Morning Market Update

Data and European Debt Concerns Dampen Sentiment

The US equity markets are under pressure in early trading, amid a solid decline in European equity markets as the ongoing euro-area debt crisis continues to stymie sentiment, while a solid jump in US weekly initial jobless claims above the key level of 400,000 is exacerbating the economic uneasiness. Treasuries are higher amid the decline in stocks and the disappointing data, which also included a mixed read on producer prices, with the core rate coming in hotter than expected. In equity news, toymaker Hasbro Inc posted 1Q profits that missed expectations, while technology performance company Compuware Corp warned that its earnings will miss expectations. In other overseas action, Asia was mixed, with Japanese stocks gaining modest ground, while Chinese markets declined amid inflation and monetary policy tightening concerns ahead of some key reports.

As of 8:50 a.m. ET, the June S&P 500 Index Globex future is 9 points below fair value, the Nasdaq 100 Index is 20 points below fair value, and the DJIA is 70 points below fair value. WTI crude oil is $1.05 lower at $106.06 per barrel, and the Bloomberg gold spot price is down $1.31 at $1,456.05 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.1% at 74.92.

Hasbro Inc. (HAS $46) 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.

Meanwhile, Compuware Corp. (CPWR $11) announced preliminary fiscal 4Q earnings results, saying it expects EPS to be in a range of $0.13-0.15, compared to the $0.18 that analysts were anticipating. The technology performance company said its profits were impacted by two significant mainframe agreements that were scheduled to close during the period being pushed into its next fiscal year “due to circumstances beyond our control.” As a result, the company said both of these contracts will be completed and it will provide “an upside to guidance” in fiscal year 2012.

Jobless claims jump, producer prices mixed

Weekly initial jobless claims increased by 27,000 to 412,000, 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.

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.

Treasuries are higher in morning action following the data, with the yield on the two-year note down 2 bps to 0.71%, the yield on the 10-year note 3 bps lower to 3.43%, and the 30-year bond yield declining 1 bp to 4.53%.

Europe lower as financial and debt concerns continue

The equity markets in Europe are broadly lower in afternoon action, led by a solid decline in financials amid festering concerns about the euro-zone debt crisis and the health of the region’s banking sector. Debt concerns are being exacerbated by a jump in yields on Greek benchmark 10-year government bonds, which sent 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. Also, inflation concerns and monetary tightening worries in China are also pressuring sentiment ahead of the release of key data from the Asian country tomorrow, with some reports from China suggesting the data could be hotter than expected. However, shares of Danone (DANOY $13) are gaining ground after the world’s largest yogurt maker posted sales that exceeded forecasts, and a report showed UK consumer confidence rose more than expected. Finally, commodities firm Glencore announced that it plans to raise up to $12.1 billion, per Reuters, in a London and Hong Kong initial public offering, which is helping limit losses in the resource sector.

The UK FTSE 100 Index is down 1.0%, France’s CAC-40 Index is declining 1.2%, Germany’s DAX Index is 0.9% lower, while Greece’s Athex Composite Index is dropping 1.9%.

Asia mixed ahead of Chinese data

Stocks in Asia finished mixed, with Japan’s Nikkei 225 Index ticking 0.1% higher, aided by a sharp gain in shares of Isuzu Motors Ltd. (ISUZY $40) amid reports that German automaker Volkswagen AG (VLKAY $30) is mulling buying a stake in the company or acquiring the company outright. The advance in the Japanese truckmaker came even as it denied the report and Volkswagen said it won’t decide soon on whether to take a stake in the company, per Bloomberg. Also helping the Japanese equity markets, Toshiba Corp. (TOSYY $28) moved nicely higher after the company’s president said its profits may exceed analysts’ forecasts as the company, which has a nuclear power unit, said the impact of the Japanese natural disaster and subsequent nuclear threat will have a “limited impact” on its recently completed fiscal year.

However shares in China finished lower as the Hong Kong Hang Seng Index declined 0.5% and the Shanghai Composite Index decreased 0.3%, amid concerns of further monetary policy tightening from the government. Concerns came as China will announce a plethora of key data ahead of tomorrow’s trading session, highlighted by reads on inflation, as the Consumer Price Index is expected to rise by 5.2% for March, and its 1Q GDP is anticipated to show a 9.4% rate of expansion. Rate-hike concerns were exacerbated by local media reports that said China’s consumer prices were likely to rise between 5.3-5.4%, citing an unnamed source. Meanwhile, 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. In the meantime, China announced late in the trading session that its new yuan loans rose more than expected. Singapore’s GDP report has been used as an indication of economic growth in China ahead of its report, but the nation’s results have been historically volatile. Following the results, Singapore announced that it will allow its currency to appreciate, and the nation’s FTSE Straits Times Index finished 0.4% lower.

Elsewhere, South Korea’s Kospi Index rose 0.9% to an all-time high, aided by strength in automakers, while Australia’s S&P/ASX 200 Index declined 0.6% on weakness in mining issues, and as building company Leighton Holdings Ltd. (LGTHY $27) fell sharply after it forecasted a net loss.