Morning Market Update

Rebounding as Jobless Claims Fall and Middle East Fears Stall

The US equity markets are nicely higher in morning action, as Middle East concerns are easing on reports of peace discussions in North Africa, while jobless claims unexpectedly fell, overshadowing some mixed same-store sales reports from Target and Macy’s. Treasuries are lower following the economic data, which also included unrevised 4Q productivity figures, ahead of a key report on the US service sector. In other equity news, H.J. Heinz Co posted better-than-forecasted earnings. Overseas, Asia moved higher as the US showed some resiliency in the face of higher oil prices, while European markets are being buoyed by favorable equity news and the aforementioned easing of Middle East concerns. Meanwhile, the European Central Bank left its benchmark interest rate unchanged and ECB President Trichet offered some hawkish rhetoric.

As of 8:51 a.m. ET, the March S&P 500 Index Globex future is 9 points above fair value, the Nasdaq 100 Index is 17 points above fair value, and the DJIA is 78 points above fair value. Crude oil is $1.36 lower at $100.87 per barrel, and the Bloomberg gold spot price is down $13.22 at $1,421.28 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.3% to 76.45.

The nation’s retailers are reporting February same-store sales results—sales at stores open at least a year—headlined by Target Corp. (TGT $52), which announced a 1.8% increase year-over-year (y/y), compared to the 2.2% increase that analysts surveyed by Reuters had anticipated. TGT said February sales were inline with its expectations, while its REDcard Rewards and remodeling programs continue to drive meaningful incremental sales and traffic in its stores.

Department store chain, Macy’s Inc. (M $24), achieved 5.8% y/y growth in same-store sales for February, well above the 3.7% gain that analysts had anticipated. The company said its online sales were up 30.9% and consumer reaction to new spring merchandise has been “encouraging.”

In earnings news, H.J. Heinz Co. (HNZ $49) reported fiscal 3Q EPS of $0.84, above the $0.82 that the Street forecasted, with revenues increasing 1.5% y/y to $2.7 billion, matching expectations. HNZ said sales were driven by volume growth of 0.5% and it also announced that it will acquire an 80% stake in a Brazilian manufacturer of the Quero brand of tomato-based sauces and condiments.

Jobless claims unexpectedly fall, productivity unrevised, service sector report on deck

Weekly initial jobless claims fell by 20,000 to 368,000, versus last week's figure which was downwardly revised by 3,000 to 388,000, and below the 395,000 level that economists surveyed by Bloomberg had expected. The four-week moving average, considered a smoother look at the trend in claims, dropped by 12,750 to 388,500, and continuing claims fell by 59,000 to 3,774,000, below the forecast of economists, which called for continuing claims to come in at 3,815,000.

Meanwhile, the final reading on 4Q nonfarm productivity showed a 2.6% increase on an annual basis, unrevised from the initial report, and compared to the 2.3% gain that economists expected. Unit labor costs were 0.6% lower, inline with the preliminary reading, versus a decline of 0.5% that was estimated.

Treasuries are lower in morning action following the employment and productivity data, with the yield on the two-year note up 5 bps to 0.74%, the yield on the 10-year note rising 6 bps to 3.53%, and the 30-year bond yield gaining 4 bps to 4.60%.

Later this morning, the economic calendar will yield the release of the ISM Non-Manufacturing Index, forecasted to decline slightly from 59.4 in January to 59.3 for February. A reading above 50 denotes expansion and the gauge of service-sector activity is expected to show expansion for the fourteenth-straight month.

Europe higher on equity news, while European Central Bank leaves rates unchanged

The equity markets are solidly higher in afternoon action, as Middle East and North African concerns are easing, while several upbeat reports from the corporate sector are helping sentiment. Basic materials are leading the way as uneasiness toward the Middle East and North Africa is being soothed by reports that Libya and the Arab League are discussing ways to find peace. Meanwhile, traders are paying attention to the European Central Bank (ECB) as it left its benchmark interest rate unchanged at 1.0%, but expectations of potential rate hikes in subsequent meetings to fight rising inflation pressures increased on comments from ECB President Jean-Claude Trichet at his customary press conference following the announcement. Trichet noted that the ECB must exercise “strong vigilance” as inflation risks have moved to the “upside,” per Bloomberg. The equity front is offering support to the advance across the pond, with technology shares being boosted by a solid gain in shares of Alcatel-Lucent (ALU $5) amid reports that a Chinese firm could make a bid to acquire France’s largest telecommunications equipment maker, though the company has not commented on the report. Elsewhere, shares of Anheuser-Busch InBev (BUD $56) and Adecco (AHEXF $68) are nicely higher after the companies reported better-than-expected profits.

Moreover, there is a plethora of economic data for traders to digest, with German retail sales rising much more than economists expected, euro-zone 4Q GDP expanding at a rate that matched expectations, while service-sector activity reports from Germany, France, the UK, and euro-zone all showed growth in the sector was below expectations. However, Italy’s service sector read was stronger than forecasted.

The UK FTSE 100 Index is 1.4% higher, France’s CAC-40 Index is gaining 1.3%, Germany’s DAX Index is rising 1.4%, and Italy’s FTSE MIB Index is advancing 0.7%.

Asia mostly higher following the resiliency in the US

Stocks in Asia finished mostly higher following in the footsteps of the US markets yesterday, which managed to eke out an advance despite the persistent move higher in crude oil prices on continued uneasiness toward the Middle East and North Africa. Some favorable jobs data and a report showing the continued economic recovery in the US aided sentiment. South Korean equities led the advance, with the Kospi Index rising 2.2% as stocks were also supported by a report showing the nation’s industrial production increased by more than twice the expectation of economists. Japan’s Nikkei 225 Index also rose 0.9% with export issues pacing gains in the region.

However, Chinese stocks were mixed, with the Hong Kong Hang Seng Index rising 0.3% as banking issues saw some strength, while the Shanghai Composite Index fell 0.4%, bogged down by industrial companies. The economic calendar in China also showed non-manufacturing activity slowed, with one of the two separate reports released on the sector depicting a contraction. But losses in mainland China were limited by a solid rise in gains of BYD (BYDDY $9) after a report that the government approved its joint venture with German automaker Daimler (DDAIY $69). Elsewhere, Australian stocks rose modestly, as the S&P/ASX 200 Index increased 0.1%, amid some mixed data in the region, with the nation’s trade surplus narrowing by a much smaller amount than expected, while a separate report showed Australian building approvals fell sharply. Finally, Taiwanese stocks posted solid gains as the Taiex Index increased 1.4%.