Evening Update

Markets Show Little March Madness, Finish Mixed

Stocks finished the day mixed as traders found little direction from multiple economic reports on inflation, employment and business activity. The weekly jobless claims report fell by a smaller amount than economists predicted, which seemed to offset favorable readings from the Philadelphia Fed’s Business Activity Index and the Index of Leading Economic Indicators. Meanwhile, the Consumer Price Index was flat for the month of February, which along with yesterday’s decrease in the Producer Price Index, suggest that inflation remains tame and supports the Fed’s continuing low interest rate environment. In equity news, FedEx Corp. beat earnings expectations on higher shipment growth and strict cost controls, while Nike also reported strong earnings and a positive outlook on future orders. Dow-member Caterpillar Inc. announced improving results in retail machinery sales, and retailer GameStop rounded out the equity news by reporting a better-than-anticipated profit report. Trading volume was light again today, although it is expected to pick up as tomorrow is a quadruple-witching day, where contracts for stock index futures, stock index options, stock options and single stock futures will all expire. Treasuries ended the day lower.

The Dow Jones Industrial Average rose 46 points (0.4%) to close at 10,779, the S&P 500 Index was flat at 1166 and the Nasdaq Composite was 2 points (0.1%) higher at 2,391. In moderately light volume, 920 million shares were traded on the NYSE and 2.1 billion shares were traded on the Nasdaq. Crude oil was $0.76 lower at $82.17 per barrel, wholesale gasoline was flat at $2.30 per gallon, and the Bloomberg gold spot price rose $6.00 to $1,126.35 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was up 0.76% to 80.24.

FedEx Corp. (FDX 93) reported fiscal 3Q EPS more than doubled year-over-year (y/y) to $0.76, four cents above the consensus estimate of Wall Street analysts, with revenues increasing 7% y/y to $8.7 billion, compared to the $8.4 billion that the Street had forecasted. The package delivery firm said its earnings and revenues increased as a result of higher shipment growth, particularly in international express and at FedEx Ground, along with “strict cost controls,” while increased fuel costs and an operating loss at FedEx Freight impacted results. FDX said on a conference call with analysts that the global economic recovery was “broadening,” with increasing activity from China, the UK and Canada leading a sharp rise in its international priority shipments. The company increased its full-year EPS guidance to a range of $3.60-3.80, from $3.45-3.75, and analysts are expecting FDX to post full-year EPS of $3.64. Shares were modestly higher, overcoming early losses that came after the company said it would reinstate various employee compensation programs, which it expects to “dampen” earnings growth in 4Q and into fiscal year 2011.

Nike Inc. (NKE $75) reported fiscal 3Q EPS of $1.01, compared to the Street’s expectation of $0.88, with revenues increasing 7% y/y to $4.7 billion, just above the $4.6 billion that analysts had forecasted. The athletic goods firm said its futures orders for footwear and apparel, scheduled for delivery from March through July 2010 are up 9% y/y to $7.1 billion, led by strong gains in orders from the emerging markets and Western Europe, while orders in Japan are down. NKE shares traded higher.

Dow member Caterpillar Inc. (CAT $60) reported that the decline in retail machinery sales continued to ease over the past three months, while engine sales remained down 33% during that period. The construction and mining equipment company noted that worldwide sales of retail machinery fell 20% y/y, compared to a 27% decrease last quarter, while the figures for North America showed the decline eased from 40% to 30%. The company said earlier this month that sales figures for 2010 were expected to increase 10% to 25% over last year due to an uptick in orders and rebounding prices for mined commodities. Shares of CAT were slightly lower.

GameStop Corp. (GME $21) reported 4Q EPS of $1.29, one penny above the expectation of analysts, with revenues increasing 0.9% y/y to $3.5 billion, versus the $3.4 billion that was forecasted on the Street. The gaming retailer posted a 7.9% decline in same-store sales—sales at stores open at least a year. GME said it expects 1Q EPS to be between $0.46-0.48 and full-year 2010 earnings to range from $2.58-2.68. Analysts are expecting the company to report 1Q and full-year EPS of $0.46 and $2.58, respectively. Shares were solidly higher.

Consumer prices tame, jobless claims dip

The Consumer Price Index showed prices at the consumer level came in unchanged in February month-over-month (m/m), compared to the forecast of economists surveyed by Bloomberg, which called for the index to rise 0.1%. Meanwhile, the core rate, which strips out food and energy, expectedly rose by 0.1% m/m for February. While food and energy is the smallest component in the CPI basket, it tends to be the most volatile and often explains a majority of changes in the index at the headline level. On a year-over-year basis, consumer prices were up 2.1% in February, compared to the forecast of 2.3%, and the core CPI was 1.3% higher y/y, compared to the 1.4% forecast.

The flat reading of prices that face consumers came as a decline in energy—the first decrease since April 2009, led by gasoline—was offset by increases in food, with meats, poultry, fish, and eggs posting the largest increases. The core rate ticked higher courtesy of higher prices for medical care and used cars and trucks, which more than offset declines for apparel and household furnishings. Today’s report, coupled with yesterday’s larger-than-expected drop in the Producer Price Index, continues to suggest that all is relatively clear on the inflation front.

On the jobs front, weekly initial jobless claims declined by 5,000 to 457,000, versus last week's figure which was unrevised at 462,000, and compared to the consensus, which called for claims to decline to 455,000. The four-week moving average, considered a smoother look at the trend in claims, declined by 4,250 to 471,250, and continuing claims increased by 12,000 to 4,579,000, compared to the 4,522,000 forecast.

Meanwhile, the Philadelphia Fed’s Business Activity Index (chart) improved more than expected, rising to 18.9 in March from 17.6 in February, and compared to the Bloomberg survey of economists, which expected the index to increase to 18.0. A reading above zero denotes expansion. The underlying components of general activity, new orders and shipments, both remained in expansionary territory, and for the fourth-straight month, more firms reported an increase in employment than reported declines.

Elsewhere, the Conference Board released the Index of Leading Economic Indicators (LEI) (chart) for February, which matched the expectation of a 0.1% increase, marking the eleventh consecutive monthly increase, and February’s report was unrevised at a 0.3% advance. Of the ten components that make up the index, a favorable yield curve and the money supply led the advance, partially offset by worse numbers for the average workweek and stock prices.

In other economic news, the 4Q current account deficit increased to $115.6 billion, versus 3Q’s $102.3 billion, which was revised to a narrower deficit, and compared to the increase to a $119 billion deficit that economists had forecasted.

Treasuries were lower, as the yield on the 2-year note rose 3 bps to 0.95%, while the yield on the 10-year note gained 3 bps to 3.67%, and the 30-year bond yield increased 2 bps to 4.56%.

Europe bogged down by festering Greece fears

Comments made by German Chancellor Angela Merkel further dampened hopes that a financial aid package will be made available to debt-ridden Greece. Merkel said that “the problem has to be solved from the Greek side and everything that is being considered has to be oriented in that direction.” Meanwhile, Greek Prime Minister George Papandreou urged euro-zone leaders to come up with a mechanism to help the nation by next week’s euro-area leaders summit. Also, Papandreou has warned that it would not be able to make its planned deficit cuts unless borrowing costs come down, per Reuters, and Bloomberg is reporting that the Greek Prime Minister has hinted that he may turn to the International Monetary Fund (IMF) if a plan is not agreed upon by European nations. Going to the IMF is considered a non-desirable option as it could diminish confidence that the European Union can handle its own crises. Greece needs to raise approximately 10 billion euros to refinance bonds that will come due on April 20th and May 19th.

In other economic news, the euro-zone trade balance swung to a deficit in January, and the trade deficit in Italy surged in January, while Switzerland’s trade surplus shrunk by a larger amount than expected by economists. Also, separate reports showed Switzerland’s 4Q industrial production rose more than expected and Sweden’s unemployment rate unexpectedly declined to 9.3% in February.

There are no major economic releases on the US economic calendar tomorrow. On the international front, Japan will report department store sales, Germany will release its Producer Price Index and Canada will announce its Consumer Price Index and monthly retail sales.