Morning Market Update

Sentiment Drops as Private Sector Payrolls Flop

Although the equity markets are poised to finish out 1Q with the fourth-straight quarterly advance, stocks are in the red to close out the quarter, after the ADP Employment Change Report showed private sector payrolls unexpectedly fell. Treasuries are gaining ground in reaction to the employment data and subsequent drop in the equity markets. In equity news, Honeywell International Inc. increased its 1Q EPS guidance, Dow member Boeing announced a reduction in 1Q earnings due to healthcare reform, and Dollar General Corp. announced earnings that exceeded analysts’ forecasts. In other economic news, mortgage applications rose, while Chicago PMI and factory orders will be released later this morning. Overseas, Asia finished lower, while the aforementioned jobs data erased early gains in Europe.

As of 8:50 a.m. ET, the June S&P 500 Index Globex future is 5 points below fair value, the Nasdaq 100 Index is 8 points below fair value, and the DJIA is 39 points below fair value. Crude oil is up $0.75 at $83.12 per barrel, and the Bloomberg gold spot price is up $9.58 at $1,113.18 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.5% to 81.09.

Honeywell International Inc. (HON $45) increased its 1Q EPS guidance to a range of $0.45-0.49, from the previous outlook of between $0.40-0.45, and compared to the consensus of Wall Street analysts, which expect the company to report 1Q EPS of $0.44. The company said the increased outlook reflects both stronger orders and sales in several short cycle end markets, as well as continued execution of strong cost controls. Also, HON said it now expects its full-year EPS to be near the high end of its guidance range of $2.20-2.40. The Street is looking for HON to post annual EPS of $2.40. The company said the revised guidance includes a one-time charge of $13 million after tax due to the new US healthcare law.

Meanwhile, Dow member Boeing (BA $74 1) announced that it will take an income tax charge of $150 million as a result of the recently passed healthcare reform, which is expected to reduce 1Q net earnings by about $0.20 per share.

Dollar General Corp. (DG $26) reported 4Q EPS ex-items of $0.51, above the $0.43 consensus estimate of analysts, with sales increasing 11.9% year-over-year (y/y) to $3.2 billion, matching the Street’s forecast. Same-store sales—sales at stores open at least a year—rose 7.4% y/y.

Private sector payrolls surprisingly slip, mortgage applications increase

The first piece of this week’s US labor data came in, as the ADP Employment Change Report was released and showed private sector payrolls unexpectedly fell, declining by 23,000 jobs in March, compared to the forecast of economists surveyed by Bloomberg, which called for a 40,000 increase. February’s figure was left unrevised at a loss of 20,000. The week’s headlining employment report will come on Friday in the form of the Bureau of Labor Statistics’ release of nonfarm payrolls, with the Bloomberg survey of economists forecasting payrolls advanced by 185,000 jobs in March, and that the unemployment rate will remain at 9.7%. However on Friday, the equity markets will be closed in observance of Good Friday. The ADP report does not include government payrolls, which are expected to receive a lift from census hiring and are part of the reason for the high forecast of job gains in Friday’s report. Treasuries moved higher following the report.

In other economic news, the US MBA Mortgage Application Index advanced 1.3% last week, after the index, which can be quite volatile on a week-to-week basis, declined 4.2% in the previous week. The increase came amid a 6.8% gain in the Purchase Index, which more than offset a 1.3% decline in the Refinance Index. Moreover, the rise in the overall index came despite a 3 basis-point increase in the average 30-year mortgage rate, which moved to 5.04%, and remains above the record low of 4.61% that was reached at the end of March 2009.

Later today, the economic calendar will yield the releases of the Chicago PMI, forecasted to decline from 62.6 in February to 61.0 in March, and the factory orders report, which is expected to show a 0.5% increase for the month of February.

Europe gives up early gains amid US employment disappointment

Stocks in Europe have turned lower in afternoon action as traders react to the disappointing US employment data, while digesting reports on the employment situation in the euro-area and amid a surge in an Irish bank after the nation’s government unveiled capital requirements to participate in its “bad bank” program. Shares of the Bank of Ireland (IRE $8) are up almost 30% after Ireland’s National Asset Management Agency said it will apply an average discount of 47% on the first wave of loans it will purchase from lenders and the Irish central bank said the nation’s banks need to raise $43 billion in new capital to meet its capital targets to rid toxic assets off of their respective balance sheets. Banks will have 30 days to finanlize their plans on how to raise the funds and IRE said it is in talks with banks on “maximizing” the amount of new capital it will raise from investors and that it expects to avoid majority state control as part of the plan, according to Bloomberg News.

Meanwhile the economic front is in focus across the pond, headlined by some major employment data. Germany—Europe’s largest economy—announced that its unemployment change unexpectedly fell by 31,000, in March, compared to the increase of 7,000 that was anticipated by economists, and unemployment rate fell from a downwardly revised 8.1% to 8.0%, versus the expectation that the rate would remain at the pre-revised 8.2% level. Moreover, the euro-zone unemployment rate ticked higher in February, increasing to 10.0% from 9.9% in January, Ireland reported that its unemployment rate in February remained at an upwardly revised 13.4%, while Italy’s unemployment rate unexpectedly decreased to 8.5%, as economists had expected it to rise to 8.7%. Some inflation reports also were reported, with France announcing that its producer prices rose 0.1% month-over-month (m/m) in February, matching expectations, while Italy’s consumer prices rose 0.3% m/m in March, exceeding the 0.2% increase that was forecasted.

Britain’s FTSE 100 Index is 0.1% lower, France’s CAC-40 Index is down 0.4%, Germany’s DAX Index is declining 0.2%, Italy’s FTSE MIB Index is 0.3% in the red, while Ireland’s Irish Overall Index is gaining 0.6%.

Asia dips as Australian retail sales unexpectedly slip

Stocks in Asia were broadly lower, with Japan’s Nikkei 225 Index giving up early gains and finishing 0.1% in the red after succumbing to a bout of profit-taking after hitting an 18-month high, with traders jockeying for final position as the nation’s fiscal year came to a close. Reports that Japanese housing starts and construction orders fell y/y in February did little to help the country’s markets end the year in a positive fashion. Australian shares paced the decline in the region, with the S&P/ASX 200 Index declining 0.8%, pressured by separate reports, which showed unexpected declines in February retail sales and building approvals. Meanwhile, South Korea’s Kospi Index fell 0.4% even after a report showed m/m growth in industrial production for February came in larger than economists had anticipated. In other economic news, manufacturing production in Thailand rose more than anticipated in February, and a larger jump in imports compared to exports resulted in the nation’s trade surplus narrowing in February. Thailand’s Stock Index of Thai Index moved 0.1% lower.

Elsewhere, stocks in China also came under some pressure, with the Shanghai Composite Index decreasing 0.6% to cap off a negative quarter, while Hong Kong’s Hang Seng Index also dropped 0.6%, bogged down by a 7% drop in shares of China Oilfield Services Ltd. (CHOLY $30) after the company reported full-year profits that missed analysts’ expectations. Rounding out the day in Asia, Taiwan’s Taiex Index declined 0.5% and India’s BSE Sensex 30 Index dropped 0.4%.