Evening Market Update

Jump in Jobless Claims Can’t Keep Stocks Below Flatline

US stocks managed to edge slightly higher today, after paring early losses on heightened debt concerns out of Greece and an unexpected increase in US weekly initial jobless claims above the key 400,000 level. The domestic economic docket also yielded a mixed reading on producer prices, including a larger-than-expected increase in the core rate, with further insight into inflation levels coming tomorrow in the form of the Consumer Price Index. On the equity front, Ford Motor expanded its recall of the F-150 pickup truck, SuperValu beat the Street’s 4Q earnings projections and issued strong guidance, while Hasbro posted 1Q profits that fell short of expectations. Additionally, after the close, Google reported a Q1 profit that fell just short of analysts’ estimates. Treasuries gave up early gains to finish mostly lower and WTI crude oil jumped back above $108 per barrel.

The Dow Jones Industrial Average rose 14 points (0.1%) to 12,285, the S&P 500 Index was flat at 1,315, and the Nasdaq Composite decreased 1 point (0.0%) to 2,760. In modest volume, 928 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.27 to $108.38 per barrel, wholesale gasoline was flat at $3.24 per gallon, and the Bloomberg gold spot price increased $16.74 to $1,474.10 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies— was 0.3% lower at 74.68.

After the closing bell, Google Inc. (GOOG $579) reported Q1 EPS ex-items of $8.08, slightly lower than the $8.10 estimate of analysts, while revenue ex-TAC came in at $6.5 billion, which beat the $6.32 billion forecast. The company continued to expand its headcount, adding 1,916 full-time employees in the first quarter, as its work force is now 28% larger than it was a year ago.

Ford Motor Co. (F $15) traded lower after the automaker announced that it will expand its recall of certain F-150 pickup trucks—the company’s best-selling vehicle in North America. The recall, which involves about 1.2 million 2004-2006 model F-150 trucks and 2006 Lincoln Mark LT vehicles, is due to a possible short circuit that could cause airbags to deploy unexpectedly.

In earnings news, Hasbro Inc. (HAS $44) reported 1Q EPS of $0.12, compared to the $0.17 consensus estimate of analysts surveyed by Reuters, with revenues nearly unchanged year-over-year (y/y) at $672 million, but were above the $660 million that the Street had forecasted. The toy maker said its results reflected higher spending on product development and continued investments in emerging markets. Also the company said its international segment revenues grew 15% y/y, while its US and Canada segment revenues declined 8% y/y. Meanwhile, its boys product category revenues jumped 25%, offset by declines in the other major product categories. Shares were lower.

Elsewhere, shares of SuperValu Inc. (SVU $11) are sharply higher after the supermarket operator issued full-year guidance that exceeded expectations, which followed its fiscal 4Q report, showing EPS of $0.44, above the $0.34 consensus estimate, but revenues came in at $8.66 billion, below the $8.72 billion that was expected.

Jobless claims jump, producer prices mixed

Weekly initial jobless claims increased by 27,000 to 412,000—the highest level since February 11—versus last week's figure which was upwardly revised by 3,000 to 385,000, and well above the 380,000 level that economists surveyed by Bloomberg had expected. The four-week moving average, considered a smoother look at the trend in claims, rose by 5,500 to 395,750, while continuing claims fell by 58,000 to 3,680,000, below the forecast of economists, which called for continuing claims to come in at 3,705,000. The unexpected jump pushed initial claims above the key 400,000 mark for the first time since March 4 but the increase came amid greater-than-normal volatility at the end of the quarter, per Bloomberg.

Elsewhere, the Producer Price Index showed prices at the wholesale level rose 0.7% month-over-month (m/m) in March, after increasing an unrevised 1.6% in February, below the forecast of economists surveyed by Bloomberg, calling for a 1.0% increase. However, the core rate, which excludes food and energy, increased 0.3% m/m, above forecasts of a 0.2% rise. On a year-over-year basis, headline producer prices were 5.8% higher, versus the 6.1% increase that was projected, and the core rate was up 1.9%, matching expectations.

The cooler-than-forecasted reading of the headline rate came as food prices declined 0.2%—the first decline since August 2010—led by a 21.4% tumble in the index for fresh and dry vegetables, while energy prices rose 2.6%, with gasoline prices jumping 5.7%. Meanwhile, the rise in core prices was the fourth-straight monthly increase, with nearly a third of the increase be attributed to prices for light motor trucks, while passenger cars also contributed to the gains. Although the decline in food prices was welcomed, the persistent increases in energy, particularly gasoline prices, suggest consumers’ discretionary income will continue to be threatened. However, the y/y core rate, which is more closely watched by the Fed and economists for indications of broad-based inflation, remains relatively low and longer-term inflation expectations continue to be contained.

Tomorrow’s Consumer Price Index (CPI) release may garner more attention as the data reflects prices more closely related to what consumers are seeing. The headline CPI is expected to increase 0.5% m/m and 2.6% y/y, while core CPI is expected to rise 0.2% m/m and 1.2% y/y—remaining below the Federal Reserve’s “2% or a bit less” level that could warrant a monetary policy response. In the Federal Reserve’s last policy meeting in March, policymakers noted that they expect that slack in the resource utilization would continue to restrain increases in labor costs and prices. We will get a look at a component of this “slack” in the form tomorrow’s release of industrial production and capacity utilization, where production is forecasted to increase 0.6% m/m in March, while utilization is expected to improve from 76.3% in February to 77.4% March, 3.1 percentage points below its average from 1972-2010.

Treasuries were lower after paring early gains that followed the data, as the yield on the two-year note rose 4 bps to 0.76%, the yield on the 10-year note gained 4 bps to 3.50%, and the 30-year bond yield increased 1 bp to 4.55%.

Greece fuels further euro-debt concerns

Sentiment in Europe was led lower by festering concerns about the euro-zone debt crisis, which were exacerbated by a jump in yields on Greek benchmark 10-year government bonds, sending the spread between its bond and the German counterpart, known as the bund, to a level not seen since the euro was established in 1999, per Bloomberg. The flare-up in uneasiness toward Greece came as Germany’s finance minister said Greece may need to restructure its debt if a June review of its situation raises doubts about the troubled nation’s “debt sustainability,” per Bloomberg. Moreover, a Standard & Poor’s analyst said on Bloomberg TV that the risk is more likely that Greece will need to restructure its debt, though he said the base case is still that they would not restructure. The lone economic report from across the pond showed UK consumer confidence rose more than expected.

In Asia/Pacific economic news, Singapore reported that its 1Q GDP surged 23.5% quarter-over-quarter (q/q), well above the 11.4% expansion economists expected, and its y/y output jumped 8.5%, versus forecasts of a 5.8% rate of growth. Singapore’s GDP report has been used as an indication of economic growth in China, which is scheduled to release its 1Q GDP tomorrow, but Singapore’s results have been historically volatile. Following the results, Singapore announced that it will allow its currency to appreciate. Meanwhile, China announced late in the trading session that its new yuan loans rose more than expected.

In addition to the aforementioned CPI, industrial production and capacity utilization, tomorrow’s US economic calendar will include the Empire Manufacturing Index, expected to fall to 17.00 in April from a March level of 17.50, and the preliminary University of Michigan Consumer Sentiment Index reading for April, which economists are expecting to increase to 69.0 from 67.5.

International economic reports will be highlighted by a plethora of data from China, including 1Q GDP, CPI, PPI, industrial production, fixed asset investment and retail sales. The Consumer Price Index is expected to rise by 5.2% for March, while its 1Q GDP is anticipated to show a 9.4% rate of expansion. Other releases include Japanese industrial production, as well as euro-zone CPI and trade balance.