Morning Market Update

Stocks Flat after Trade Data and ECB Rate-Hike Signal

The US equity markets are nearly unchanged in early action, as the bulls continue to try to reverse the recent downward trend that has accompanied the month of June, with an unexpected narrowing of the US trade deficit helping pare early losses. Also, stocks are showing some morning volatility as traders digest the European Central Bank signaling that it will likely raise interest rates in July. Treasuries are mixed following the data, which also included an unexpected increase in jobless claims, ahead of the release of wholesale inventories. In equity news, Texas Instruments Inc lowered its 2Q outlook due to lower demand from Nokia Corp, while Men’s Wearhouse Inc topped analysts’ 1Q estimates and offered an upbeat outlook. Overseas, Asia was mostly lower amid the growing concerns about the global economic recovery, while European stocks are modestly higher following the ECB’s policy signal.

As of 8:49 a.m. ET, the June S&P 500 Index Globex future is 2 points above fair value, the Nasdaq 100 Index is 1 point below fair value, and the DJIA is 16 points above fair value. WTI crude oil is $0.63 higher at $101.37 per barrel, and the Bloomberg gold spot price is down $1.92 at $1,535.68 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is unchanged at 73.89.

Texas Instruments Inc. (TXN $33) cut its 2Q revenue and EPS guidance due to lower demand from wireless customer Nokia Corp. (NOK $6), which recently slashed its revenue outlook. TXN said it expects EPS to be in a range of $0.51-0.55, compared to the prior range of $0.52-0.60, while revenues are forecasted to come in between $3.36-3.50 billion, versus its previous estimate of $3.41-3.69 billion. Analysts surveyed by Reuters had expected the chipmaker to post revenues of $3.55 billion and EPS of $0.58 for the quarter. TXN also said the expected impact of the Japanese tragedy was unchanged, as it expects to report per-share charges of about $0.05, while production at one of its plants in Japan has been restored and its more severely impacted facility is ramping up faster that it previously expected, according to the Wall Street Journal.

Men’s Wearhouse Inc. (MW $30) reported fiscal 1Q EPS ex-items of $0.53, above the $0.49 that the Street had projected, with revenues increasing 22.6% year-over-year (y/y) to $580 million, compared to the $577 million that analysts were anticipating. The apparel maker said its same-store sales—sales at stores open at least a year—rose 10.8% y/y at its flagship Men’s Wearhouse locations. MW also raised its full-year EPS outlook and issued 2Q guidance that exceeded expectations.

Jobless claims rise, trade deficit narrows, and wholesale inventories later this morning

Weekly initial jobless claims unexpectedly increased, rising by 1,000 to 427,000, versus last week's figure which was upwardly revised by 4,000 to 426,000, compared to the decline to 419,000 that economists surveyed by Bloomberg had expected. However, the four-week moving average, considered a smoother look at the trend in claims, fell by 2,750 to 424,000, while continuing claims dropped by 71,000 to 3,676,000, below the forecast of economists, which called for continuing claims to come in at 3,700,000.

The trade deficit surprisingly narrowed, shrinking to $43.7 billion in April from a favorably revised $46.8 billion in March, versus the estimate of economists surveyed by Bloomberg, which called for the deficit to widen to $48.8 billion.

Treasuries remain mixed following the data, with the yield on the 2-year note up 1 bp to 0.39%, while the yield on the 10-year note is 2 bps lower at 2.92%, and the 30-year bond rate is down 3 bps at 4.16%.

Later this morning, the US economic calendar will yield the release of wholesale inventories, forecasted to rise 1.0% month-over-month (m/m) in April, after gaining 1.1% in March.

Europe modestly higher after ECB signals rate hike

Stocks in Europe are slightly higher in afternoon action as traders digest monetary policy announcements from the Bank of England (BoE) and the European Central Bank (ECB). The BoE and ECB kept their respective benchmark interest rates unchanged at 0.50% and 1.25%, respectively, as expected, but traders are paying close attention to the customary press conference by ECB President Jean-Claude Trichet, for any clues to whether the central bank will hike rates in July as it tries to ensure its lone mandate of controlling inflation, while battling the eurozone debt crisis. At the press conference, Trichet used the term “strong vigilance” referring to the ECB’s efforts to promote price stability in the eurozone, language that is seen as a signal that the central bank intends to raise rates at its next meeting in July.

In other economic news, business sentiment in France deteriorated in May more than economists had expected, the UK trade deficit came in smaller than estimated, and Greece’s 1Q GDP was revised to a smaller rate of expansion on a quarter-over-quarter (q/q) basis, and its y/y GDP was adjusted to a larger rate of contraction than initially reported.

In equity news, shares of Home Retail Group Plc. (HMRTY $13) are sharply lower after the retailer announced that quarterly same-store sales at its Argos locations fell 9.6% y/y, which was a much larger-than-anticipated drop.

The UK FTSE 100 Index is up 0.2%, France’s CAC-40 Index is gaining 0.3%, and Germany’s DAX Index is advancing 0.5%, while Greece’s Athex Composite Index is declining 0.2%.

Asia mostly lower as global growth concerns continue

The equity markets in Asia finished mostly to the downside amid the continued downshift in global economic growth expectations, however, Japan’s Nikkei 225 Index managed to eke out a modest gain of 0.2%. The slight upward move in Japan came amid some bargain hunting of stocks that have been hit by the recent downside pressure caused by growing concerns about the global economic recovery, and following a report that showed the nation’s 1Q annualized GDP contraction was revised to a slightly smaller rate than initially reported. Japan’s output was adjusted from a 3.7% annualized decline to a 3.5% contraction, but economists had expected a favorable revision to a 3.0% drop. Also, Australian stocks bucked the downward trend in the region, as the S&P/ASX 200 Index rose 0.3%, despite a report that showed the nation’s employment change rose at a smaller rate than estimated, helping cool some expectations that the Reserve Bank of Australia will restart its rate-hike campaign.

However, elsewhere in Asia, the equity markets saw red figures, with stocks in China leading the way, as the Shanghai Composite Index fell 1.7% ahead of export data due out tomorrow. Meanwhile, Hong Kong’s Hang Seng Index declined 0.2% after paring losses in late-day action amid strength in property issues following a favorable land auction. Moreover, New Zealand stocks were one of the day’s biggest decliners, with the NZX 50 Index falling 1.0% after the Reserve Bank of New Zealand left its benchmark interest rate unchanged at 2.50%, but noted that a gradual increase in its interest rate over the next two years will be required to offset an acceleration in GDP and underlying inflation. Finally, South Korea’s Kospi Index decreased 0.6% on some weakness in automakers.