Morning Market Update

Euro-debt, Global Trade, and Jobs Data Lassos the Bulls

The US equity markets are under solid pressure in morning action, with concerns about the euro-area debt crisis being exacerbated by a sovereign debt rating cut of Spain by Moody’s Investors Service. Also, weaker-than-expected trade data out of China, Germany, and the US are amplifying the negative tone on the Street, along with a larger-than-forecasted increase in US weekly initial jobless claims. Treasuries are modestly higher in early action following the data. The US equity front is also busy this morning, with H&R Block topping analysts’ profit forecasts and the US FDA approving the first new treatment for lupus in over 50 years, developed by Human Genome Sciences Inc and GlaxoSmithKline Plc. Meanwhile, in corporate dealmaking news, Cumulus Media Inc announced that it has reached a definitive agreement to acquire Citadel Broadcasting Corp for about $2.5 billion, while Green Mountain Coffee Roasters Inc announced a strategic relationship with Starbucks Corp. Overseas, Asia was broadly lower, and European markets are posting solid losses.

As of 8:49 a.m. ET, the March S&P 500 Index Globex future is 12 points below fair value, the Nasdaq 100 Index is 26 points below fair value, and the DJIA is 96 points below fair value. WTI crude oil is $1.61 lower at $102.77 per barrel, and the Bloomberg gold spot price is down $9.65 at $1,421.33 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.6% at 77.18.

H&R Block Inc. (HRB $15) 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.

Elsewhere, the US Food and Drug Administration (FDA) approved a new drug developed by Human Genome Sciences Inc. (HGSI $26) and UK-based GlaxoSmithKline Plc. (GSK $39) 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.

In M&A news, Cumulus Media Inc. (CMLS $5) announced that it has reached a definitive agreement to acquire Citadel Broadcasting Corp. (CDELB $34) 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.

Moreover, Green Mountain Coffee Roasters Inc. (GMCR 44) is sharply higher after the company announced a strategic relationship with Starbucks Corp. (SBUX $35) 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.

Jobless claims rise 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.

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.

Treasuries are higher in morning action following the employment and trade data, with the yields on the 2-year and 10-year notes declining 2 bps to 0.67% and 3.45%, respectively, and the 30-year bond yield decreasing 1 bp to 4.60%.

Europe under pressure on Chinese trade data and Spain rating downgrade

The European equity markets are solidly lower, led by basic materials and oil & gas issues following a disappointing trade report out of China, which showed imports and exports rose at levels that were sizably below economists’ forecasts. Also, financials are among the leading decliners as euro-area debt concerns continue 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.

The UK FTSE 100 Index is down 1.1%, France’s CAC-40 Index is declining 0.6%, Germany’s DAX Index is decreasing 0.8%, Italy’s FTSE MIB Index is falling 1.1%, and Spain’s IBEX 35 Index is dropping 1.2%.

Asia falls amid data and lingering Middle East uneasiness

Stocks in Asia finished broadly lower amid the backdrop of continued geopolitical tensions in the Middle East and North Africa, while traders digested a plethora of economic data in the region. Japan’s Nikkei 225 Index dropped 1.5% as concerns about the recent spike in oil prices continued to unnerve sentiment, while the government reported a slightly higher rate of contraction in the nation’s annualized 4Q GDP than previously reported. 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. Stocks in China also moved lower, with the Hong Kong Hang Seng Index declining 0.8% and the Shanghai Composite Index falling 1.5% amid some profit-taking in the mining sector, and after the nation 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.

Elsewhere, Australian equities dropped, with the S&P/ASX 200 Index falling 1.4%, as weakness in mining issued on the heels of China’s trade data, which showed imports also increased at a rate well below estimates, was exacerbated by a report that showed Australian employment unexpectedly fell. Moreover, South Korean Stocks declined, as the Kospi notched a 1.0% decrease amid weakness in technology issues and following the Bank of Korea increasing its benchmark interest rate by 25 basis points to 3.0%. In other central bank news, 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, and the NZX 50 Index dipped 0.2%.