Evening Market Update

Human Error Exacerbates Greece-Induced Sell-Off

Equity markets tumbled today, but finished off the lows and CNBC is reporting that a trader erroneously entered $16 billion instead of $16 million in a trade that brought the Dow down over 900 points at one point during the day. However, the Dow was already down a solid 250 points before the possible error occurred as traders watched the second day of rioting in Greece after the Greek parliament passed a vote to approve austerity measures that include wage cuts and tax increases to gain access to aid.

Additionally, traders were disappointed that the European Central Bank failed to address the deteriorating sentiment by stepping up asset purchases. Treasuries and gold were higher in a flight to safety on the decline in the stock market, and as weekly initial jobless claims fell and the 1Q nonfarm productivity report showed a decline in unit labor costs and increase in productivity. Retailers reported disappointing same-store sales today, headlined by Target Corp’s larger than expected sales decline, which overshadowed a favorable report from Macy’s Inc. In other equity news, DIRECTV beat the Street’s earnings estimates while JDS Uniphase disappointed.

The nation’s retailers reported April same-store sales—sales at stores open at least a year—and were mostly mixed, with many companies noting the impact of the earlier Easter holiday, which pulled sales forward. Headlining today’s releases, Target Corp. (TGT $55) was lower after it posted same-store sales fell 5.9% year-over-year (y/y), compared to the 2.3% decline that analysts surveyed by Reuters estimated. TGT said its April sales were somewhat below its expectations as a greater-than-expected portion of sales that otherwise would have occurred in April were pulled forward into March. But TGT said its April sales in its higher margin categories remained “particularly strong,” and both of its business segments continued to outperform their respective profit plans for 1Q. The company added that as a result, it expects 1Q EPS will meet or exceed the current First Call median estimate of $0.86.

However, Macy’s Inc. (M $22) announced an unexpected increase in its April same-store sales, rising 1.1% y/y, versus the 0.4% decline that was anticipated. The department store said its business continued to perform well, with Bloomingdale’s and all eight Macy’s regions at or above expectations for sales in April. M increased its 1Q EPS guidance. However, shares were under modest pressure despite the report.

Other department stores that reported same-sales included Kohl’s Corp. (KSS $55) announcing a 7.7% decline, compared to a 7.8% drop that was anticipated, JC Penney Co. Inc. (JCP $28) posting a 3.3% decline in sales, versus the 0.8% dip that was forecasted, while Nordstrom Inc. (JWN $41) reported that its sales rose 7.5%, above the 6.2% increase that was expected. JCP and JWN were both higher in early session trading, but all three retailers ended the day in the red.

Elsewhere, Costco Wholesale Corp. (COST $58) reported April same-store sales grew 11% y/y, including the impact of fuel, just shy of the 11.2% that analysts were forecasting, while excluding inflation in gas prices and strengthening foreign currencies, sales were up 4%. Shares were lower.

Gap Inc. (GPS $23) reported an unexpected drop in April same-store sales, which fell 3% y/y, compared to the 1.3% gain that analysts had expected and shares were solidly lower. GPS’ disappointing results are more than offsetting its EPS outlook for 1Q, which came in better than was anticipated. Other teen-oriented retailers whose reports are worth mentioning included Abercrombie & Fitch Co. (ANF $40), was down sharply after posting a 7% decline in April sales, much more than the 2.3% decrease that analysts forecasted, and Limited Brands Inc. (LTD $25) fell after reporting a 4% increase in sales that was inline with expectations.

Outside of retail sales reports, DIRECTV (DTV $35) reported 1Q EPS of $0.59, above the $0.45 consensus estimate of Wall Street analysts, with revenues increasing 14% y/y to $5.6 billion, above the $5.4 billion that the Street forecasted. The company said its sales benefitted from “strong” average revenue per unit subscriber performances in the US and Latin America, and a 321,000 net subscriber addition. Shares were nicely higher.

Meanwhile, shares of JDS Uniphase (JDSU $11) were down over 20% after the broadband product maker posted fiscal 3Q revenue of $332 million, down 3% versus last quarter, missing the $341 million forecast of analysts. The disappointing reaction to its revenues is overshadowing its better-than-expected 3Q EPS performance and its 4Q revenue outlook that exceeded forecasts.

Jobless claims dip, 1Q productivity rises

Weekly initial jobless claims fell by 7,000 to 444,000, versus last week's figure which was upwardly revised by 3,000 to 451,000, 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 4,750 to 458,500, and continuing claims dropped by 59,000 to 4,594,000, compared to the decline to 4,610,000 that was anticipated.

Elsewhere, preliminary 1Q nonfarm productivity rose at a 3.6% annual rate, above the Bloomberg forecast of 2.6%, and 4Q’s report of a downwardly revised 6.3% gain. Unit labor costs fell 1.6%, versus a drop of 0.7% that was estimated, and the favorably revised 5.6% decline that was reported in 4Q.

In other economic news, Federal Reserve Chairman Ben Bernanke offered some favorable comments about the credit markets, saying although bank credit remains tight, he sees some reasons for optimism, due to the strengthening of the economy.

Treasuries finished higher on a flight to safety amid the global anxiety surrounding Greece and the decline in equity markets. The yield on the 2-year note lost 8 bps to 0.78%, the yield on the 10-year note fell 16 bps to 3.38%, and the 30-year bond yield was 20 bps lower at 4.18%.

European Central Bank does not act to buy Greek debt, China property concerns

The European Central Bank (ECB) met today and left its benchmark interest rate unchanged at 1.0%, and despite some market talk that the central bank might consider asset purchases to help solve the euro-zone debt crisis, during the customary press conference after the meeting, ECB President Jean-Claude Trichet noted that policymakers did not have that discussion. Additionally, while Trichet did not make any specific comments regarding Greece or other nations in his prepared text, he said the ECB calls for “decisive actions” by governments to achieve a lasting and credible consolidation of public finances. Regarding the ECB’s monetary policy, he noted the current benchmark interest rate remains “appropriate,” and the economy is expected to expand at a “moderate” pace in 2010. On inflation, Trichet said domestic price pressures remain low, but looking ahead, global inflationary pressures may increase.

In related news, Greece’s aggressive austerity plan that included wage cuts and tax hikes—that is at the root of the ongoing protests in the Greek nation—received enough votes for passage in Parliament. The austerity plan is demanded of Greece in order for the nation to gain access to the 110 billion euro bailout package that was agreed on by the EU and International Monetary Fund (IMF).

Germany reported that its factory orders jumped 5% month-over-month (m/m) in March, much higher than the 1.4% increase that economists surveyed by Bloomberg had anticipated. In other economic news, UK Services PMI unexpectedly deteriorated to 55.3 in April, from 56.5 in March, and compared to the rise to 57.0 that was expected.

Chinese property shares were weak on reports of severe declines in the number of property transactions over the past week, as well as prior weeks and after the Shanghai Securities News reported, citing an unidentified person, that Evergrande Real Estate Group Ltd. will cut prices for its 40 property developments across China by 15% starting today.

Elsewhere in Asia/Pacific, Australian retail sales grew at a slower pace than economists had forecasted. However, a separate report showed Australia’s trade deficit came in narrower than expected for March, as imports grew 3%, driven by increases in gasoline imports, while exports rose 2%. In other economic news, Japan’s vehicle sales rose 33.5% y/y in April, a slower pace than the 37.2% rise that was registered in March, and India reported that its exports jumped 54% y/y for March, compared to the 34.8% increase seen in the previous month.

Jobs report will be in focus in US economic news tomorrow

Tomorrow, the headlining economic event at least in the US will be the labor report, which is expected to show 190,000 jobs were added to nonfarm payrolls in April, following the 162,000 increase that came in March (economic calendar). The unemployment rate is expected to remain at 9.7%. Employment in the Federal government is expected to distort the report as hiring for the 2010 Census ramps up, with close to a million workers expected to be hired between April-June. The labor market has been a key cog in the economy that has yet to show some meaningful contribution to the recovery, and the fed has noted the soft labor conditions as a main reason for keeping its extremely accommodative monetary policy intact.

The other economic report on tomorrow’s US calendar is consumer credit, expected to have fallen by $3.7 billion in March.

In international economic news, the UK will report housing prices and PPI, Germany will report industrial production, and Canada will announce employment data.

The UK will also be reporting initial results from general and parliamentary elections that end today. If the election produces no clear winner, parties will begin negotiating to determine if two parties can come together to form a coalition government, which could take more than a week, while Parliament isn’t due to sit until May 18, to give time for negotiations. Elsewhere in Europe, the parliaments of several nations are voting on whether to approve aid for Greece.