Morning Market Update

Bulls Put to Work by Jobs Data, Trying to Build a Rebound

The US equity markets are nicely higher in early action, as a stronger-than-forecasted April labor report is helping sentiment this morning, as stocks are rebounding from yesterday’s solid declines amid a sharp drop in crude oil and other commodity prices. Treasuries are lower after extending losses on the employment data, while the US dollar is moving higher, adding to yesterday’s gains, and WTI crude oil prices are solidly lower despite the report. An afternoon report on consumer credit is the only other piece of economic data due out today. Meanwhile, the earnings front is providing some support, with Dow member Kraft Foods Inc exceeding the Street’s forecasts, along with Visa Inc and Priceline.com Inc. Moreover, American International Group posted an operating profit despite losses related to the Japan tragedy, and natural disasters in New Zealand and Australia. Overseas, Asia finished mostly lower but India’s markets jumped on eased inflation concern on the heels of the weakness in commodities, while Europe is moving higher amid some favorable earnings reports and the US jobs data.

As of 8:51 a.m. ET, the June S&P 500 Index Globex future is 14 points above fair value, the Nasdaq 100 Index is 31 points above fair value, and the DJIA is 148 points above fair value. WTI crude oil is $1.14 lower at $98.66 per barrel, and the Bloomberg gold spot price is up $5.84 at $1,480.14 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.4% to 74.35.

Dow member Kraft Foods Inc. (KFT $33) announced 1Q earnings ex-items of $0.52 per share, above the $0.47 consensus estimate of analysts surveyed by Reuters, with revenues increasing 11.1% year-over-year (y/y) to $12.6 billion, versus the $12.3 billion that the Street had forecasted. The food company said pricing was higher in each geographic region to offset commodities increases. However, KFT said, “raw material costs continue to escalate and the economic environment remains unsettled,” and it expects to post full-year EPS of at least $2.00, as analysts were expecting the company to report $2.22 per share in earnings for the year.

Visa Inc. (V $79) reported fiscal 2Q EPS of $1.23, three cents above the Street’s expectations, with revenues growing 15% y/y to $2.2 billion, roughly inline with analysts’ estimates, as payments volume growth and total processed transactions were 13% y/y. The credit card transaction processor also announced a new $1 billion share repurchase program, while reaffirming its full-year outlook.

Priceline.com Inc. (PCLN $534) posted 1Q profits ex-items of $2.66 per share, above the $2.46 that analysts expected, with revenues rising 38.5% y/y to $809 million, compared to the $779 million that the Street had forecasted. The travel website said gross travel bookings jumped 57.3% y/y and it issued 2Q guidance that topped expectations.

American International Group Inc. (AIG $31) said its 1Q operating earnings were $1.30 per share, including $1.7 billion of pre-tax catastrophe losses related to the Japan earthquake and tsunami, the New Zealand earthquake, and Australian floods, offset by valuation gains on securities and its interest in Maiden Lane III assets. The Street was expecting the insurer to post a loss of $0.15 per share, but it was unclear if the aforementioned items were fully factored in by analysts.

April job growth exceeds expectations, consumer credit report due out later today

Nonfarm payrolls rose by 244,000 jobs in April, compared to the consensus estimate of economists surveyed by Bloomberg, which forecasted a 185,000 increase, and the initial 216,000 gain seen in March was revised to a growth of 221,000 jobs. Additionally, excluding government hiring and firing, private sector payrolls increased by 268,000 in April, versus the forecast of a gain of 200,000, after expanding by a favorably revised 231,000—from an initially reported 230,000 gain—in March. The unemployment rate moved higher, rising from 8.8% to 9.0%, compared to expectations for the rate to remain unchanged. However, average hourly earnings were 0.1% higher month-over-month (m/m), versus the Street's forecast of a 0.2% increase, while average weekly hours remained at an unrevised 34.3, matching expectations.

Treasuries extended losses following the employment data, with the yield on the two-year note up 4 bps to 0.61%, the yield on the 10-year note 7 bps higher to 3.23%, and the 30-year bond yield gaining 8 bps to 4.34%.

Later this afternoon, the economic calendar will yield the release of consumer credit, forecasted to rise by $5.0 billion in March, after increasing by $7.62 billion in February.

Europe higher after yesterday’s drop in oil and the euro

The equity markets in Europe are higher in afternoon action, following yesterday’s steep losses in oil and other commodities as the euro fell solidly and the US dollar rose nicely as European Central Bank (ECB) President Jean-Claude Trichet dampened expectations of another rate hike in the near term. Helping lend some support to stocks in the region, shares of Royal Bank of Scotland (RBS $13) are moving solidly to the upside after the company’s CEO said the company expects to return to a profit this year. Moreover, shares of ThyssenKrupp (TYEKF $44) are sharply higher after Germany’s largest steelmaker said its plans to divest assets to reduce debt. However, Belgacom (BGAOY $8) is solidly lower after the Belgium-based communications firm cut its forecasts.

Meanwhile, the economic front is painting a mixed picture, with industrial production in Germany—Europe’s largest economy—increasing more than expected in March, while UK producer prices came in hotter-than-expected. However, the favorable jobs data out of the US provided a boost to the equity markets across the pond.

The UK FTSE 100 Index is up 0.4%, France’s CAC-40 Index is 1.0% higher, and Germany’s DAX Index is gaining 1.1%.

Asia mostly lower following the tumble in oil

Stocks in Asia finished mostly to the downside, led by 1.5% declines in Japan’s Nikkei 225 Index and South Korea’s Kospi Index, following the steep decline seen in the US as crude oil prices fell sharply and the US dollar jumped following a less-hawkish tone by the European Central Bank. Japanese markets resumed trading after being closed for a few days due to holidays, while refining stocks pressured South Korea’s markets. However, the sharp drop in oil prices, as well as precious metals, eased inflation concerns in India, and the BSE Sensex 30 Index rose 1.7%, snapping a nine-session losing streak as sentiment has been hampered by the threat of inflation, which prompted the nation’s central bank to increase interest rates by a larger-than-forecasted amount earlier this week. Elsewhere, Australia’s S&P/ASX 200 Index showed some relative resiliency in the face of the fall in commodities, dipping 0.2%, as the coinciding decline in the nation’s currency helped suppress rising concerns about the impact of the recent run in the Australian dollar on export activity. However, the Australian dollar is rebounding somewhat as the Reserve Bank of Australia increased its forecast for inflation today and noted that a rate-hike may be needed “at some point.” Finally, stocks in China finished modestly lower, with the Hong Kong Hang Seng Index declining 0.4% and the Shanghai Composite Index decreasing 0.3%.