Morning Market Update

Jobless Claims Jump to Extend Early Losses

The US equity markets are near the worst levels of the early trading session following another jump in weekly initial jobless claims, which is exacerbating recent concerns about the global economy and uneasiness ahead of tomorrow’s labor report. Treasuries are higher following the employment data, overshadowing a separate report that showed 1Q nonfarm productivity and labor costs rose more than expected. Meanwhile, traders are digesting a plethora of April same-store sales results from the nation’s retailers, which are coming in mixed, despite the boost from a later Easter holiday. Also, earnings reports continue to pour in with General Motors, DIRECTV, and Whole Foods Market Inc all exceeding the Street’s profit expectations. Overseas, Asia was mixed in light trading, with Japan and South Korea closed for holidays, while European markets are under pressure on disappointing data and as the European Central Bank appeared to be less-hawkish than expected, sending the euro lower.

As of 8:52 a.m. ET, the June S&P 500 Index Globex future is 9 points below fair value, the Nasdaq 100 Index is 12 points below fair value, and the DJIA is 59 points below fair value. WTI crude oil is $3.42 lower at $105.82 per barrel, and the Bloomberg gold spot price is down $10.24 at $1,505.98 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.4% to 73.41.

The nation’s retailers are reporting April same-store sales results—sales at stores open at least a year—headlined by Target Corp. (TGT $49), which announced a 13.1% increase year-over-year (y/y), compared to the 13.2% gain that analysts surveyed by Reuters had anticipated. TGT said April sales were “somewhat below” its expectations, as customers continued to be “very cautious” leading up to Easter, which came later this year to help results in the sector.

Costco Wholesale Corp. (COST $80) posted a 12% y/y jump in April same-store sales, including inflation in gasoline prices and strengthening foreign currencies, above the 8.9% increase that was anticipated. Excluding the impact of fuel inflation and currency fluctuations, sales were 7% higher.

Department store chain, Macy’s Inc. (M $25), achieved 10.8% y/y growth in same-store sales for April, versus the 8.1% increase that analysts had anticipated. Meanwhile, inside the mall, Gap Inc. (GPS $23) reported an 8% y/y increase in sales, compared to the 0.8% decline that was expected, but the company issued a 1Q profit warning and that a company executive is leaving, effective immediately.

In earnings news, General Motors Co. (GM $33) reported 1Q EPS ex-items of $0.95, exceeding the $0.91 that the Street had anticipated, with revenues increasing by $4.7 billion quarter-over-quarter (q/q) to $36.2 billion, versus the $35.7 billion that analysts were looking for.

DIRECTV (DTV $49) announced 1Q earnings of $0.85 per share, versus the $0.71 that was estimated by analysts, as revenues grew 13% y/y to $6.3 billion, compared to the $6.2 billion that the Street expected.

Whole Foods Market Inc. (WFMI $60) posted fiscal 2Q profits of $0.51 per share, above the $0.46 analyst forecast, as revenues increased 12% y/y to $2.4 billion, mostly inline with expectations, and same-store sales for the quarter rose 7.8% y/y despite a negative impact from a later Easter holiday. WFMI raised its full-year EPS outlook.

Jobless claims jump again, productivity and unit labor costs rise

Weekly initial jobless claims rose by 43,000 to 474,000, versus last week's figure which was upwardly revised by 2,000 to 431,000, versus the decline to 410,000 that economists surveyed by Bloomberg had expected. The four-week moving average, considered a smoother look at the trend in claims, increased by 22,250 to 431,250, and continuing claims rose by 74,000 to 3,733,000, above the forecast of economists, which called for continuing claims to come in at 3,649,000.

Meanwhile, the preliminary reading on 1Q nonfarm productivity showed a 1.6% increase on an annual basis, compared to the 1.1% gain that economists expected, after 4Q’s increase of 2.6%. Unit labor costs were 1.0% higher, versus a gain of 0.8% that was estimated.

Treasuries are higher following the employment and productivity data, with the yields on the 2-year and 10-year notes 3 bps lower at 0.57% and 3.18%, respectively, and the 30-year bond declining 4 bps at 4.29%.

Europe lower as central banks announce rate decisions

The equity markets in Europe are lower in afternoon action as traders are digesting interest rate decisions from the European Central Bank (ECB) and the Bank of England (BoE), while stocks are being pressured by disappointing earnings and economic news.

The BoE and ECB both decided to leave their benchmark interest rates unchanged at 0.50% and 1.25%, respectively, as expected, but traders are paying close attention to the customary press conference that followed the ECB’s announcement, led by President Jean-Claude Trichet. The focus of the press conference is on whether the ECB signals if further rate hikes—the central bank increased its rate at its meeting in April—are on the near horizon to try to fulfill its lone mandate of price stability. However, the euro fell sharply after Trichet sounded a less-hawkish tone than some expected, saying the ECB will monitor upside inflation risks “very closely,” refraining from his “strong vigilance,” phrase that traders look for in determining if a rate hike is imminent in the next meeting, suggesting further hikes could come after June, later than some expected.

Meanwhile, banking stocks are pressuring the equity markets across the pond as shares of the UK’s Lloyds Banking Group Plc. (LYG $4) are sharply lower after the mortgage lender reported a quarterly loss as it recorded a large charge related to compensation to clients that were mis-sold insurance policies. Also, France’s Societe Generale (SCGLY $13) is down solidly after the bank posted a smaller-than-expected profit. However, shares of German sporting goods maker Adidas (ADDYY $37) raised its sales outlook for the second time this year, per Reuters. Elsewhere, sentiment is being stymied by some disappointing earnings reports, as the UK Services PMI Index decelerated by a larger amount than economists expected, while factory orders in Germany—Europe’s largest economy—unexpectedly fell by 4.0% month-over-month (m/m) in March, versus the 0.4% increase that was anticipated.

The UK FTSE 100 Index is down 1.0%, France’s CAC-40 Index is declining 1.4%, and Germany’s DAX Index is 0.8% lower.

Asia mixed in light trading

Stocks in Asia finished mixed in thin trading as markets in Japan and South Korea were closed for holidays, with Australia’s S&P/ASX 200 Index overcoming early losses to close 0.3% higher, as the Australian dollar moved lower to ease some worries about the impact of the currency’s recent surge on the nation’s exports. Also, shares of National Australia Bank Ltd. (NABZY $28) traded solidly higher to help the resiliency in stocks after the nation’s largest lender reported first-half profits that exceeded analysts’ estimates. Australia’s early weakness came amid the resurfaced concerns about the global economy and following a report that showed the nation’s retail sales unexpected declined in March. In other economic news in Australia, a separate report showed building approvals rose much more than economists expected. Meanwhile, New Zealand’s NZX 50 Index eked out a 0.1% gain, supported by a larger-than-forecasted increase in 1Q employment and a coinciding decline in its unemployment rate. However, India’s BSE Sensex 30 Index fell 1.4% on the aforementioned global economic uneasiness, and as shares of Bharti Airtel moved solidly to the downside after the nation’s largest mobile-phone operator, per Bloomberg, reported a larger-than-expected decline in earnings. Finally, stocks in China finished mixed, with the Hong Kong Hang Seng Index declining 0.2% and the Shanghai Composite Index rising 0.2%.