Morning Market Update

Stocks Higher as Japan Crisis Continues to Command Attention

The US equity markets are nicely higher in early action, with the Japanese military trying to cool down the damaged nuclear reactor that is reported to be on the brink of a meltdown, while G-7 finance ministers have scheduled talks for tomorrow regarding the tragedy in Japan. The yen surged to record highs versus the US dollar, amid expectations of repatriation of funds back to Japan in response to the crisis, but no plans have been announced regarding a possible intervention to try to curb the currency’s rally. Meanwhile, the US economic front is busy today, with consumer prices coming in hotter-than-forecasted and jobless claims declining more than anticipated, while key reads on manufacturing and Leading Indicators are due out later this morning. Moreover, the equity front is offering some support to stocks, with FedEx Corp issuing a favorable 4Q earnings outlook after posting stronger-than-forecasted 3Q revenues. However, shares of Guess Inc are lower after it issued guidance that missed the Street’s expectations. Overseas, Asia was mostly lower, but pared losses on the announcement of the G-7 discussions scheduled for Friday, while European markets are trading solidly higher, and are poised to snap a six-session losing streak.

As of 8:51 a.m. ET, the June S&P 500 Index Globex future is 20 points above fair value, the Nasdaq 100 Index is 36 points above fair value, and the DJIA is 149 points above fair value. WTI crude oil is $2.33 higher at $100.31 per barrel, and the Bloomberg gold spot price is up $1.53 at $1,400.40 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.4% at 76.00.

FedEx Corp. (FDX $85) reported fiscal 3Q EPS ex-items of $0.81, just shy of the $0.82 consensus estimate of analysts surveyed by Reuters, but revenues grew 11% year-over-year (y/y) to $9.7 billion, exceeding the $9.6 billion that the Street had forecasted. FDX said continued growth in the global economy is driving solid revenue gains in its transportation business, although results were dampened by severe winter storms and higher-than-expected fuel costs. Shares are solidly higher after the company issued 4Q EPS guidance that topped analysts’ expectations, noting that it expects “positive yield trends” to continue and improve revenues and margins in 4Q and fiscal 2012.

Guess Inc. (GES $44) posted 4Q EPS of $1.11, above the $1.06 that analysts had anticipated, as revenues rose 18% y/y to $757 million, also besting the Street’s expectations, which called for the apparel company to achieve $725 million in revenues. The company said North American same-store sales—sales at stores open at least a year—declined 1.1% y/y, but revenues in Europe and Asia were up 32% and 23%, respectively. Shares are lower after the company issued 1Q EPS guidance that missed analysts’ forecasts.

Consumer prices rise, jobless claims fall, manufacturing and Leading Index yet to come

The Consumer Price Index showed prices at the consumer level were up 0.5% month-over-month (m/m) in February, above the forecasted gain of 0.4% by economists surveyed by Bloomberg, and the 0.4% increase seen in January. Meanwhile, the core rate, which strips out food and energy, was 0.2% higher m/m in February, compared to the estimate of a 0.1% increase, after rising 0.2% in January. On a y/y basis, consumer prices were 2.1% higher in February, up from 1.6% in January, and the core CPI is 1.1% higher y/y, after rising by 1.0% in January. Economists expected headline CPI to come in at 2.0% and a core rate of 1.0% y/y.

Meanwhile, weekly initial jobless claims declined by 16,000 to 385,000, versus last week's figure which was upwardly revised by 4,000 to 401,000, and below the 388,000 level that economists surveyed by Bloomberg had expected. The four-week moving average, considered a smoother look at the trend in claims, decreased by 7,000 to 386,250, while continuing claims declined by 80,000 to 3,706,000, below the forecast of economists, which called for continuing claims to come in at 3,750,000.

Treasuries remain lower in morning action amid the rise in the equity markets and following the inflation and employment data, with the yield on the two-year note up 6 bps to 0.60%, the yield on the 10-year note 8 bps higher at 3.25%, and the 30-year bond yield rising 7 bps to 4.43%.

Later this morning, the US economic calendar will yield the releases of industrial productioncapacity utilization, with production expected to rise 0.6% and utilization forecasted to increase to 76.5%, the Philadelphia Fed Manufacturing Index, forecasted to decline from 35.9 in February to 28.8 in March, as well as the Index of Leading Economic Indicators, expected to rise 0.9% in February. and
Europe rebounding on some bargain hunting as G-7 gets set to discuss crisis in Japan

European stocks are higher in afternoon action, making a push to snap a six-session losing streak that has come amid the unfolding crisis in Japan. Mining and insurance issues are leading the advance across the pond, as traders are seeking out stocks that have been among the hardest hit by the tragedy in Japan, after the group of seven global finance ministers announced plans to discuss possible steps to help Japan—the world’s third largest economy—recover from the crisis. The European markets have fallen 7% over the six-day slide in equities amid reemerging euro-area debt concerns, escalated tension in the Middle East, and heightened volatility as sentiment has been whipsawed by the headlines coming out of Japan. Today’s advance in the region comes as Japanese military helicopters are dumping water on the damaged nuclear facility north of Tokyo.

The economic front in Europe is relatively light, with the lone piece of data being a report showing construction output in the euro-zone increased 1.8% m/m in January, a rebound from the 2.0% decline that was seen in December.

The UK FTSE 100 Index is 1.1% higher, France’s CAC-40 Index is up 1.5%, and Germany’s DAX Index is trading 1.6% in the green.

Asian markets pare losses as G-7 announces conference call

The equity markets in Asia finished mostly lower as focus continues to remain squarely on the nuclear crisis in Japan that resulted from damage caused to a Fukushima nuclear facility by last week’s massive earthquake that hit north of Tokyo. After being down about 4% during the day’s trading session, with the yen surging to a record high versus the US dollar on continued expectations that funds in response to the crisis could be repatriated to Japan and converted into yen, Japan’s Nikkei 225 Index pared a majority of losses but still finished 1.4% lower. The relative resiliency came as a conference call by the G-7—a group of finance ministers from seven industrialized nations—was arranged for Friday to discuss the crisis in Japan. The yen pared gains on the announcement but remains solidly higher as no plans have been made or suggested that a currency intervention or government asset purchases were in the offing to try to stem the surge in the Asian currency. However, the Bank of Japan (BoJ) has deployed liquidity injections of nearly 30 trillion yen throughout the week—including another injection announced today—aimed at stabilizing the nation’s financial markets.

Meanwhile, shares of Tokyo Electric Power Co. (TKECY $31) tumbled again today—it has lost nearly $27 billion in market cap this week amid a wave of selling pressure, per Reuters—as it is the operator of the damaged nuclear facility that is at the heart of the crisis in the nation. However, the company said it is trying to restore power at the nuclear facility that could help efforts to try to cool the reactors at the plant.

Elsewhere, stocks in China finished lower with the Shanghai Composite Index shedding 1.1% and the Hong Kong Hang Seng Index dropping 1.8%, while equities in South Korea and Australia both finished nearly unchanged following the announcement of the G-7 talks, which fostered some optimism that a coordinated global action plan may result to help support Japanese markets. Finally, India’s BSE Sensex 30 Index fell 1.1% after the nation’s central bank increased interest rates for the eighth time in a year, per Bloomberg, as it battles the threat of inflation.