Morning Market Update

Bulls Not Fooled as Manufacturing and Jobs Data Drive Gains

The bulls are off and running in morning trading, kicking off 2Q in positive fashion as a slew of favorable global manufacturing data is boosting sentiment, amplified by a slightly larger-than-expected decline in US weekly initial jobless claims. Treasuries are lower amid the aforementioned data and rise in the equity markets, but separate readings of US manufacturing activity and construction spending have yet to be digested. The sweetened sentiment is helping the overall markets overcome pressure from a disappointing 4Q earnings report from smartphone maker Research in Motion. Elsewhere on the equity front, Micron Technology easily beat analysts’ expectations. Overseas, markets are broadly higher on the slew of upbeat data, which also included the fourth-straight improvement in the Bank of Japan’s Tankan survey of large manufacturing morale.

As of 8:50 a.m. ET, the June S&P 500 Index Globex future is 8 points above fair value, the Nasdaq 100 Index is 8 points above fair value, and the DJIA is 65 points above fair value. Crude oil is up $0.91 at $84.67 per barrel, and the Bloomberg gold spot price is up $10.58 at $1,123.83 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is flat at 81.08.

Research in Motion (RIMM $74) reported 4Q EPS of $1.27, one penny shy of the consensus estimate of Wall Street analysts, with revenues increasing 18% year-over-year (y/y) to $4.1 billion, also short of the expectation of the Street, which expected the maker of the BlackBerry smartphone to report revenues of $4.3 billion. RIMM said it shipped approximately 10.5 million devices in 4Q and added about 4.9 million net new BlackBerry subscriber accounts. RIMM issued 1Q EPS guidance that exceeded analysts’ forecasts but shares are under pressure in reaction to the 4Q results.

Micron Technology (MU $10) announced fiscal 2Q EPS of $0.39, above the $0.24 that the Street had expected, with revenues increasing almost 100% y/y to $1.96 billion, compared to the $1.8 billion forecast of analysts. The chip maker said it positioned itself well during the recession and its results are starting to reflect the combination of an improving market, strong operational performance, advanced technology and a broad product portfolio. Shares are higher.

Jobless claims decline, read on national manufacturing on the horizon

Weekly initial jobless claims (chart) fell by 6,000 to 439,000, versus last week's figure which was upwardly revised by 3,000 to 445,000, and compared to the consensus estimate of economists surveyed by Bloomberg, which called for claims to decline to 440,000. The four-week moving average, considered a smoother look at the trend in claims, declined by 6,750 to 447,250, and continuing claims dropped by 6,000 to 4,662,000, compared to the 4,618,000 forecast. Treasuries are lower, slightly extending losses following the report.

Later this morning, the economic calendar will produce the ISM Manufacturing Index, and the gauge of national manufacturing activity is expected to improve further above the 50 mark, which is the demarcation point between expansion and contraction, increasing to 57.0 in March from 56.5 in February. The index is expected to depict expansion for the eighth-straight month, illustrating the backdrop of the continued recovery in global economies. Given the week’s added focus on the jobs environment—which remains one of the key components of economic prosperity that has yet to support sentiment—the employment component of the report may garner some added attention. The Employment Index has increased for three straight months and is suggesting that demand, coupled with extremely thin inventories, is prompting the willingness of manufacturers to begin to entertain the idea of hiring more workers, foreshadowing support for the global economic recovery, which eventually could force the Fed into monetary policy action.

Also, construction spending will be released in morning trading, forecasted to decline by 1.0% month-over-month (m/m) in February, compared to the 0.6% m/m decrease that came in January.

Europe manufacturing a gain

Stocks in Europe are higher in afternoon action, led by basic materials and industrials issues as traders digest some favorable manufacturing data in the euro-area. As March PMI Manufacturing reports out of France and Germany were revised higher and initial March PMI releases in Italy, Spain, and Sweden all showed expansion, the overall euro-zone PMI report was revised higher than previously reported for the month, boosting optimism about the continuation of the economic recovery across the pond. Adding to the enthusiasm, the UK PMI Manufacturing in March increased to 57.2—a reading above 50 depicts expansion—from 56.5 in February, and the highest level since October 1994, per Bloomberg. The plethora of favorable data is overshadowing an unexpected decline in retail sales in Germany—Europe’s largest economy.

In equity news, shares of Orion Oyj (ORINF $20) are down sharply after a report that the US Food and Drug Administration (FDA) is studying whether its Parkinson’s drug Stalevo, which is co-marketed with Novartis AG (NVS $54) is linked to an increased risk of prostate cancer.

Britain’s FTSE 100 Index is 0.6% higher, France’s CAC-40 Index is up 1.1%, Germany’s DAX Index is advancing 0.8%, Italy’s FTSE MIB Index is 0.9% in the green, Spain’s IBEX 35 Index is rising 1.0%, and Sweden’s OMX Stockholm 30 Index is moving 1.6% to the upside.

Data drives Asia

Stocks in Asia were broadly higher as yesterday’s decline in the US on disappointing employment and manufacturing data was trumped by a plethora of favorable economic data. Japan’s Nikkei 225 Index posted an 18-month high, closing up 1.4% boosted by an improvement in the Bank of Japan’s fiscal 1Q Tankan Survey showing that sentiment among manufacturers improved for the fourth-consecutive quarter. The survey of large manufacturers improved from -24 in 4Q to -14 and the outlook component also increased from -18 to -8, while the Tankan Index of the non-manufacturing sector showed sentiment and the outlook both improved by a larger amount than economists had forecasted. Meanwhile, large manufacturers also noted in the survey that capital expenditures are expected to decline by 0.4% in the nation’s fiscal 1Q, matching expectations and compared to a drop of 13.8% in 4Q.

Moreover, reports outside of Japan also helped drive today’s advance in the Asia/Pacific region, with two separate reports showing China’s manufacturing activity expanding, headlined by the PMI Manufacturing Index increasing to 55.1 in March from 52.0 in February, and versus the improvement to 55.0 that was anticipated. Other releases in the region showed South Korea’s exports surged 35.1%, Taiwan’s Manufacturing PMI expanded, while Bloomberg news reported that India’s factory output grew for the twelfth-straight month and Australia’s imports of machinery and industrial equipment jumped 23% to a 10-month high. Stocks in China were nicely higher, with the Shanghai Composite Index advancing 1.2% and Hong Kong’s Hang Seng Index increasing 1.4%. Meanwhile, South Korea’s Kospi Index posted a solid 1.6% gain, Australia’s S&P/ASX 200 Index rose 0.7%, India’s BSE Sensex 30 Index closed 0.9% higher, and Taiwan’s Taiex Index advanced 1.2%.

MA& action in Australian was worth noting amid the slew of economic data as shares of Lihir Gold Ltd. (LIHR $28) were up over 30% even after it rejected a A$9.4 billion ($8.6 billion) cash and stock takeover offer by Newcrest Mining Ltd. (NCMGY $30).