Morning Market Update

Jobless Claims Keep Bulls from Coming up Lame

The US equity markets are modestly higher in early action as an unexpected decline in weekly initial jobless claims is helping soothe the sting from a surprising drop in building permits and continued euro-area debt uneasiness. Treasuries are higher amid the data and focus on Europe, while traders are also digesting a slightly higher-than-expected level of housing starts and a widening of the 3Q current account balance. A report on manufacturing activity in the Mid-Atlantic region is due out later this morning. Meanwhile, the favorable jobless claims data is helping offset disappointing earnings reports from FedEx Corp and General Mills Inc. Overseas, Asia was mixed in lackluster action, while Europe is lower as European Union leaders are set to meet about the euro-area debt crisis.

As of 8:51 a.m. ET, the March S&P 500 Index Globex future is 3 points above fair value, the Nasdaq 100 Index is 4 points above fair value, while the DJIA is 29 points above fair value. Crude oil is $0.40 lower at $88.22 per barrel, and the Bloomberg gold spot price is down $3.68 at $1,377.15 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.2% at 80.04.

FedEx Corp. (FDX $92) reported fiscal 2Q adjusted EPS of $1.16, below the consensus estimate of analysts surveyed by Reuters, which called for EPS of $1.31, with revenues rising 12% year-over-year (y/y) to $9.6 billion, compared to the $9.8 billion that the Street was looking for. The package delivery company said solid demand for its transportation solutions and a healthier global economy helped drive revenue higher. Also, FDX increased its full-year EPS guidance, which was inline with analysts’ forecasts, as it said holiday peak season volumes are exceeding its expectations and its economic forecast for calendar year 2011 has improved.

General Mills Inc. (GIS $36) announced fiscal 2Q EPS ex-items of $0.76, compared to the $0.78 that analysts had expected, with revenues increasing 1.0% y/y to $4.1 billion, matching the forecast on the Street. The cereal maker reaffirmed its full-year EPS outlook.

Jobless claims unexpectedly fell, housing starts and building permits mixed

Weekly initial jobless claims declined by 3,000 to 420,000, versus last week's figure which was upwardly revised by 2,000 to 423,000, and versus the consensus estimate of economists surveyed by Bloomberg, which called for claims to increase to 425,000. The four-week moving average, considered a smoother look at the trend in claims, fell by 5,250 to 422,750, and continuing claims rose by 22,000 to 4,135,000, above the forecast of economists, which called for continuing claims to come in at 4,115,000.

Elsewhere, housing starts for November came in above expectations, rising 3.9% month-over-month (m/m) from an upwardly revised 534,000 annual rate of units in October to a rate of 555,000 units, and compared to expectations of economists, which called for starts to come in at 550,000. However, building permits unexpectedly fell, dropping 4.0% m/m in November to an annual rate of 530,000, while October’s figure was upwardly revised by 2,000 to 552,000. The expectation was for permits to increase to 560,000 units.

In other economic news, the 3Q current account deficit widened to $127.2 billion, from $123.2 billion in 2Q, and compared to the increase to $126.0 billion that was anticipated.

Treasuries are higher following the data, but later this morning, the Philly Fed Manufacturing Index will be released, expected to decrease to 15.0 in December from 22.5 in November.

Europe modestly lower as debt concerns outweigh favorable data

The equity markets in Europe are under modest pressure in afternoon action, with financials leading the decline, as concerns toward the euro-area debt crisis continue to hamstring the sector. Today’s focus is on the two-day summit between European Union (EU) leaders, which will begin today in Brussels, and any news on mechanisms agreed to combat the spreading of the debt crisis around the euro-area. However, Spain, which has found exacerbated pressure on uncertainty regarding if the debt-laden nation will need financial assistance from the EU and International Monetary Fund’s (IMF) near $1 trillion bailout facility like Ireland and Greece, conducted a successful bond auction today. Meanwhile, shares of BP Plc. (BP $44) are lower to weigh on the markets as the energy company was on the receiving end of a lawsuit from the US pertaining to the Gulf of Mexico oil spill.

The debt uneasiness and weakness in BP shares are more than offsetting some favorable data from the economic front, with PMI Manufacturing data out of Germany—Europe’s largest economy—and the euro-zone both improving to a level exceeding economists’ forecasts. Also, euro-zone consumer prices rose at a pace that was expected, and a report showed UK retail sales grew in November m/m, and were higher than expected on a y/y basis.

The UK FTSE 100 Index is flat, while France’s CAC-40 Index is 0.4% lower, Germany’s DAX Index is declining 0.1%, and Spain’s IBEX 35 Index is decreasing 0.6%.

Asia mixed in lackluster session

Stocks in Asia were mixed as traders grappled with encouraging economic data in the US and lingering euro-area debt uneasiness. However, with 2010 nearing an end and data in the region light, the market action was subdued, with the Japanese Nikkei 225 Index finishing flat on the day. Meanwhile, stocks in China were lower with the Shanghai Composite Index falling 0.5% and Hong Kong’s Hang Seng Index dropping 1.3% as the light action was exacerbated by continued concerns about the possibility for more monetary policy tightening by the government. Elsewhere, South Korea’s Kospi Index declined 0.4%, while Australia’s S&P/ASX 200 Index gained 0.3%. However, the equity markets in India posted the best move to the upside in the region as the BSE Sensex 30 Index rose 1.1% after the nation’s central bank kept its benchmark interest rates unchanged as expected, and announced that it will provide additional liquidity for the nation’s banking industry through asset purchases and relaxing security investment requirements.

In other economic news in the region, Japan’s machine tool orders were unrevised at a y/y surge of 104.2% in November, growth in South Korea’s November department store sales decelerated, and Hong Kong’s unemployment rate ticked lower to 4.1% in November. Moreover, Standard & Poor’s increased China’s long-term debt rating to AA- from A+, on “substantial” foreign-exchange reserves and strong fiscal position, per Bloomberg, while the firm raised Hong Kong’s rating to AAA.