Morning Market Update

Earthquake Hits Japan, US Stocks Lower

The US equity markets are well off of the worst levels of the day, paring early losses that followed a magnitude 8.9 earthquake that hit Japan, causing a tsunami, which could have an impact on the US West Coast and Hawaii. Stocks in Asia moved lower following the natural disaster in Japan, and after some hotter-than-forecasted inflation readings in China. European markets are under some pressure as insurers are leading the way as the impact of the Japanese earthquake is being assessed, but the markets have come off of the lows of the day. Oil prices have moved solidly lower. Meanwhile, US retail sales for February rose at a level that was mostly inline with economists’ forecasts, and Treasuries are lower. Later today, we will get the releases of the University of Michigan Consumer Sentiment Index and business inventories. In equity news, National Semiconductor reported disappointing revenues, and Aeropostale Inc topped the Street’s earnings and revenue forecasts, but issues guidance that missed analysts’ expectations.

As of 8:48 a.m. ET, the June S&P 500 Index Globex future is 4 points below fair value, the Nasdaq 100 Index is 9 points below fair value, and the DJIA is 45 points below fair value. WTI crude oil is $3.09 lower at $99.61 per barrel, and the Bloomberg gold spot price is up $0.82 at $1,412.63 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.1% at 77.31.

National Semiconductor Corp. (NSM $14) reported fiscal 3Q EPS of $0.24, inline with the consensus estimate of analysts surveyed by Reuters, with revenues declining 5% year-over-year (y/y) to $344 million, below the $352 million that the Street had expected. The company said the decline in sales was due to inventory adjustments in the distribution channel and seasonally lower shipments to wireless handset customers following the holiday sales period. NSM issued 4Q revenue guidance that matched expectations.

Aeropostale Inc. (ARO $25) announced 4Q EPS ex-items of $0.98, one penny above the Street’s expectations, with revenues increasing 5% y/y to $839 million, topping the $835 million that was estimated by analysts. Same-store sales—sales at stores open at least a year—declined 3% y/y, as the company said the teen retail environment was “highly promotional,” and it believes that “we did not execute to our full potential.” The company also issued 1Q and full-year earnings guidance that was below the Street’s forecasts.

Retail sales growth inline, consumer sentiment and business inventories data on deck

Advance retail sales for February rose 1.0% month-over-month (m/m), matching the forecast of economists surveyed by Bloomberg, and January’s 0.3% gain was revised to a 0.7% advance. February sales ex-autos advanced 0.7%, inline with expectations, and January’s 0.3% rise was revised to a 0.6% gain. Sales ex-autos and gas grew 0.6% in February, versus the 0.5% increase that was anticipated, and its January figure was revised from a 0.2% increase to a 0.5% gain.

Treasuries are mostly lower in morning action following the morning’s retail sales data, with the yield on the two-year note flat at 0.63%, while the yields on the 10-year note and the 30-year bond are rising 2 bps to 3.38% and 4.52%, respectively.

Shortly after the opening bell, the economic calendar will yield the releases of the preliminary University of Michigan Consumer Sentiment Index, forecasted to decline from 77.5 in February to 76.3 in March, and business inventories, expected to rise 0.8% m/m in January.

Europe lower following earthquake in Japan

Although off of the worst levels of the day, the equity markets in Europe remain lower, with insurers and industrials pacing the decline, following the massive earthquake that hit Japan. Elsewhere, oil & gas issues are lower to add to the pressure on stocks amid further easing of oil prices as traders try to asses the economic impact of Japanese earthquake, and as protests in the Middle East and North Africa have not escalated to a level that some had feared.

The natural disaster in Japan is garnering the most attention in the global markets, dampening the impact of some key economic releases in Europe. Some key inflation readings were released across the pond, with y/y German consumer prices coming in slightly hotter than expected, while producer prices in the UK were mixed, with input prices higher than anticipated compared to last year, and core output prices coming in cooler than forecasted. Elsewhere, Italy’s 4Q GDP was left unrevised at a 0.1% expansion rate compared to 3Q, while on a y/y basis, the nation’s output was unexpectedly revised to a higher rate of growth.

The UK FTSE 100 Index is decreasing 0.2%, France’s CAC-40 Index is declining 0.4%, Germany’s DAX Index is dropping 0.9%, and Italy’s FTSE MIB Index is falling 0.7%.

Asia lower as large earthquake hits Japan

Stocks in Asia were already lower in the wake of the sell-off in the US yesterday and continued geopolitical tensions in the Middle East when a magnitude 8.9 earthquake hit Japan, sending stocks further below the flatline. Japan’s Nikkei 225 Index finished 1.7% lower, as the earthquake, which hit industrial regions of the country, triggered a tsunami and caused several casualties. Japanese Prime Minister Kan said, “The Self-Defense Forces are already mobilized in various places. The government is making its utmost effort to minimize the damage.” Meanwhile, the Bank of Japan, which will conduct its scheduled meeting on Monday—its two-day meeting was shortened to one-day—has pledged to do its utmost to ensure market stability. The Japanese yen is solidly higher versus the US dollar and most major currencies in anticipation the funds that will be needed to help the nation rebuild from the natural disaster will be repatriated to Japan and converted into yen.

The earthquake in Japan is taking the focus off of some economic data that was released in the region before the event occurred, mainly out of China, with its producer and consumer prices rising more than anticipated and retail sales increasing by a smaller amount than expected, while industrial production rose more than forecasted. The Chinese markets finished lower, with the Shanghai Composite Index declining 0.8% and the Hong Kong Hang Seng Index dropping 1.6%. Elsewhere, South Korea’s Kospi Index declined 1.3% and Australia’s S&P/ASX 200 Index fell 1.2%—Australia’s markets were closed before the Japanese earthquake.