Morning Market Update

ADP Employment Report Dampens the Mood to Begin the Month

US stocks are under some pressure in early action, giving back some of yesterday’s solid advance following a much lower-than-forecasted rate of growth in private sector payrolls, souring sentiment ahead of Friday’s labor report. Treasuries moved modestly higher following the release, ahead of reports on manufacturing activity and construction spending, while showing little reaction to a decline in mortgage applications. In equity news, Phillips-Van Heusen Corp posted 1Q results that exceeded the Street’s expectations and offered an upbeat outlook, while Dollar General Corp reported earnings that missed analysts’ estimates. Overseas, Asia finished mixed as traders digested several pieces of economic data, while Europe is lower after the US employment data and following unexpected downward revisions to manufacturing activity in the eurozone.

As of 8:48 a.m. ET, the June S&P 500 Index Globex future is 5 points below fair value, the Nasdaq 100 Index is 8 points below fair value, and the DJIA is 47 points below fair value. WTI crude oil is $0.65 lower at $102.05 per barrel, and the Bloomberg gold spot price is up $1.07 at $1,536.80 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.2% to 74.46.

Phillips-Van Heusen Corp. (PVH $66) reported 1Q EPS ex-items of $1.23, above the $1.16 consensus estimate of analysts surveyed by Reuters, with revenues jumping 121% year-over-year (y/y) to $1.4 billion, above the $1.3 billion that the Street was looking for. The revenue increase included $715 million in sales from its Tommy Hilfiger unit, which it acquired in 2Q 2010, while its Calvin Klein business saw “strong performance across virtually all product categories.” PVH raised its full-year outlook and issued 2Q guidance that exceeded analysts’ forecasts.

Dollar General Corp. (DG $35) reported 1Q earnings ex-items of $0.48 per share, compared to the $0.58 projection of analysts, with revenues increasing 10.9% y/y to $3.5 billion, exceeding the $3.4 billion that the Street had anticipated. Same-store sales—sales at stores open at least a year—rose 5.4% y/y. The discount retailer reaffirmed its full-year outlook.

ADP private sector payrolls slow, mortgage apps drop, read on manufacturing later today

The ADP Employment Change Report showed private sector payrolls rose by 38,000 jobs in May, versus the forecast of economists surveyed by Bloomberg, which called for a 175,000 increase, and April’s 179,000 job gain was revised to a rise of 177,000 jobs. The release does not include government hiring and firing and comes ahead of Friday’s broader nonfarm payrolls report, where economists expect an increase of 180,000 jobs in May, after posting a 244,000 increase in April. Excluding government hiring, May private sector payrolls are expected to increase 209,000, after expanding by 268,000 in April.

In other economic news, the MBA Mortgage Application Index declined by 4.0% last week, after the index that can be quite volatile on a week-to-week basis, rose by 1.1% in the previous week. The decrease snaps a four-week winning streak and came as the Refinance Index fell 5.7%, while the Purchase Index was unchanged and the average 30-year mortgage rate declined by 11 basis points (bps) to 4.58%.

Treasuries are higher following the employment data, with the yield on the 2-year note down 2 bps to 0.45%, the yield on the 10-year note 5 bps lower at 3.01%, and the 30-year bond declining 4 bps to 4.19%.

Later this morning, the US economic calendar will bring a look at service-sector activity for May, in the form of the ISM Non-Manufacturing Index, expected to decline from 60.4 in April to 57.1, while construction spending will also be released, expected to rise 0.3% month-over-month (m/m) in April.

Disappointing data stalls yesterday’s momentum in Europe

The equity markets in Europe are lower in afternoon action, with financials giving back some of yesterday’s strong gains that came amid cooled concerns regarding a default by Greece. Meanwhile, telecommunications issues are the worst performers on the day as yesterday’s 2Q profit warning by Nokia Corp. (NOK $7) is being met with a flurry of analyst downgrades, putting further pressure on the mobile-device maker. However, the bulk of the downward pressure is coming from some disappointing data, highlighted by several manufacturing reports and the lackluster job growth figure out of the US. The eurozone PMI Manufacturing Index was revised lower from 54.8 in the preliminary report for May, to 54.6, compared to an unrevised expectation of economists. The downward revision to the gauge of manufacturing activity came as figures out of Germany and France were adjusted to the downside, while Italy’s manufacturing report showed a larger-than-forecasted deceleration. Adding to the soured sentiment, the UK PMI Manufacturing Index declined by a larger amount than anticipated. In other economic news, UK mortgage approvals rose at a smaller rate than projected, while France’s unemployment rate increased unexpectedly in 1Q. In other equity news, Schneider Electric (SBGSY $17) announced that it has agreed to acquire Spain’s Telvent GIT (TLVT $34) for about 1.4 billion euros ($2 billion).

The UK FTSE 100 Index is down 0.4%, France’s CAC-40 Index is declining 0.3%, and Germany’s DAX Index is decreasing 0.4%.

Asia mixed following slew of data

Stocks in Asia finished mixed as traders digested a plethora of economic data in the region. Japanese stocks traded to the upside, with the Nikkei 225 Index rising 0.3%, aided by strength in mobile phone makers after rivals of Nokia Corp. received a boost from the company’s 2Q warning yesterday. Meanwhile, yesterday’s strong advances in Europe and the US amid eased euro-area debt concerns did not carry over to the rest of Asia as some economic data limited the enthusiasm. Australia’s S&P/ASX 200 Index finished flat after the nation reported that its 1Q GDP contracted by 1.2% quarter-over-quarter (q/q), after expanding by an upwardly revised 0.8% in 4Q, compared to the 1.1% decline that economists anticipated. Year-over-year, the nation’s output grew 1.0%, matching expectations. Elsewhere, stocks in China finished mixed, with the Hong Kong Hang Seng Index declining 0.2% and the Shanghai Composite Index was flat, after reports showed manufacturing activity slowed in May, with the PMI Manufacturing Index decelerating from 52.9 in April to 52.0, while HSBC’s separate release showed manufacturing slowed from 51.8 to 51.6. Finally, South Korea’s Kospi Index dipped 0.1% after the nation’s automakers posted sales in May that declined, and a report showed South Korean exports rose at a smaller-than-estimated rate.