Morning Update

Momentum Abates as Jobless Claims and Inflation Accelerate

After a couple of positive days to start the week, stocks are under some pressure in morning action amid some disappointing economic reports and a mixed earnings announcement from the world’s largest retailer Wal-Mart. The equity markets moved lower after weekly initial jobless claims unexpectedly jumped, and after a separate report showed prices at the wholesale level rose more than expected on both the headline and core rates. However, the tech sector is receiving some support from a better-than-expected profit announcement from Dow component Hewlett-Packard. Treasuries are higher, gaining ground after the economic news, and ahead of reports on Mid-Atlantic manufacturing and leading indicators. Overseas, Asia was mostly lower in lackluster action, while European markets are mostly higher on continued strength in the financial sector.

As of 8:52 a.m. ET, the March S&P 500 Index Globex future is 4 points below fair value, the Nasdaq 100 Index is 4 points below fair value, and the DJIA is 24 points below fair value. Crude oil is down $0.51 at $76.82 per barrel, and the Bloomberg gold spot price is higher by $1.34 at $1,108.15 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.3% at 80.63.

Dow component Wal-Mart Stores Inc. (WMT $54) announced 4Q EPS ex-items of $1.17, five cents above the consensus estimate of Wall Street analysts, with revenues increasing 4.6% year-over-year (y/y) to $112.8 billion, below the $114.4 billion that the Street had expected. The world’s largest retailer said its Wal-Mart US 4Q same-store sales—sales at stores open at least a year—came in below the company’s forecasts. WMT said it expects 1Q EPS to be between $0.81-0.85, compared to the $0.85 that analysts are expecting, and the company said its full-year EPS is forecasted to come in a range of $3.90-4.00, compared to the $3.97 that the Street is looking for. Shares are lower.

Fellow Dow member Hewlett-Packard (HPQ $50) reported fiscal 1Q EPS ex-items of $1.10, five cents above the Street’s forecast, with revenues increasing 8% y/y to $31.2 billion, above the $29.9 billion that analysts were anticipating. The company said it is “well-positioned to outperform the market,” and the strength of its portfolio, leaner cost structure and accelerating market momentum give its confidence to raise its full-year outlook. HPQ also reported 2Q guidance that mostly exceeded analysts’ forecasts. HPQ is slightly higher in early trading.

Jobless claims and producer prices jump

Weekly initial jobless claims jumped, rising by 31,000 to 473,000, versus last week's figure which was revised upward by 2,000 to 442,000, and compared to the consensus, which called for claims to dip to 438,000. The four-week moving average, considered a smoother look at the trend in claims, declined slightly by 1,500 to 467,500, and continuing claims remained at an upwardly revised 4,563,000, compared to the 4,500,000 forecast.

The Producer Price Index showed prices at the wholesale level rose 1.4% month-over-month (m/m) in January, after advancing an upwardly revised 0.4% in December. The average economist forecast surveyed by Bloomberg called for prices to increase 0.8%. Meanwhile, the core rate, which excludes food and energy, increased 0.3% m/m compared to the forecast for a 0.1% increase. On a year-over-year basis, headline producer prices were 4.6% higher, and the core rate was up 1.0%. Treasuries are higher, gaining ground following the jobs and inflation reports.

Later today, the economic calendar will yield other major reports in the form of the Philly Fed Business Activtiy Index, expected to improve from 15.2 in January to 17.0 in February, and the Index of Leading Economic Indicators, which is expected to increase by 0.5% for the month of January.

Europe modestly higher despite some disappointing equity news

Stocks in Europe are slightly higher in afternoon action as financials are posting gains despite a disappointing reaction to an earnings report from France’s second-largest bank by market value, Societe Generale (SCGLY $12), in which the company’s performance was hampered by asset writedowns, but still exceeded analysts’ estimates. Shares are down about 6% after the report and as the company cut it dividend payment. Financials are trading higher as better-than-expected reports from other major Eurozone financial firms this week are helping the sector shrug off today’s news. Meanwhile, the advance across the pond is coming despite a solid decline in shares of Daimler (DAI $45) after the luxury car maker posted an unexpected 4Q loss and scrapped its dividend. However, industrials are leading the way in Europe, led by a 6% increase in shares of Swiss engineering firm ABB Ltd (ABLZF $18) on the heels of its better-than-expected 4Q earnings report, which showed a sharp rise in profit and the company announced that it will increase its savings target by $1 billion.

In economic news, Switzerland’s trade surplus expanded in January, while Sweden’s unemployment rate rose more than expected in January and a separate report showed the nation’s consumer prices fell more than expected m/m in January. Moreover, the UK posted its first budget deficit since at least 1993, per Bloomberg news. Britain’s FTSE 100 Index is 0.6% higher, France’s CAC-40 Index is up 0.3%, Germany’s DAX Index is advancing 0.4%, Switzerland’s Swiss Market Index is up 1.0%, while Sweden’s OMX Stockholm 30 Index is 0.1% lower.

Lackluster action in Asia

With China and Taiwan markets remaining closed for a holiday, stocks in Asia finished mostly lower in light volume as traders lacked conviction, booking some profits from the recent upward momentum. Traders also grappled with the uncertainty regarding when or if the Eurozone debt issues will be resolved and whether the US Federal Reserve may be getting set to tighten its monetary policy sooner than some expected, after yesterday’s minutes from the Fed’s last policy meeting suggested policymakers may be further down the exit strategy planning stage than anticipated. Japan’s Nikkei 225 Index eked out a 0.3% gain—the lone major Asian market to finish in the green—even as the Japanese yen gained ground versus the dollar and most major currencies, which could have an impact on revenues of exporters that rely on sales in the US and other major countries outside of the Asian nation. The action in Japan followed the monetary policy announcement from the Bank of Japan, in which it expectedly kept its benchmark interest rate unchanged at 0.1%.

Meanwhile, South Korea’s Kospi Index declined 0.4% and India’s BSE Sensex 30 Index decreased 0.6%. In equity news for the Asia/Pacific region, shares of Australian airline Qantas Airways (QUBSF $3) were down about 8% after the company posted a sharp drop in first-half profits, missing analysts’ expectations, while saying it will not pay a dividend and it will reconfigure its aircraft cabins, including scraping some of its first class cabins. Australia’s S&P/ASX 200 Index finished 0.3% lower. Elsewhere, Hong Kong’s Hang Seng Index declined 0.5% after a report that showed the nation’s unemployment rate remained at 4.9% in January, versus the expectations of economists, which called for a decline to 4.8%.