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Thursday, July 7, 2011

Morning Market Update


Stocks Seeking Green on Jump in Private Sector Jobs

US equities are higher in early action, as private sector payrolls jumped significantly in June, well above the expectations of economists, while initial jobless claims declined more than forecasts. The positive reports give hope to tomorrow’s broader nonfarm payrolls report, which is expected to show a gain of 100,000 jobs. Treasuries are lower on the employment news. The equity front is focused on June same-store sales from the nation’s retailers, highlighted by a better-than-expected figure from Target, while Costco and Macy’s also managed to beat the Street’s sales forecasts. Overseas, the Bank of England kept its target interest rate unchanged, while the European Central Bank raised its target rate by 25 basis points to 1.5%, in moves that were highly expected by economists. The European markets are mixed, as focus now turns to the press conference featuring ECB president Jean-Claude Trichet. Asian stocks finished mixed, as the region continues to assess the rate hike in China yesterday.

As of 8:50 a.m. ET, the September S&P 500 Index Globex future is 9 points above fair value, the Nasdaq 100 Index is 16 points above fair value, and the DJIA is 66 points above fair value. WTI crude oil is $1.42 higher at $98.07 per barrel, and the Bloomberg gold spot price is up $0.51 at $1,529.49 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is 0.5% higher at 75.39.

The nation’s retailers are reporting June same-store sales results—sales at stores open at least a year—headlined by
Target Corp. (TGT $48), which announced a 4.5% increase year-over-year (y/y), compared to the 3.5% gain that analysts surveyed by Reuters had anticipated. TGT said June sales were “at the high end” of its expectations and added that it expects July same-store sales to rise in the low- to mid-single digits.

Meanwhile,
Costco Wholesale Corp. (COST $83) posted 14.0% y/y growth in June same-store sales, including inflation in gasoline prices and strengthening foreign currencies, above the 12.7% increase that was anticipated. Excluding the impact of fuel inflation and currency fluctuations, sales were 8.0% higher.

Department store chain,
Macy’s Inc. (M $29), achieved 6.7% y/y growth in same-store sales for April, versus the 5.1% increase that analysts had anticipated. Meanwhile, inside the mall, Gap Inc. (GPS $23) reported a 1% y/y increase in sales, compared to the 2.3% decline that was expected.

ADP private sector payrolls jump, initial jobless claims decline

The
ADP Employment Change Report showed private sector payrolls rose by 157,000 jobs in June, versus the forecast of economists surveyed by Bloomberg, which called for a 70,000 increase, and May’s 38,000 job gain was revised to a rise of 36,000 jobs. Services provided the biggest share of the gain, rising 130,000 in June, after increasing by 36,000 in May. The release, which does not include government hiring and firing, comes ahead of Friday’s broader nonfarm payrolls report, where economists expect an increase of 100,000 jobs in June, after posting a 54,000 increase in May. Excluding government hiring, June private sector payrolls are expected to increase 125,000, after expanding by 83,000 in May.

Weekly initial jobless claims
fell by 14,000 to 418,000, versus last week's figure which was upwardly revised to 432,000, and compared to the 420,000 level that economists surveyed by Bloomberg had expected. Also, the four-week moving average, considered a smoother look at the trend in claims, fell by 3,000 to 424,000, while continuing claims dropped by 43,000 to 3,681,000, below the forecast of economists, which called for continuing claims to come in at 3,700,000.

Treasuries are lower in early action following the employment data, with the yield on the 2-year up 4 bps at 0.46%, the yield on the 10-year note gaining 5 bps to 3.16%, while the 30-year bond is 3 bps higher at 4.39%.


Europe higher as ECB raises rates, BoE stays course

The equity markets in Europe are higher in afternoon action as traders are digesting interest rate decisions from the European Central Bank (ECB) and the Bank of England (BoE).The BoE kept its key interest rate at a record low of 0.5%, as economists expected. Meanwhile, the ECB raised its key interest rate by 25 basis points to 1.50%, which was also widely expected by economists, as it shrugs off concerns of slow growth and debt worries in the eurozone periphery. 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 are on the near horizon to try to fulfill its lone mandate of price stability. Trichet gave clear indications at the previous meeting that the ECB would not hesitate to hike rates, saying the ECB would be “strongly vigilant” in monitoring upside inflation risks.


In other economic news in the region, industrial production in the UK increased slightly less than expectations, while manufacturing production exceeded the forecast of economists. Meanwhile, industrial production in Germany--Europe’s largest economy--moved back into positive territory after declining last month, and France’s trade balance expanded slightly in May.


In equity news across the pond, shares of German steelmaker
ThyssenKrupp AG (TYEKF $49) are under pressure after the company announced plans to sell around 49.5 million treasury shares, equivalent to 9.6% of its capital stock, for proceeds of up to EUR1.68 billion, in an effort to further reduce debt.

The UK FTSE 100 Index is up 0.8%, France’s CAC-40 Index is 0.8% higher, and Germany’s DAX Index is advancing 0.7%.


Asia mixed as China rate hike continues to weigh on sentiment

Stocks in Asia finished mixed, as the region continued to assess yesterday’s interest rate hike by the People’s Bank of China, with questions remaining as to whether it will be the last increase this year. The Shanghai Composite Index slipped 0.6%, while strength in financials helped the Hong Kong Hang Seng Index to post a 0.1% gain. In equity news in the region, shares of
Kingsoft Corp Ltd. (KSFTF $1) traded higher after the Chinese software developer announced a strategic partnership with Tencent Holdings Ltd. in order to provide security solutions for users, and will further explore a collaboration in internet application software and online game markets. Meanwhile, Australian employment rebounded in June, as 23,400 jobs were added, which exceed the forecast of economists, while the unemployment rate remained steady at 4.9%. In other news in the region, Japan’s machine orders increased 3.0%, inline with what economists were expecting, while Taiwan’s trade balance unexpectedly expanded in June. Finally, stocks in South Korea were helped higher by the announcement that Pyeongchang will host the 2018 Winter Olympics, with builders in the nation receiving the largest boost on expectations of increased demand for new buildings and roads. The Nikkei 225 Index was down 0.1%, the BSE Sensex 30 Index rose 1.9%, while Australia’s S&P/ASX 200 Index was flat.
 

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