Morning Market Update

Advance Pared as Jobless Claims Dampen the Bulls’ Flame

The US equity markets are modestly higher in morning trading as a larger-than-expected increase in weekly initial jobless claims pared a sizeable portion of an early advance, as traders may have been prompted to book some profits from yesterday’s steep global rally in stocks. Also, traders are focusing on the European Central Bank’s press conference after it kept its benchmark interest rate unchanged as expected, looking for any new measures to help combat the euro-area debt crisis. Treasuries are lower but did come off of the worst levels of the day following the US jobs data, and ahead of a report on pending home sales. Equity news is being dominated by mostly better-than-forecasted November US retail same-store sales, which is helping keep the equity markets afloat. Overseas, Asia posted broad-based gains following yesterday’s global rally, while Europe is maintaining an advance following the ECB’s monetary policy announcement.

As of 8:49 a.m. ET, the December S&P 500 Index Globex future is 2 points above fair value, the Nasdaq 100 Index is 2 points above fair value, while the DJIA is 3 points above fair value. Crude oil is $0.21 lower at $86.54 per barrel, and the Bloomberg gold spot price is down $2.19 at $1,385.71 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is flat at 80.66.

The nation’s retailers are reporting November same-store sales results—sales at stores open at least a year—headlined by Target Corp. (TGT $58), which announced a 5.5% year-over-year (y/y) increase, compared to the 3.7% gain that analysts surveyed by Reuters had anticipated. TGT said its “better-than-expected” sales were driven by strong guest traffic.

Meanwhile, Costco Wholesale Corp. (COST $68) said its November same-store sales grew 9.0% y/y, including gasoline sales and foreign exchange, above the 6.2% that the Street had forecasted, but excluding fuel and currency, sales rose 6.0%.

Department store chain, Macy’s Inc. (M $26), achieved 6.1% y/y growth in same-store sales for November, topping the 5.0% gain that analysts had anticipated. The company said the Black Friday weekend was “particularly strong, bolstering our confidence as we enter the heart of the holiday shopping season.”

Inside the mall, Gap Inc. (GPS $22) reported a same-store sales gain of 4.0% y/y, versus the 2.6% growth that the Street had forecasted, and Limited Brands Inc. (LTD $35) announced that its sales jumped 10% y/y, well above the 4.0% increase that analyst had expected, while Abercrombie & Fitch Co. (ANF $50) posted a 22% y/y jump in shares, trouncing the 6.8% rise that was expected.

Outside of the same-store sales reports, PepsiCo Inc. (PEP $66) reported that it has reached an agreement to acquire a 66% stake in Russian food-and-beverage company, Wimm-Bill-Dann Foods (WBD $25), for $3.8 billion, pending the required government approvals. PEP said that it will offer to acquire the remaining shares of WBD following the completion of the acquisition.

Jobless claims rise, home sales report after the opening bell

Weekly initial jobless claims rose by 26,000 to 436,000, versus last week's figure which was upwardly revised by 3,000 to 410,000, and versus the consensus estimate of economists surveyed by Bloomberg, which called for claims to increase to 424,000. The four-week moving average, considered a smoother look at the trend in claims, fell by 5,750 to 431,000, and continuing claims increased by 53,000 to 4,270,000, above the forecast of economists, which called for claims to come in at 4,200,000. Treasuries are lower, but did pare losses following the report.

Later this morning, the economic calendar will yield the release of pending home sales, and the gauge of the pipeline of existing home sales is expected to decline 1.0% month-over-month (m/m) for October, after falling 1.8% in September.

Europe maintains gains as European Central Bank keeps rates unchanged

Stocks in Europe are higher in afternoon action, led by financials, continuing yesterday’s steep advance on upbeat global economic data and easing concerns toward the euro-area debt crisis. The equity markets across the pond remained higher after the European Central Bank kept its benchmark interest rate unchanged at 1.0%, which was widely expected. However, heavy scrutiny is on the press conference by ECB President Jean-Claude Trichet that followed the announcement. Traders are looking for any indication that the central bank will relax its recent stance regarding reining in the stimulus measures that have been put in place due to the global financial crisis, to help combat the sovereign debt crisis facing the region. Trichet said the ECB will adjust its liquidity measures as appropriate, but did not offer any further details regarding what that may entail, per CNBC.

Meanwhile, the European economic calendar showed euro-zone 3Q GDP rose 0.4% quarter-over-quarter (q/q), and expanded by 1.9% y/y, both matching economists’ forecasts. Also, euro-zone producer prices rose slightly more than expected, and the UK Construction PMI unexpectedly improved in November.

The UK FTSE 100 Index, France’s CAC-40 Index, and Ireland’s Irish Overall Index are 0.9% higher, Germany’s DAX Index is advancing 0.3%, Spain’s IBEX 35 Index is up 1.6%, and Portugal’s PSI 20 Index is gaining 1.0%.

Asia follows lead of the US and Europe, posting a broad-based advance

The equity markets in Asia were higher across the board on the heels of the rallies in the US and Europe that came from a plethora of favorable manufacturing data, coupled with a better-than-forecasted US employment report and easing concerns regarding the euro-area debt crisis. Japanese stocks were one of the best performers in the region, as the Nikkei 225 Index rose 1.8%, while Australian equities led the way, with the S&P/ASX 200 Index gaining 2.0% on optimism about the global recovery, which improved the outlook for demand for commodities, and despite a report showing an unexpected drop in the nation’s retail sales for October. The global optimism aided risk appetites and the Japanese yen weakened to support export issues, helping offset weakness in shares of Toyota Motor Corp. (TM $80) after its US auto sales disappointed yesterday, as well as a report that showed Japan’s 3Q capital spending came in softer than economists’ expected. Meanwhile, South Korea’s Kospi Index gained 1.1% amid the upbeat mood across the globe, and following a report that showed the country’s 3Q GDP was left unrevised at a 0.7% q/q rate of expansion. Elsewhere, stocks in China also enjoyed an advance, with the Shanghai Composite Index rising 0.7% and the Hong Kong Hang Seng Index increasing 0.9%.