Morning Update

Jobless Claims and China Reports Silence the Bulls’ Snort

The equity markets are moving lower in morning action as stronger-than-expected economic data out of China, which sparked some fears that the government could rein in stimulus measures and threaten the global recovery, were exacerbated by the weekly initial jobless claims report. Jobless claims declined by a smaller amount than was anticipated, while the four-week moving average and the continuing claims components both rose. Continued M&A on the equity front is doing little to soothe sentiment in early trading, as Devon Energy announced that it will sell deepwater assets to BP Plc for $7.0 billion. Elsewhere, Smithfield Foods topped earnings expectations but its sales came up short on the restructuring of its pork business. Treasuries are modestly lower after the data, which also revealed that the US trade deficit narrowed. Overseas, Asia was mixed amid the aforementioned data, while Europe is modestly lower.

As of 8:50 a.m. ET, the March S&P 500 Index Globex future is 5 points below fair value, the Nasdaq 100 Index is 6 points above fair value, and the DJIA is 13 points below fair value. Crude oil is down $0.70 at $81.39 per barrel, and the Bloomberg gold spot price is down $6.36 at $1,102.05 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.2% to 80.30.

In M&A news, Devon Energy (DVN $72) announced that it has entered into agreements to sell all of its assets in the deepwater Gulf of Mexico, Brazil and Azerbaijan to BP Plc (BP $56) for $7.0 billion. DVN said the sale, combined with its previously announced divestitures of $1.3 billion of deepwater Gulf of Mexico assets, put it well on the way to completing its strategic repositioning. Additionally, the two companies announced that they will form a heavy oil joint venture to develop BP’s Kirby oil sands leases in Alberta, Canada. Shares of both companies are higher.

Smithfield Foods (SFD $19) reported fiscal 3Q EPS of $0.22, above the consensus estimate of Wall Street analysts, which called for the company to report EPS of $0.19. However, the meat producer said its revenues fell by 12% year-over-year (y/y) to $2.9 billion, below the $3.3 billion that analysts were expecting, as restructuring at its pork unit hampered volumes. Shares are higher.

Jobless claims mixed, trade deficit narrows

Weekly initial jobless claims fell by 6,000 to 462,000, versus last week's figure which was revised slightly downward by 1,000 to 468,000, and compared to the consensus, which called for claims to decline to 460,000. The four-week moving average, considered a smoother look at the trend in claims, rose by 5,000 to 475,500, and continuing claims increased by 37,000 to 4,558,000, compared to the 4,500,000 forecast.

The trade deficit narrowed from a smaller-than-initially reported $39.9 billion in December to $37.3 billion in January, versus the Bloomberg estimate calling for the deficit to widen to $41.0 billion. Treasuries remain modestly lower following the jobs and trade reports.

Modest weakness in Europe as materials outweigh autos

Stocks in Europe are slightly lower in afternoon action amid weakness in basic materials on worries about the implications of the strong-than-expected data out of China on the global economic recovery. However, losses are being limited by strength in the European auto sector as shares of Volkswagen (VLKAY $19) are higher after Europe’s largest automaker said its sales jumped 27% for the first two-months of the year, aided by emerging markets, reiterating that operating profit, revenue, and vehicle sales are expected to be higher in 2010 than last year. However, the company did warn that it “expects the climate in the global automotive industry to remain harsh.” Elsewhere, luxury car maker BMW (BAMXY $15) is also higher after it posted full-year profits that exceeded analysts’ estimates and maintained its plans to pay a dividend.

The euro-area economic front was relatively light today, as France’s 4Q non-farm payrolls declined 0.1% quarter-over-quarter (q/q), versus the 0.4% drop that was initially reported and expected to remain by economists. Moreover, Sweden reported that consumer prices rose more than anticipated in February, and retail sales grew in January.

Britain’s FTSE 100 and France’s CAC-40 Indexes are off 0.5%, Germany’s DAX Index is down 0.2%, and Sweden’s OMX Stockholm 30 Index is declining 0.6%.

Asia shows mixed emotions to strong Chinese data

Stocks in Asia finished mixed as traders grappled with stronger-than-expected data out of China, discounting the reports amid concerns that the data could lead to further measures by the government to pullback stimulus efforts to try to cool down the economy, which could hamper the global economic recovery. The economic data out of China was highlighted by a 2.7% y/y jump in consumer prices in February, to the highest level since October 2008, compared to economists’ expectations of a 2.5% gain. Moreover, new yuan loans increased by 700.1 billion, compared to the 600 billion forecast, and although February’s y/y industrial production came in short of expectations, year to date, production rose the most in more than five years, per Bloomberg news.

In other Chinese economic news, producer prices also exceeded forecasts, urban investment in fixed assets rose more than expected, and retail sales increased by a larger amount than anticipated. However, stocks in China finished near the unchanged mark, with Hong Kong’s Hang Seng and the Shanghai Composite Indexes both increasing 0.1%.

The equity markets in Japan faired relatively well with the Nikkei 225 Index gaining 1%, despite a downward revision to the nation’s 4Q GDP from a 1.1% expansion to a 0.9% gain, compared to the 1.0% growth that was forecasted. Strength in export issues helped Japanese stocks gain ground after receiving support from yesterday’s favorable sales-led drop in wholesale inventories in the US and amid the recent weakness in the yen, which boosted the outlook for revenues of companies that rely on sales outside the country.

Elsewhere, weakness in metals issues on the aforementioned worries about the strong data out of China bogged down stocks in Australia, with the S&P/ASX 200 Index declining 0.1%, exacerbated by the nation’s employment change report that showed much fewer jobs were added than anticipated. Meanwhile, there were some central bank announcements in the region, with New Zealand’s and South Korea’s respective central banks keeping their benchmark interest rates unchanged. New Zealand’s NZX 50 Index dipped 0.1%, and South Korea’s Kospi Index declined 0.3%. Rounding out the day, Taiwan’s Taiex Index was 0.4% lower, while India’s BSE Sensex 30 Index finished 0.4% higher.