Morning Update

Bulls Search for Identity Amid Heightened Volatility

Coming off another week in the red as 2010 has not been kind to the bulls, stocks are slightly lower in early action amid sovereign debt concerns in the Eurozone and employment uncertainty following Friday’s mixed labor report. This week is shaping up to be relatively lighter than usual with 4Q earnings winding down and the economic calendar set to produce a smattering of data. Treasuries are modestly lower as there are no major reports to be released today. In equity news, CVS Caremark reports better-than-expected earnings but its revenues came in light, while Hasbro announced earnings that easily topped analysts’ forecasts. Overseas, Asia finished mixed, and Europe is under modest pressure in afternoon action.

As of 8:48 a.m. ET, the March S&P 500 Index Globex future is 2 points below fair value, the Nasdaq 100 Index is 1 point above fair value, and the DJIA is 29 points below fair value. Crude oil is up $0.16 at $71.35 per barrel, and the Bloomberg gold spot price is lower by $0.63 at $1,065.68 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.1% at 80.34.

CVS Caremark (CVS $31) reported adjusted 4Q EPS of $0.79, one penny ahead of the consensus estimate of Wall Street analysts, with net revenues rising 7% year-over-year (y/y) to $25.8 billion, compared to the $26.2 billion that the Street was looking for. The company said its pharmacy services revenues rose 14.5% and its retail pharmacy sales rose 4.5% for the quarter. Meanwhile, its pharmacy network claims processed decreased by 5.6% to 151.4 million, due to the termination of two large health plan clients and three fewer reporting days in 4Q compared to the same period last year. CVS said its same-store sales—sales at stores open more than one year—increased by 4.9%.

Hasbro (HAS $31) announced 4Q EPS of $1.09, easily topping the $0.81 that analysts were expecting, with revenues increasing 12% to $1.4 billion, versus the $1.3 billion that the Street had forecasted. The toy maker said it believes it should be able to grow revenues and EPS for the full year 2010, absent a deterioration in consumer spending, global economic conditions or the value of foreign currencies.

Retail sales report set to anchor economic docket

Treasuries are slightly lower in morning trading as there are no major economic reports scheduled for release on the economic calendar, and the rest of the week will be relatively light.

Advance retail sales for January will be released this Friday and will likely be the headlining economic event for the week, forecasted to rise 0.3% month-over-month (m/m), after falling 0.3% in December. Meanwhile, sales ex-autos are estimated to increase 0.5%, on the heels of a decline of 0.2% in December.

Other releases on the economic agenda this week include the MBA Mortgage Application Index, wholesale inventories, the trade balance, initial jobless claims, business inventories and the University of Michigan Consumer Sentiment Index.

Europe under pressure as debt concerns persist

Stocks in Europe are slightly lower in afternoon action, led by weakness in financial issues as concerns over sovereign debt of Greece continue to stymie sentiment across the pond. Greece’s Athex Composite Index is down 3.7% even as members of the Eurozone offered supporting comments about the deficit problems in the country. European finance ministers pledged to “make sure” Greece sticks to its budget cutting plans at a weekend meeting of G-7 finance leaders, while European Central Bank President Jaen-Claude Trichet said the ECB is “confident” Greece will cut its deficit below the limit of 3% of GDP by 2012 from 12.7%, per Bloomberg news.

Technology shares are also under pressure as shares of SAP (SAP $46) are lower following the surprising announcement that the CEO of the world’s largest business software firm will leave the company. SAP said the departure was a mutual decision and did not cite a reason for the change in leadership. The company said it will return to a split leadership. The Eurozone economic calendar is relatively light with a gauge of Euroarea investor confidence unexpectedly deteriorating, Switzerland’s unemployment rate increased to 4.5% for January, while the nation’s retail sales jumped 4.7% y/y in December.

Asia mixed amid economic uncertainty

Stocks in Asia finished mixed as traders continue to be cautious about the continuation of the global economic recovery amid lingering fears about the sovereign debt in Europe and on the heels of the mixed labor data out of the US. Japan’s Nikkei 225 Index came under solid pressure, falling 1.1% to lead decliners as shares of Toyota Motor Corp. (TM $75) declined again on continued recall uneasiness at the world’s largest automaker, exacerbated by reports that the company may be set to announce a recall of its Prius hybrid vehicles due to a brake problem. TM did not comment on the reports. Also, shares of Kirin Holdings (KNBWY $16) were down solidly after the beer maker and privately-held beverage maker Suntory Holdings called off plans to merge, which would have created one of the world’s largest brewers, over management disagreements. In other equity news in Japan, Sumitomo Mitsui Financial Group (SMFJY $3) announced better-than-expected 3Q profits following the closing bell in Asia. On the Japanese economic front, the nation reported a smaller-than-expected current account balance for December, and a separate report showed its banking lending declined for the month of January.

In other economic news in Asia, Taiwan reported that its exports rose more than anticipated, growing 75.8% y/y in January, compared to the forecast of economists, which called for the country’s exports to increase 62.9%. Taiwan’s Taiex Index finished flat. Meanwhile Australia’s S&P/ASX 200 Index rose 0.2% amid signs that the nation’s economic recovery is warranting more tightening of stimulus efforts after the Australian government withdrew its guarantee on large deposits at banks that were put on to ease tight credit conditions. Elsewhere, China’s Shanghai Composite Index dipped 0.1%, Hong Kong’s Hang Seng Index declined 0.6%, South Korea’s Kospi Index fell 0.9%, and India’s BSE Sensex 30 Index rose 0.1%.