Morning Market Update

GDP Report and Rise in Jobless Claims Pressure Stocks

The US equity markets are under modest pressure in early trading after giving up gains following an unchanged revision to 1Q GDP and a surprising increase in weekly initial jobless claims. Treasuries are higher following the output and employment data. In equity news, NetApp Inc and Guess Inc reported better-than-expected earnings and issued favorable guidance, while Computer Sciences Corp missed the Street’s estimates and issued disappointing guidance. Overseas, Asia finished mostly higher following the rebound in the US yesterday, while European stocks are mixed amid diverging equity news and lingering debt concerns.

As of 8:50 a.m. ET, the June S&P 500 Index Globex future is 1 point below fair value, the Nasdaq 100 Index is 2 points below fair value, and the DJIA is 5 points below fair value. WTI crude oil is $0.13 higher at $101.45 per barrel, and the Bloomberg gold spot price is down $1.02 at $1,524.33 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.5% to 75.52.

NetApp Inc. (NTAP $52) reported fiscal 4Q earnings ex-items of $0.59 per share, above the $0.53 consensus estimate of analysts surveyed by Reuters, with revenues growing 22% year-over-year (y/y) to $1.4 billion, roughly inline with the Street’s forecast. The data management firm said it is seeing increasing demand for its storage virtualization and cloud computing solutions. NTAP issued 1Q guidance that exceeded analysts’ estimates.

Guess Inc. (GES $40) announced 1Q EPS ex-items of $0.55, above the $0.44 expectation of the Street, as revenues rose 10% y/y to $592 million, exceeding the $568 million projection by analysts. The clothing retailer said revenue increased across all of its operating segments, led by Europe and Asia, which accounted for almost two-thirds of total sales, while US same-store sales—sales at stores open at least a year—declined 3.1% y/y. GES issued 2Q revenue guidance that was above the Street’s forecast, while it reaffirmed its full-year EPS outlook.

Computer Sciences Corp. (CSC $44) posted fiscal 4Q EPS of $1.09, two pennies below the Street’s forecast, with revenues flat y/y at $4.2 billion, inline with analysts’ estimates. The IT services company said it saw “unexpected difficulties” in the Nordics and the delays in the Federal budgets in fiscal year 2011. CSC issued full-year 2012 EPS guidance that came up short of expectations.

1Q GDP left unrevised and jobless claims unexpectedly rose

The second look at 1Q Gross Domestic Product, the broadest measure of economic output, showed expansion remained at a 1.8% quarter-over-quarter (q/q) annualized rate of growth, compared to the 2.2% rate forecasted by a survey of economists by Bloomberg. 1Q’s growth follows the 3.1% increase in 4Q. Also, personal consumption gained 2.2%, down from the 2.7% that was initially reported, and the 4.0% that was posted in 4Q. Economists expected consumption to be upwardly revised to a 2.8% increase.

The GDP Price Index rose 1.9%, unchanged from the previous report as economists anticipated, while the core PCE Index, which excludes food and energy, was downwardly revised to a rise of 1.4%, versus the 1.5% unadjusted rate that was expected.

Meanwhile, weekly initial jobless claims unexpectedly increased, rising by 10,000 to 424,000, versus last week's figure which was upwardly revised by 5,000 to 414,000, compared to the decline to 404,000 that economists had expected. However, the four-week moving average, considered a smoother look at the trend in claims, declined by 1,750 to 438,500, and continuing claims fell by 46,000 to 3,690,000, below the forecast of economists, which called for continuing claims to come in at 3,700,000.

Treasuries are higher in morning action following the GDP and employment data, with the yields on the 2-year and 10-year notes, as well as the 30-year bond, down 2 bps to 0.52%, 3.12%, and 4.27%, respectively.

Europe mixed amid divergent equity news and as Greek debt worries continue

The equity markets in Europe are mixed in afternoon action, as oil & gas issues are leading advancers following recent weakness, while traders are digesting some mixed equity news and concerns about a default by Greece continue to keep sentiment uneasy. Despite the concerns about the euro-area debt crisis, financials are moving higher to lend support to stocks as shares of Man Group Plc. (MNGPY $4) are solidly higher after the world’s largest publicly-traded hedge fund, per Bloomberg, posted better-than-expected earnings. Also, the banking sector is getting some assistance from an advance in UBS AG (UBS $18) after the Wall Street Journal reported that the lender intends to split off its investment banking unit, according to people familiar with the matter. However, UBS denied the report. Meanwhile, shares of UK luxury retailer Burberry Group Plc. (BURBY $44) are under solid pressure after giving a cautious outlook.

In economic news, German import prices rose by a much smaller amount than expected in April, French consumer confidence improved inline with economists’ forecasts, and Italian business confidence fell more than expected.

The UK FTSE 100 Index is up 0.4%, while France’s CAC-40 Index is 0.1% lower and Germany’s DAX Index is declining 0.6%.

Asia mostly higher amid some bargain hunting

Stocks in Asia finished mostly higher following the modest gains in the US yesterday, which prompted traders to seek out stocks that had been pressured recently on concerns about the global economic recovery. Japan’s Nikkei 225 Index rose 1.5%, supported by a steep advance in shares of Canon Inc. (CAJ $46) after the camera maker announced that it will repurchase up to 1.2% of it total outstanding shares, and a solid gain in shares of Ricoh Co. (RICOY $52) after the copy machine maker announced cost cutting measures, including 10,000 in job cuts, aimed at boosting growth. After the closing bell of Japanese trading, Sony Corp. (SNE $28) posted a full-year loss as the March earthquake and tsunami and recent online security breaches negatively impacted results, and issued profit guidance for the current year that came in below analysts’ expectations. However, South Korea’s Kospi Index jumped 2.8% to lead the advance in the region, aided by a report that showed consumer confidence improved, as well as strength in automakers and crude refiners amid the rebound in oil prices. Meanwhile, Australia’s S&P/ASX 200 Index posted a strong 1.7% increase as financial issues rebounded from recent weakness and mining issues gained ground. Finally, Chinese equity markets finished mixed, with the Shanghai Composite Index declining 0.2% and the Hong Kong Hang Seng Index rising 0.7%