Morning Update

Economic Data Dampens Early Sentiment

Stocks are higher in morning action after an unexpected drop in retail sales and a surprising increase in jobless claims took some of the wind out of the bulls' sails. Treasuries are higher, overcoming early losses after the disappointing data, and as equities pared a large majority of gains. Wal-Mart Stores' better-than-expected earnings report is helping maintain the modest gains on the Street, but disappointing guidance from Kohl's is adding to the uneasiness in the retail sector. Overseas, unexpected increases in German and French GDP is supporting European trading, helping sentiment in the US, and Asia moved broadly higher.

As of 8:52 a.m. ET, the September S&P 500 Index Globex futures is 4 points above fair value, the Nasdaq 100 Index is 9 points above fair value, and the DJIA is 21 points above fair value. Crude oil is up $1.19 at $71.35 per barrel, and gold is up $9.95 at $957.05 per ounce.

Dow member Wal-Mart Stores (WMT $51) reported 2Q EPS of $0.88, three cents above the Reuters estimate, while revenues declined 1.4% to $100.1 billion, which came in below the Street's forecast that called for the company to report sales of $101.8 billion. The world's largest retailer posted a US same-store sales decline of 1.2%, missing analysts' expectations, which called for the company to record a 0.9% increase, as it said it underestimated the boost it got a year ago from the government's stimulus checks. The company said the sales environment was more difficult than it had expected, but it managed to post a healthy increase in year-over-year earnings as its US segments delivered strong inventory performance. The company's CEO Mike Duke said WMT is accelerating its focus on reducing its expenses. WMT said it is pleased with the initial response to the back-to-school season and it believes it is gaining significant share of back-to-school business. The company raised the lower end of the range of its full-year EPS guidance, issued a 3Q EPS outlook that was inline with the Street's forecast, and said 3Q same-store sales are expected to be between flat and 2%. Shares are higher.

Fellow retailer Kohl's Corp. (KSS $52) reported 2Q EPS of $0.75, one penny ahead of analyst expectations, and sales increased 2.2% versus last year to $3.8 billion, also on top of the Reuters forecast, which called for the company to report sales of $3.7 billion. The company said its same-store sales for the quarter declined 2.3%. KSS said first-half sales exceeded its plans and indicated market share gains across most merchandise regions and it continues to experience improvements in inventory management and its expense performance matched its expectations. The company said it will focus on providing value for its customers as they continue to be conservative in their spending in this environment. KSS issued disappointing second-half guidance, but raised its full-year EPS outlook, and shares are lower.

Retail sales unexpectedly fell, jobless claims surprisingly rise

Advance retail sales for July fell 0.1%, compared to the forecast of an increase of 0.8%, while sales ex-autos dropped 0.6%, versus the expectation of an increase of 0.1%. Excluding autos, gasoline and building materials, the figure the government uses to calculate the consumer spending component of GDP, fell 0.2%. Sales at automobile dealerships and parts stores rose 2.4% during the month.

Weekly initial jobless claims rose 4,000 to 558,000, versus last week's figure that was upwardly revised by 4,000 to 554,000. The Bloomberg consensus called for claims to reach 545,000. The four-week moving average snapped a streak of six-straight weekly declines, increasing by 8,500 to 565,000. Continuing claims fell by 141,000 to 6,202,000, versus the forecast of 6,300,000. Treasuries are higher after erasing losses following the retail sales and job reports.

Elsewhere, the Import Price Index fell 0.7% in July, more than the expected decrease of 0.5% of economists surveyed by Bloomberg. Year-over-year, import prices are down 19.3%.

Later this morning, June business inventories will be released and are expected to fall 0.9%, after May's 1.0% decline.

Europe gains as key GDP reports help recession fears wane

Stocks in Europe are higher in afternoon action on some upbeat data from the economic and earnings fronts. GDP reports from Germany-Europe's largest economy-and France both showed unexpected increases in 2Q quarter-over-quarter, helping the eurozone GDP post a 0.1% contraction compared to the previous quarter, after falling 2.5% in 1Q and versus the 0.5% decline that economists surveyed by Bloomberg. The better-than-expected output data are helping boost optimism that the eurozone recession may be close to coming to an end, lifting the basic materials sector. Financials are also leading the way, supported by a 7% advance in shares of UK lender Prudential Plc (PUK $16) after its operating profit topped analysts' estimates. In other equity news in the region, German internet service provider, United Internet (UDIRF $11) is up sharply after it reported that its first-half profit rose and it raised its full-year earnings outlook, while Anheuser-Busch InBev (AHBIY $41) is under pressure despite announcing a 13% increase in quarterly profit, as the beermaker's CFO said the company wont be able to post such a large improvement in profitability in the second-half of the year, according to Bloomberg.

Asia rebounds after the Fed

Stocks in Asia were broadly higher, rebounding from yesterday's steep declines, as yesterday's strong advance in the US was sustained following the Fed's interest rate decision, where it modestly upgraded its economic outlook. Japan's Nikkei 225 index rose 0.8%, helped by about a 5% gain in shares of Citizen Holdings (CHCLY $5) after the watchmaker reported a smaller-than-expected quarterly loss. China's Shanghai Composite Index advanced 0.9%, Hong Kong's Hang Seng Index advanced 2.1%, and India's BSE Sensex 30 index jumped 3.3% to lead the way after the government said it plans to cut corporate taxes and abolish a levy on equity trading. However, South Korea's Kospi Index did not participate in the broad-based advance in the Asia/Pacific region, falling 0.1% despite a solid gain from South Korea's largest automaker, Hyundai Motor (HYMTF $14), which rose about 3% after saying its expects to increase sales in the US.