Morning Market Update

Manufacturing and Jobs Data Limits Losses

The US equity markets are under some pressure in morning trading following yesterday’s disappointing US housing data, the Federal Reserve’s revision to its economic assessment, and lingering euro-area debt fears. However, stocks have pared losses and are off the worst levels of the morning after a smaller-than-expected drop in US durable goods orders and a larger-than-anticipated decline in jobless claims. Treasuries are higher, but have pared some gains on the aforementioned data. The equity front is providing mixed sentiment, with Bed Bath & Beyond Inc posting better-than-expected earnings, while Nike Inc and Lennar Corp both fell short on their sales results. Overseas, Asia was mixed amid a political change in Australia, while Europe is being pressured by a disappointing economic report and resurfacing debt fears.

As of 8:54 a.m. ET, the September S&P 500 Index Globex future is 6 points below fair value, the Nasdaq 100 Index is 10 points below fair value, and the DJIA is 31 points below fair value. Crude oil is down $0.11 at $76.24 per barrel, and the Bloomberg gold spot price is down $3.15 at $1,234.20 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.1% at 85.85.

Nike Inc. (NKE $73) reported fiscal 4Q EPS of $1.06, which matched the Reuters estimate, while revenues, which rose 8% year-over-year (y/y) to $5.1 billion, came in short of the Street’s $5.2 billion expectation. The company said fiscal 2010 was “tough” but it reported that worldwide futures orders for athletic footwear and apparel, scheduled for delivery from June through November 2010, rose 7% y/y to $8.8 billion.

Bed Bath & Beyond Inc. (BBBY $41) reported fiscal 1Q EPS of $0.52, four cents above the consensus estimate of analysts, with revenues rising 13.5% y/y to $1.92 billion, just above the $1.89 billion that the Street was calling for. Same-store sales—sales at stores open at least a year—rose 8.4%, after falling 1.6% in the same period a year ago.

Lennar Corp. (LEN $15) posted fiscal 2Q EPS of $0.21, compared to flat earnings that analysts were forecasting, with revenues declining 9% y/y to $814.5 million, below the $857 million that the Street had anticipated. The company said it continued to see a housing market that was trying to rebound, and as expected, this stabilization process was impacted by the expiration of the Federal homebuyer tax credit.

Durable goods orders decline by a smaller amount than forecasted, jobless claims fall

Durable goods orders fell 1.1% month-over-month (m/m) in May, a smaller decline than the forecast of 1.4% by economists surveyed by Bloomberg, while ex-transportation, orders rose 0.9%, just shy of the expectation for a 1.0% increase. Also, April’s 2.9% increase was revised to a 3.0% rise. Non-defense capital goods excluding aircraft, considered a good proxy for business spending, rose 2.1% in May.

Weekly initial jobless claims dropped 19,000 to 457,000, versus last week's figure which was upwardly revised by 4,000 to 476,000, and compared to the consensus estimate of economists surveyed by Bloomberg, which called for claims to decrease to 463,000. The four-week moving average, considered a smoother look at the trend in claims, declined by 1,500 to 462,750, and continuing claims fell by 45,000 to 4,548,000, compared to the drop to 4,550,000 that was anticipated.

Treasuries are higher but pared some gains following the durable goods and jobless claims data. Treasuries are adding to yesterday’s gains that came from the disappointing tumble to a record low in new home sales, while the Federal Reserve’s dialed back its language about the recovery’s pace and changed its statement from “financial market conditions remain supportive of economic growth,” to conditions have become “less supportive of economic growth,” noting the recent European crisis, saying this reflects “developments abroad.” Also, the Fed said that bank lending had continued to contract in recent months.

Europe under pressure on data and debt worries

Stocks in Europe are posting losses in afternoon action, led by basic materials—despite a favorable industry reaction to a political shake up in resource-rich nation of Australia—and after a disappointing reading of industrial demand in the euro-zone. Also, financials are helping pace the decline in the region, with euro-area debt fears resurfacing, exacerbated by a record high in the rate of credit default swaps—a measure of the cost of insuring the nation’s debt—in Greece, which is also pressuring other debt-laden nations such as Spain and Portugal. Adding to the negative backdrop, shares of Hennes & Mauritz (HNNMY $6) are lower after Europe’s second-largest clothing retailer, according to Bloomberg, posted quarterly sales results that missed analysts’ forecasts.

On the economic front, euro-zone industrial new orders rose 0.9% month-over-month (m/m) in April, but came in short of the 1.6% advance that economists had expected, while French consumer spending rose more that forecasted. Additionally, data out of Italy was mixed, with the nation reporting a larger-than-expected drop in retail sales, while separately, the country’s unemployment rate increased by a smaller amount than anticipated. Later today, France will report some employment data.

The UK FTSE 100 Index is 0.6% lower, France’s CAC-40 Index is declining 0.9%, Germany’s DAX Index is down 0.6%, Italy’s FTSE MIB Index is 0.3% in the red, Spain’s IBEX 35 Index is off 1.4%, Portugal’s PSI 20 Index is decreasing 0.9%, and Greece’s Athex Composite Index is dropping 3.2%.

Asia mixed as miners gain and traders digest US data

Stocks in Asia finished mixed as traders grappled with another disappointing US housing report and downgrade of its economic assessment by the US Federal Reserve, while miners helped limit damage in the region, gaining ground on a political shake up in Australia. Australia appointed its first woman Prime Minister, Julia Gillard today, replacing Prime Minister Kevin Rudd who left the position amid poor opinion polls, due partly to his decision to impose a hefty tax on the mining industry. Mining firms posted gains as Gillard has noted the need to reach a consensus and negotiate the industry tax. Australia’s S&P/ASX 200 Index dipped 0.1% as the advance in mining issues was offset by weakness in financials, paced by a solid retreat in the shares of Macquarie Group Ltd. (MQBKY $37) after Australia’s largest investment bank, per Bloomberg, said market uncertainty is negatively impacting some parts of the firm. However, Japanese stocks managed to eke out a 0.1% gain despite weakness in export issues on strength in the yen versus the US dollar and other major currencies as result of some flight-to-safety buying that ensued following the disappointing aforementioned US data.

Meanwhile, Taiwan’s Taiex Index also posted a modest gain, rising 0.1%, despite an unexpected increase in the nation’s benchmark interest rate by its central bank. In other economic news, Hong Kong’s trade deficit narrowed by a larger amount than forecasted by economists, but the Hang Seng Index fell 0.6%, while the Shanghai Composite Index dipped 0.1%, and New Zealand’s 1Q GDP rose 0.6% quarter-over-quarter (q/q) to match expectations, and the NZX 50 Index declined 0.2%. Rounding out the day, South Korea’s Kospi Index advanced 0.8% and India’s BSE Sensex 30 Index decreased 0.1%.