Morning Update

Unexpected Rise in Jobless Claims Has Bulls Coming Up Lame

After snapping the two-day winning streak yesterday, the bulls are being stalled by a surprising increase in weekly initial jobless claims, which has some worried about what tomorrow’s labor report may reveal about the health of the jobs market. Making matters worse for the equity markets, Target is headlining a plethora of retail same-store sales reports by missing the Street’s expectations. In other equity news, Visa topped profit projections, while MasterCard missed. Treasuries are higher after the disappointing jobs report and following a smaller-than-expected increase in nonfarm productivity in 4Q, ahead of a report on factory orders. Overseas, markets are lower, as Europe is reacting to monetary policy announcements from the Bank of England and the European Central Bank.

As of 8:50 a.m. ET, the March S&P 500 Index Globex future is 7 points below fair value, the Nasdaq 100 Index is 11 points below fair value, and the DJIA is 64 points below fair value. Crude oil is down $0.99 at $75.99 per barrel, and the Bloomberg gold spot price is lower by $6.25 at $1,103.55 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.3% at 79.61.

Dow member Cisco Systems (CSCO $23) reported fiscal 2Q EPS ex-items of $0.40, five cents above the consensus estimate of Wall Street analysts, with revenues increasing 8% year-over-year (y/y) to $9.8 billion, compared to the consensus estimate of $9.4 billion. The company said its saw dramatic across-the-board acceleration and sequential improvement in its business in almost all areas and its results provide a clear indication that it is entering the second phase of the economic recovery.

Visa (V $84) reported fiscal 1Q EPS of $1.02, compared to the Street’s forecast of $0.91, as revenues rose 13% y/y to $2.0 billion, versus the $1.9 billion that analysts were expecting. However, MasterCard (MA $248) posted 4Q EPS ex-items of $2.43, missing the Street’s forecast of $2.46, with revenues growing 6% y/y to $1.3 billion, matching analysts’ forecasts.

Meanwhile, major retailers are reporting January same-store sales results—sales at stores open at least a year—headlined by Target (TGT $51) posting a 0.5% gain in same-store sales, compared to the Reuters forecast of a 1.4% increase.

Costco Wholesale (COST $58) reported January same-store sales rose 8%, including the impact of fuel and foreign exchange, just above the 7.8% increase that analysts had expected. COST said, excluding the impact of fuel and foreign exchange, sales would have increased 2%.

Macy’s (M $16) announced that its same-store sales in January rose 3.4%, an unexpected increase as the Street expected sales to come in flat, and the department store raised its 4Q earnings guidance “significantly,” on better-than-expected sales and expense management and gross margins.

Jobless claims unexpectedly increase, productivity rises at smaller rate than forecasted

Weekly initial jobless claims unexpectedly increased, rising by 8,000 to 480,000, versus last week's figure which was revised upward by 2,000 to 472,000, and compared to the consensus, which called for claims to decrease to 455,000. The four-week moving average, considered a smoother look at the trend in claims, rose by 11,750 to 468,750, and continuing claims increased from a downwardly revised 4,600,000 to 4,602,000, compared to the 4,581,000 forecast.

Elsewhere, preliminary nonfarm productivity rose at a 6.2% annual rate in 4Q, below the Bloomberg forecast of 6.5%. Unit labor costs fell 4.4%, versus a drop of 3.5% that was estimated. Treasuries are higher, extending gains after the jobless claims and productivity reports.

Later this morning, the economic calendar will yield factory orders, expected to rise 0.5% in December, compared to the 1.1% advance that was seen in November.

Europe under pressure as monetary policy announcements and earnings in focus

Stocks in Europe are under pressure in afternoon action as traders are digesting some mixed earnings reports and key central bank announcements in the region. The Bank of England left its benchmark interest rate unchanged at a record low of 0.5%, while announcing no increase to its 200 billion pound asset purchase program. Both moves were expected. The BoE’s 200 billion pound asset-buying program was exhausted last week, and it said, “The Committee will continue to monitor the appropriate scale of the asset purchase program and further purchases would be made should the outlook warrant them.” Meanwhile, the European Central Bank expectedly kept its benchmark interest rate unchanged at 1.00%, and traders are paying attention to the customary press conference by ECB President Jean-Claude Trichet that followed the announcement for any signals of changes to the central bank’s monetary policy.

Earnings are also in focus across the pond, with financials under pressure to pace the decline, as shares of Banco Santander (STD $14) are lower even after the company reported quarterly results that exceeded expectations, finding pressure from worries regarding an increase in its borrowing costs. Also, Deutsche Bank’s (DB $64) better-than-expected profit report is being met with some uneasiness as traders are reacting negatively to moderations in growth of its corporate and investment banking business. Shares of DB are modestly higher.

In other economic news, German factory orders unexpectedly fell in December and a separate report showed UK home prices rose by a smaller amount than expected. Britain’s FTSE 100 Index is down 0.8%, Germany’s DAX Index is 0.7% lower, France’s CAC-40 Index is off 0.8%, and Spain’s IBEX 35 Index is down a sharp 2.8%.

Asia declines as US streak ends

Stocks in Asia were mostly lower as the two-day winning streak in the US came to an end, with Japan’s Nikkei 225 Index declining 0.5%, bogged down by another decline in shares of Toyota Motor Corp. (TM $73) on continued recall worries. However, TM announced after the closing bell in Japan that it swung to a quarterly profit compared to a loss in the same period last year, which also exceeded analysts’ forecasts, and it announced that it raised its annual outlook, saying it expects to post a profit for the full year. Additionally, the world’s largest automaker said it expects costs and lost sales from it massive recall to total $2 billion. In other Japanese auto news, shares of Honda Motor Co. (HMC $36) moved higher in reaction to yesterday’s better-than-expected 3Q profit report, in which it also increased its full-year earnings outlook. In other equity news in the region, Hitachi (HIT $34) reported a surprise quarterly profit and it narrowed its full-year loss forecast after the close of trading in Japan, along with Sony Corp. (SNE $35), which posted its first profit in five quarters and lifted its annual outlook, per Reuters.

Outside of Japan, Hong Kong’s Hang Seng Index fell 1.8% and China’s Shanghai Composite Index was down 0.3%, on lingering concerns about the government’s monetary policy tightening and amid some uneasiness about possible tension between China and the US after President Barack Obama made some comments about how the Chinese yuan should appreciate. The economic calendar in Asia was relatively light, with reports out of Australia and New Zealand being worth a mention. Australia’s S&P/ASX 200 Index declined 0.6% after the nation reported that its retail sales unexpectedly fell in December. However, New Zealand’s NZX 50 Index managed to gain 0.4% even after the nation’s unemployment rate rose much more than expected and its employment change fell in 4Q. Rounding out the day in the region, South Korea’s Kospi Index rose 0.1%, Taiwan’s Taiex Index dipped 0.1%, and India’s BSE Sensex 30 Index fell 1.6%.