Morning Market Update

Modest Morning Moves

The US equity markets are nearly unchanged in morning action, pausing from the recent rebound, which has the equity markets up solidly for the week, with little major market moving events greeting traders early on. However, Asian markets moved solidly higher, taking the lead from the steep gains yesterday in the US and Europe, while European stocks are extending their advance as Portugal was reported to be set to deploy new austerity measures to cut its deficit, and on some positive equity news. Meanwhile in the US, weekly initial jobless claims remained stubbornly high at a level above economists’ forecasts, while import prices rose more than anticipated. On the equity front, Dow member Cisco Systems Inc reported better-than-expected top-and bottom-line results, Kohl’s posted favorable earnings but provided a mixed outlook, and the US subsidiary of German software firm SAP AG announced that it has signed a definitive agreement to acquire US software firm Sybase Inc for about $5.8 billion. Treasuries are nearly unchanged in the lackluster beginning to the trading day.

As of 8:50 a.m. ET, the June S&P 500 Index Globex future is 1 point below fair value, the Nasdaq 100 Index is 4 points below fair value, and the DJIA is 12 points below fair value. Crude oil is down $1.27 at $74.38 per barrel, and the Bloomberg gold spot price flat at $1,238.93 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.3% at 85.08.

Dow member Cisco Systems Inc. (CSCO $27) reported fiscal 3Q EPS ex-items of $0.42, three cents above the consensus estimate of Wall Street analysts, with revenues increasing 27% year-over-year (y/y) to $10.4 billion, above the $10.2 billion that the Street had forecasted. The company said it witnessed a return to strong balanced growth across geographies, products and customer segments that it has not seen since “before the global economic challenges began.” CSCO issued 4Q revenue guidance that matched analysts’ expectations.

In M&A news, the US subsidiary of German software firm SAP AG (SAP $45) announced that it has signed a definitive agreement to acquire US software firm Sybase Inc. (SY $56) in an all cash offer of $65.00 per SY share, or $5.8 billion. The companies said the deal will allow customers to be better able to harness today’s explosion of data and will help companies become better-run “unwired enterprises.” SY is up sharply.

Kohl’s Corp. (KSS $57) announced 1Q EPS of $0.64, two pennies above the Street’s forecast, with revenues rising 10.9% y/y to $4.0 billion, roughly inline with expectations, with same-store sales—sales at stores open at least a year—increasing by 7.4% y/y. KSS issued 2Q EPS guidance that missed analysts’ forecasts, but raised its full-year EPS outlook.

Jobless claims dip, import prices rise slightly more than anticipated

Weekly initial jobless claims declined by 4,000 to 444,000, versus last week's figure which was upwardly revised by 4,000 to 448,000, 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 9,000 to 450,500, and continuing claims rose by 12,000 to 4,627,000, compared to the decline to 4,590,000 that was anticipated.

The Import Price Index rose 0.9% month-over-month (m/m) for April, compared to the expectation of economists, which called for the index to increase by 0.8%. Year-over-year, import prices are higher by 11.1%, versus the 11.3% forecast of economists. Treasuries are nearly unchanged, showing little reaction to the jobs and import price report.

Europe gains ground on upbeat reports from the corporate front

Stocks in Europe are higher in afternoon action, following yesterday’s solid gains on favorable economic and equity news, which was complimented by austerity measures from Spain and as Conservative Party leader David Cameron took over as UK Prime Minister. Today, Portugal’s Finance Minister told Reuters that his government had identified new austerity measures to cut its budget deficit, and more upbeat corporate news is continuing the momentum in the equity markets across the pond. J Sainsbury Plc (JSAIY $19) is solidly higher after the UK supermarket chain posted profits that more than doubled, while BT Group Plc (BT $18) is up sharply after the UK’s largest phone company, per Bloomberg, announced 4Q profits that exceeded analysts’ forecasts. Meanwhile, Germany’s SAP is down after its agreement to acquire Sybase, and financials are lagging the broad market amid some profit taking following the recent advance, exacerbated by a solid decline in shares of Credit Agricole SA (CRARY $7) after the French bank reported 1Q net income that missed analysts’ expectations.

The economic front is relatively light, with UK consumer confidence improving to a level above economists’ expectations, while a separate report showed the UK trade deficit widened by a larger amount than forecasted.

The UK FTSE 100 Index is 0.6% higher, France’ CAC-40 Index is up 0.2%, Germany’s DAX Index is gaining 0.9%, while Spain’s IBEX 35 Index is down 1.8% and Portugal’s PSI 20 Index is declining 0.8%.

Asia moves solidly higher following strong day in US

Stocks in Asia were nicely higher on the heels of the solid advance in the US, which came courtesy of easing euro-zone debt fears as Spain announced austerity measures and the UK gained some clarity on their new government. Japan’s Nikkei 225 Index led the way, rising 2.2% supported by some strength in export issues as the yen weakened yesterday against the dollar and other major world currencies on the aforementioned improving euro-area sentiment, which boosted the outlook for revenues of firms that rely on sales outside the Asian nation. Also, a 14% jump in shares of CSK Holdings Corp. (CSKKF $4) after the technology system and software development firm provided a favorable full-year profit forecast helped the advance. Meanwhile, after the closing bell in Japan, Sony Corp. (SNE $33) forecasted current full-year profits that fell short of analysts’ estimates. In Japanese economic news, the nation’s trade surplus widened by an amount that was smaller than economists’ forecasted, while separate reports showed the current economic outlook improved by a larger amount than expected. Stocks in China also aided the solid broad-based advance in the Asia/Pacific region, with Hong Kong’s Hang Seng Index increasing 1.0% and Shanghai Composite Index gaining 2.1%, led by banking firms, which have come under recent pressure amid festering fears that the government could tighten it monetary policy further to control excess property speculation and prevent the overheating of the economy.

Elsewhere, Australian stocks also helped pace the advance, with the S&P/ASX 200 Index rising 1.8% on some upbeat employment figures, which showed the nation’s employment change rose by 33,700 in April, topping the 22,500 increase that was forecasted by economists, and its unemployment rate remained at March’s upwardly revised 5.4% in April. Rounding out the day were strong gains from South Korea’s Kospi Index and Taiwan’s Taiex Index, which gained 1.9% and 2.21%, respectively, while India’s BSE Sensex 30 Index increased 0.4%.