-over-month (m/m) in January, compared to the 2.8% increase that was expected by economists surveyed by Bloomberg, and December’s figure was favorably revised to a 0.4% drop from a 2.5% decline. However, ex-transportation, orders unexpectedly fell, dropping 3.6%, compared to the expectation of a 0.5% rise, but December’s figure was adjusted solidly to the upside, to a 3.0% increase, after the initial 0.5% gain that was reported. Meanwhile, orders for non-defense capital goods excluding aircraft, considered a good proxy for business spending, tumbled by 6.9% in January, compared to the 1.0% decrease that was anticipated, after rising by an upwardly revised 4.3% in December.

Meanwhile, weekly initial jobless claims fell by 22,000 to 391,000, versus last week's figure which was upwardly revised by 3,000 to 413,000, and below the 405,000 level that economists had expected. The four-week moving average, considered a smoother look at the trend in claims, declined by 16,500 to 402,000, and continuing claims dropped by 145,000 to 3,790,000, below the forecast of economists, which called for continuing claims to come in at 3,880,000.

Treasuries are higher in morning action amid the continued uneasiness toward the Middle East and following the durable goods and employment data, with the yield on the two-year note down 2 bps to 0.73%, the yield on the 10-year note 5 bps lower at 3.44%, and the 30-year bond yield losing 3 bps to 4.55%.

Later this morning, the economic calendar will yield the release of new home sales, forecasted to fall 7.3% m/m to an annual rate of 305,000 in January, after jumping 17.5% to 329,000 million units in December.

Europe lower on spiking crude oil

The equity markets in Europe are under pressure in afternoon action, with economic sentiment being hamstrung by the recent surge in crude oil prices amid the spreading geopolitical unrest in the Middle East. Automakers are among the biggest drags on today’s market action on the uneasiness toward higher oil prices and as shares of Porsche Automobil Holding (POAHY $8) and Volkswagen (VLKAY $30) are solidly lower after reporting that their planned merger will likely be delayed. Financials are also lower to bog down the equity markets, partly due to a steep decline in shares of Royal Bank of Scotland Group Plc. (RBS $15) after it reported a wider-than-forecasted loss on loan losses out of assets from Ireland.

On the economic front across the pond, Germany reported 4Q GDP that matched expectations, as output increased 0.4% quarter-over-quarter (q/q), France’s consumer confidence remained unchanged as expected, and Italian retail sales rose at m/m rate that was inline with forecasts, while a separate business confidence indicator in the nation unexpectedly deteriorated. Meanwhile, euro-zone consumer confidence improved by an amount that was anticipated, while its economic confidence improved by a larger-than-projected rate.

The UK FTSE 100 Index is down 0.4%, France’s CAC-40 Index is declining 0.2%, Germany’s DAX Index is falling 1.2%, and Italy’s FTSE MIB Index is nearly unchanged.

Asia mixed as Middle East unrest pressures sentiment

Stocks in Asia were mostly lower amid the festering concerns toward the geopolitical tensions in the Middle East, which continued to boost crude oil prices and transportation stocks were broadly lower. Also, mining companies felt some pressure as the spike in oil prices dampened the outlook for economic growth and demand for resources. Japan’s Nikkei 225 Index fell 1.2% as some flight-to-safety buying amid the aforementioned concerns lifted the yen and weighed on export-related issues. Meanwhile, Australia’s S&P/ASX 200 Index declined 0.8% as the uneasiness more than offset a report showing the nation’s Leading Index increased in December, and South Korea’s Kospi Index declined 0.6%, with a report showing consumer confidence deteriorated offering little help to sentiment in the region. Moreover, the sharp increase in crude oil prices exacerbated inflation concerns in India, with the BSE Sensex 30 Index dropping 3.0% to lead the decline in the region. However, stocks in mainland China bucked the trend, with the Shanghai Composite Index rising 0.6%, possibly aided by the announcement that government will allow an increase in the amount corporate pension funds will be able to invest in stocks, per Reuters. But the Hong Kong Hang Seng Index fell 1.3% despite a report that showed the nation’s trade deficit narrowed by a larger amount than forecast, due to a jump in exports.