Morning Market Update

Jobs Data Piles on to the Plethora of Lackluster Data

The US equity markets moved below the flatline following an unexpected increase in US weekly initial jobless claims, which is adding to the slew of reports recently that have dampened the outlook for the economic recovery and led to yesterday’s steep losses in global stock markets. Treasuries are nearly unchanged after erasing modest losses following the jobs report, which was released along with a separate report that showed import prices rose by a smaller amount than forecasted. Equity news is not helping sentiment in early action, with Dow member Cisco Systems Inc posting soft revenues, while Kohl’s Corp provided a disappointing 3Q EPS outlook. However, General Motors posted a return to profit and is rumored to be close to filing its IPO request. Overseas, Asia tumbled amid another round of economic reports, and Europe is lower as a favorable earnings report is being trumped by the continued economic pessimism.

As of 8:55 a.m. ET, the September S&P 500 Index Globex future is 13 points below fair value, the Nasdaq 100 Index is 29 points below fair value, while the DJIA is 88 points below fair value. Crude oil is down $1.70 at $76.31 per barrel, and the Bloomberg gold spot price is up $16.50 at $1,214.60 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.3% at 82.70.

Dow member Cisco Systems Inc. (CSCO $24) reported fiscal 4Q EPS ex-items of $0.43, one penny above the Reuters estimate, but revenues, which although rose 27% year-over-year (y/y) to $10.8 billion, came up just shy of the $10.9 billion that the Street had expected. CSCO said whether the global economy continues to show mixed signals or not, it is confident in its strategy and will continue to aggressively move into new areas where the network is becoming the platform, and where its customers want it to invest and innovate.

Kohl’s Corp. (KSS $48) reported 2Q EPS of $0.84, two pennies above the Street’s expectation, with revenues rising 7.7% y/y to $4.1 billion, roughly inline with the consensus estimate, and same-store sales—sales at stores open at least a year—rose 4.6% y/y. KSS issued 3Q EPS guidance that missed analysts’ expectations.

General Motors reported $1.3 billion in 2Q earnings, compared to the near $13 billion shortfall it posted last year, with revenues jumping 43% y/y to $33.2 billion. Also, Reuters reported that the automaker, which recently emerged from bankruptcy, has secured a $5 billion credit facility, clearing the way for an IPO, citing people familiar with the matter. Also, CNBC reported that the company is expected to file for the IPO on Friday. GM has not commented on the IPO reports.

Jobless claims tick higher, import prices rise less than expected

Weekly initial jobless claims rose by 2,000 to 484,000, versus last week's figure which was upwardly revised by 3,000 to 482,000, and compared to the consensus estimate of economists surveyed by Bloomberg, which called for claims to decrease to 465,000. The four-week moving average, considered a smoother look at the trend in claims, jumped by 14,250 to 473,500, while continuing claims tumbled by 118,000 to 4,452,000, compared to the 4,535,000 that was anticipated by economists.

Elsewhere, the Import Price Index rose 0.2% month-over-month (m/m) for July, compared to the expectation of economists, which called for the index to increase by 0.3%. Year-over-year, import prices are higher by 4.9%, versus the 5.4% forecast of economists.

Treasuries are nearly unchanged, paring some modest losses following the jobs and import price reports, and in the wake of yesterday’s gains that came from some flight-to-safety buying on a slew of lackluster global economic data, mainly out of Asia, with reports showing China’s economy slowed, while a much smaller-than-forecasted increase in Japanese machine tool orders propelled the yen to a fifteen-year high versus the US dollar. Also, yesterday’s delayed negative reaction to Tuesday’s monetary policy announcement from the US Federal Reserve prompted some of the risk aversion. The Fed left rates unchanged at an “exceptionally low” level and maintained its “extended period” language when referring to the fed funds rate. However, the biggest reaction came as the US central bank downgraded its economic outlook and announced that it will opt to keep its balance sheet constant by reinvesting proceeds from principal payments from agency and agency mortgage-backed securities into longer-term Treasuries. On the economy, the Fed said it continues to anticipate a gradual recovery, but that the pace “is likely to be more modest in the near term than had been anticipated.”

Europe lower, continuing yesterday’s tumble

Stocks in Europe are lower in afternoon action, extending losses from yesterday’s steep drop that came amid a plethora of economic data that suggested a slowing global economy and the pessimism that followed the US Federal Reserve’s downgraded outlook. Consumer goods issues showed some strength following a better-than-expected profit report in the sector, which is helping limit losses, partially offsetting a disappointing read on manufacturing activity in the euro-zone. Anheuser-Busch InBev (BUD $51) is nicely higher after the world’s largest brewer posted 2Q profits that bested forecasts, aided by a boost in sales during the World Cup. However, some of the economic uneasiness that ramped up yesterday is being kept on the front burner, as a report showed euro-zone industrial production unexpectedly declined, dipping 0.1% m/m in June, after rising an upwardly revised 1.1% in May, and compared to the 0.6% increase that economists expected. However, the European Central Bank released its August monthly report, where it reiterated that interest rates remain appropriate, inflation remains moderate, and the available data for 3Q are “better-than-expected.”

Other reports rounding out the euro-area economic docket were a larger-than-expected contraction in 2Q GDP in Greece, a widening in Italy’s trade deficit, and a smaller-than-anticipated unemployment rate in Sweden. Finally, there were several reports on inflation, with consumer prices in Spain and Sweden declining m/m in July, while Italy’s CPI rose.

The UK FTSE 100 Index is 0.2% lower, France’s CAC-40 Index is down 0.7%, Germany’s DAX Index is declining 0.5%, Italy’s FTSE MIB Index is off 0.6%, Spain’s IBEX 35 Index losing 0.3%, Sweden’s OMX Stockholm 30 Index is 1.1% lower, and Greece’s Athex Composite Index is decreasing 0.8%.

Asia posts another session solidly below the flatline

Stocks in Asia were broadly lower on the heels of yesterday’s steep declines in the global equity markets as economic recovery pessimism ramped up. Japan’s Nikkei 225 Index declined 0.9%, but did pare some losses as the yen retraced its gains versus the US dollar, after recently hitting a fifteen-year high versus the greenback, alleviating some pressure on export issues, which have been hit by concerns about the negative impact on corporate bottomlines of the stronger Asian currency. The yen gave up its gains on speculation that the recent surge in the yen could be addressed by the government as Japanese officials met and Finance Minister Noda is expected to hold a press conference later today, but it is uncertain if the currency will be discussed. However, the Ministry of Economy, Trade and Industry said it will conduct a survey of companies pertaining to the effects on business of the stronger yen and results are expected to be reported back at the end of the month, per Bloomberg. In Japanese economic news, a report showed the nation’s industrial production fell 1.1% m/m in June, after falling 1.5% in the prior reading, and a report on Japanese consumer confidence unexpectedly fell in July. Meanwhile, stocks in China declined, with the Hong Kong Hang Seng Index dropping 0.9% and the Shanghai Composite Index falling 1.2%.

Elsewhere, Australian stocks were lower amid the backdrop of soured economic sentiment, as the S&P/ASX 200 Index declined 1.2%, exacerbated by a report that showed the nation’s unemployment rate unexpectedly rose to 5.3% in July, from the 5.1% in June, where it was expected to remain. Although Australia’s employment change increased more than anticipated, the advance was attributed to a rise in part-time employment as full-time employment fell. Moreover, a separate report showed consumer inflation expectations in Australia declined from 3.3% in July to 2.8% in August. In other economic news in Asia, South Korea’s central bank kept its benchmark interest rate unchanged at 2.25%, as expected, after its unexpected hike last month, and the Kospi Index fell 2.1%. Rounding out the heavy economic calendar, India’s industrial production slowed by a larger-than-forecasted amount, but the BSE Sensex 30 Index finished flat.