Morning Market Update

Stocks Decline as Jobless Claims Post a Surprise Rise

US equity markets are under some pressure in early action after falling below the flatline following an unexpected increase in weekly initial jobless claims, which unnerved some ahead of tomorrow’s labor report. Treasuries are gaining ground following the report. Meanwhile, the nation’s retailers are reporting results for their July same-store sales, which are mixed, highlighted by a miss from Target Corp and a beat by Costco Wholesale Corp. In equity news outside retail sales, DIRECTV posted profits that matched expectations, while Allstate Corp easily topped the Street’s earnings estimates. Overseas, Asia was mixed in a lackluster session, while Europe is hanging onto early gains after paring an advance following the US jobs data, and as traders digest some key central bank announcements, which showed the Bank of England and the European Central Bank both kept their respective interest rates unchanged.

As of 8:42 a.m. ET, the September S&P 500 Index Globex future is 5 points below fair value, the Nasdaq 100 Index is 7 points below fair value, while the DJIA is 35 points below fair value. Crude oil is down $0.48 at $81.99 per barrel, and the Bloomberg gold spot price is up $4.53 at $1,199.47 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.4% at 80.62.

Major retail same-store sales—sales at stores open at least a year—reports for July are pouring in, headlined by Target Corp. (TGT $52) which posted July sales growth of 2.0% year-over-year (y/y), versus the 2.3% consensus estimate of analysts. TGT said store traffic and apparel sales were “strong,” but it continued to see soft sales in electronics, video games, music and movies.

Meanwhile, Costco Wholesale Corp. (COST $57) posted a July sales increase of 6%, including gasoline sales and foreign exchange, compared to the 5.5% gain that was expected. Excluding the impact of fuel and currency changes, sales were up 4%.

Macy’s Inc. (M $19) reported sales for the month were 7.3% higher, above the 5.5% increase that was anticipated, while Gap Inc. (GPS $18) posted a 1.0% rise in sales, which also bested the 0.1% growth that was expected.

Outside of the retail same-store sales front, DIRECTV (DTV $38) reported 2Q EPS ex-items of $0.60, matching the Reuters estimate, with revenues increasing 12% y/y to $5.85 billion, above the $5.74 billion that the Street was looking for.

Also, Allstate Corp. (ALL $29) posted 2Q profits ex-items of $0.81 per share, well above the $0.68 that analysts were anticipating, with revenues of $6.6 billion, roughly inline with expectations.

Jobless claims rise to headline a light economic docket

Weekly initial jobless claims increased 19,000 to 479,000, versus last week's figure which was upwardly revised by 3,000 to 460,000, and compared to the consensus estimate of economists surveyed by Bloomberg, which called for claims to decrease to 455,000. The four-week moving average, considered a smoother look at the trend in claims, rose by 5,250 to 458,500, while continuing claims declined by 34,000 to 4,537,000, compared to the decrease to 4,515,000 that was anticipated by economists. Treasuries are higher following the report.

Europe higher amid central bank announcements and mixed data

Stocks in Europe are higher in afternoon action, as traders are digesting key central bank monetary policy announcements and some favorable earnings and economic data, which are overshadowing a few negative reports. The Bank of England left its benchmark interest rate unchanged at 0.5%, and did not add to its plans to purchase assets, as expected, while the European Central Bank also expectedly kept its benchmark interest rate unchanged at 1.0%. Attention is now on the customary press conference that is being conducted by ECB President Jean-Claude Trichet, for any new monetary policy actions that could help the recovery in the euro-area.

Outside of central bank actions, there is a plethora of other data that are shaping the direction of the equity markets across the pond. Mining firm Rio Tinto Plc. (RTP $55) is higher after it reported better-than-expected first-half profits, and the UK’s second largest insurer, per Bloomberg, Aviva Plc. (AV $12), is up sharply after it reported first-half earnings that jumped and exceeded analysts forecasts. The upbeat profit reports are helping overshadow a solid decline in shares of Barclays Plc. (BCS $22) despite the UK bank’s better-than-expected first-half profits on declining provisions for bad loans, as the firm’s investment banking revenues posted a steep decline. Also, stocks in Europe are showing some resiliency in the face of a solid drop in shares of Unilever Plc. (UL $29) after the consumer products maker posted sales that came in below forecasts, while offering a lackluster outlook.

Meanwhile the euro-area economic calendar yielded a positive report out of Germany, with a report showing factory orders in Europe’s largest economy jumped 3.2% month-over-month (m/m) in June, compared to the 1.4% increase that economists forecasted. The favorable report is helping offset separate reports in the region that showed, Spain’s industrial output slowed, and UK new car registrations fell solidly. In other economic news, Ireland’s unemployment rate increased, while Sweden’s jobless rate came in below expectations, and the International Monetary Fund (IMF) said Greece has shown “great progress” in implementing its austerity measures to cut its deficit and should gain approval to receive a second installment from the euro-area bailout package.

The UK FTSE 100 Index is 0.2% higher, France’s CAC-40 Index is gaining 0.8%, Germany’s DAX Index is gaining 0.5%, while Spain’s IBEX 35 Index, Sweden’s OMX Stockholm 30 Index, and Ireland’s Irish Overall Index are all rising 0.6%, and Greece’s Athex Composite Index is flat.

Asia mixed before and after data

Stocks in Asia finished mixed in lackluster action as optimism following some better-than-expected US economic data yesterday was limited by caution ahead of Friday’s US labor report and key central bank interest rate decisions in Europe. The only move in the region that was sizeable was in Japan, with the Nikkei 225 Index gaining 1.7%, as equities were supported by export issues in the wake of the better-than-forecasted US report on private sector job growth and an unexpected acceleration in service sector business activity in the US, which soothed some concerns about the world’s largest economy. Japanese automakers were among the leading advancers on the US economic optimism and following yesterday’s favorable profits and outlook from Toyota Motor Corp. (TM $74), which shares gained ground, along with a solid increase in shares of Isuzu Motors Ltd. (ISUZY $30) after the truck maker posted favorable earnings and an improved outlook. Meanwhile, stocks in China were mixed, with the Hong Kong Hang Seng Index flat, while the Shanghai Composite Index declined 0.7% on reports that the government ordered stress tests of property-related firms in the event of a sharp decline in home prices, and after reports that the Chinese Banking Regulatory Commission cracked down on extending mortgages to homebuyers looking to purchase their third home, per Reuters.

Meanwhile, South Korea’s Kospi Index declined 0.3%, while resource-related issues supported a 0.5% advance in Australia’s S&P/ASX 200 Index. Today’s Asian economic calendar was relatively light, with India reporting slightly smaller increases in wholesale prices, but price gains remained solid y/y, and the BSE Sensex 30 Index dipped 0.2%. Moreover, New Zealand’s employment data came in disappointing, showing the nation’s 2Q unemployment rate rose more than expected, and its employment changed unexpectedly falling, but he the NZX 50 Index managed to increase 0.2%. Finally, Taiwan’s Taiex Index declined 0.5% amid some mixed inflation data, which showed consumer prices rose more than anticipated but wholesale prices came in lower the forecasted.