Evening Market Update

Weak Domestic and International Data Drops Stocks

The US equity markets faced a broad-based selloff today, despite a drop in crude oil prices, as disappointing economic data from the US and abroad helped to sink sentiment from the opening bell. Traders saw a resurgence in euro-area debt concerns following a downgrade of Spain’s sovereign debt rating by Moody’s, while weak trade data out of China, Germany and the US, and an AP report of shots being fired at a crowd of protesters in Saudi Arabia further dampened the global outlook. The only other report on the domestic economic front was a surprising increase in US weekly initial jobless claims, which helped send Treasuries to the upside. In equity news, H&R Block beat the Street’s profit and revenue forecasts, the US FDA approved a lupus treatment developed by Human Genome Sciences and GlaxoSmithKline, while General Motors CFO Chris Liddell announced his resignation. On the M&A front, Cumulus Media reached a deal to acquire Citadel Broadcasting for about $2.5 billion, and shares of Green Mountain Coffee Roasters soared after announcing a strategic relationship with Starbucks.

The Dow Jones Industrial Average fell 228 points (1.9%) to 11,985, the S&P 500 Index declined 25 points (1.9%) to 1,295, and the Nasdaq Composite lost 51 points (1.8%) to 2,701. In moderately heavy volume, 1.2 billion shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil lost $2.07 to $102.31 per barrel, wholesale gasoline fell $0.01 to $3.01 per gallon, while the Bloomberg gold spot price decreased $18.70 to $1,412.28 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies— was 0.6% higher at 77.31.

In corporate deals news, Green Mountain Coffee Roasters Inc. (GMCR $62) surged over 40% after the company announced a strategic relationship with Starbucks Corp. (SBUX $38) for the manufacturing, marketing, distribution and sale of Starbucks and Tazo tea branded K-Cup portion packs for use in GMCR’s Keurig single-cup brewing system. SBUX traded nicely higher as well

Elsewhere, the US Food and Drug Administration (FDA) approved a new drug developed by  Human Genome Sciences Inc. (HGSI $29) and UK-based GlaxoSmithKline Plc. (GSK $38) to treat lupus. The drug named Benlysta is the first new treatment for the autoimmune disease in more than 50 years, and is expected to have annual sales eventually topping $1 billion, per Dow Jones Newswires. HGSI moved sharply higher, while GSK was under modest pressure in the US

On the earnings front, H&R Block Inc. (HRB $16) reported fiscal 3Q EPS ex-items of $0.14, above the $0.03 consensus estimate of analysts surveyed by Reuters, as revenues fell 8.9% year-over-year (y/y) to $852 million, slightly above the $849 million that the Street had forecasted. The tax preparation firm said during the quarter, its tax services revenues fell 10% y/y, reflecting a decline in total retail tax returns prepared and the net average charge per tax return amid an “industry-wide slow start” to the tax season. Looking ahead, the company said it is now halfway through the tax season and after the slow start, it has seen “significant growth” in returns prepared and tax preparation revenues during February. Shares finished nicely higher.

In M&A news, Cumulus Media Inc. (CMLS $5) announced that it has reached a definitive agreement to acquire Citadel Broadcasting Corp. (CDELB $35) in a cash-and-stock transaction. CDELB stockholders will have the right to elect to receive $37.00 in cash or 8.525 shares of CMLS Class A common stock, valuing CDELB at about $2.5 billion. CMLS traded down solidly, while CDELB moved higher.

Finally, General Motors Co. (GM $31) announced that its Vice Chairman and Chief Financial Officer Chris Liddell will leave the company April 1, 2011, after he joined the company in January 2010. GM said, “Chris was a major contributor during a pivotal time in the company’s history,” having helped complete the automaker’s recent IPO. Dan Ammann will succeed Liddell. Shares were down solidly.

Jobless claims rise more than expected and trade deficit widens

Weekly initial jobless claims rose by 26,000 to 397,000, versus last week's figure which was upwardly revised by 3,000 to 371,000, and above the 376,000 level that economists surveyed by Bloomberg had expected. The four-week moving average, considered a smoother look at the trend in claims, increased by 3,000 to 392,250, while continuing claims declined by 20,000 to 3,771,000, above the forecast of economists, which called for continuing claims to come in at 3,750,000. However, the larger-than-forecasted rise was discounted somewhat by economists as some note that the downward trend in claims remains in tact after falling to the lowest level since July 2008 last week, while this week’s rise may have been distorted by the recent President’s Day holiday.

Moreover, the  trade deficit widened more than anticipated, increasing from a favorably revised $40.3 billion in December to $46.3 billion in January, versus the estimate of economists, which called for the deficit to widen to $41.5 billion. Exports increased to $167.7 billion in January, from $163.3 billion in December, while imports increased to $214.1 billion from $203.6 billion in the previous month. Industrial supplies and materials, along with autos, led both increases in exports and imports.

Treasuries moved higher on the employment and trade data, and gained even more ground on the reports out of Saudi Arabia. The yield on the 2-year note fell 6 bps to 0.63%, the yield on the 10-year note declined 10 bps to 3.37%, and the 30-year bond rate decreased 10 bps to 4.50%.

Moody’s downgrades Spain, BOE leaves rated unchanged, China reports trade deficit

In economic news across the pond, euro-area debt concerns continued to reemerge, exacerbated by Moody’s Investors Service downgrading the sovereign debt rating of Spain by one notch to Aa2, and warned that costs to restructure its banking sector could lead to further cuts.

Meanwhile, the Bank of England left its benchmark interest rate unchanged at 0.5%, as expected, and also kept its asset purchase program unrevised, with the nation dealing with rising inflation pressures as it tries to foster an economic recovery. The European economic calendar is full of key reports, headlined by an unexpected drop in exports in Germany—Europe’s largest economy—causing a surprising decline in its trade surplus. Moreover, a plethora of industrial production reports were released, with activity in France and the UK rising more than expected, while Italy’s output unexpectedly fell.

In Asia/Pacific, Japan’s annualized 4Q GDP was revised from a 1.1% decline in its preliminary report to a 1.3% contraction, compared to the 1.2% decrease that economists forecasted. Meanwhile, quarter-over-quarter (q/q) 4Q GDP was left unrevised at a 0.3% decline, as expected. Elsewhere, China reported an unexpected trade deficit as exports rose by a much smaller rate than expected, gaining 2.4% y/y, after jumping 37.7% in January, and compared to the 27.1% increase that was forecasted. Additionally, Australian employment unexpectedly fell. In central bank news, the Bank of Korea increased its benchmark interest rate by 25 basis points to 3.0%, while the Reserve Bank of New Zealand cut its interest rate by 50 basis points to 2.5%, a larger reduction than the 25 basis-point decrease that economists were expecting, to try to stimulate economic growth in the wake of the recent earthquake that hit the region.

Advance retail sales on tap for tomorrow

Highlighting the US economic calendar tomorrow will be advance retail sales, forecasted to rise 1.0% m/m in February, after gaining 0.3% in January, while sales ex-autos are estimated to grow 0.7%, after advancing by 0.3% in January. Same-store sales results, sales at stores open at least a year, reported by retailers were generally better than expected. The retail sales report includes spending at supermarkets and gas stations. However, the retail sales figures may be somewhat discounted, due to the sharp increase in gasoline prices late in the month.

The only other report on the domestic front will be the preliminary University of Michigan Consumer Sentiment Index for March, expected to fall to 76.3 from a February reading of 77.5.

International releases tomorrow include German CPI and wholesale price index, Italian 4Q GDP, U.K. PPI, the Canadian unemployment rate, and Chinese PPI, CPI, industrial production and retail sales.