Morning Market Update

Markets Continue to Rise Despite Disappointing Durables Data

The US equity markets remain higher in morning action even as durable goods orders unexpectedly fell, which may have been offset by a slightly larger-than-forecasted decline in weekly initial jobless claims. Treasuries are lower following the data. Meanwhile, stocks in Europe are gaining ground on continued strength in materials issues even as the likelihood increased that Portugal will seek a bailout after its Prime Minister Socrates resigned in the wake of the nation’s Parliament rejecting his austerity plan. In equity news, Best Buy Inc easily beat the Street’s earnings expectations, despite a decline in sales, while Red Hat Inc and Micron Technology Inc both exceeded analysts’ earnings estimates. Elsewhere overseas, Asia finished mixed as Japanese markets closed slightly lower.

As of 8:50 a.m. ET, the June S&P 500 Index Globex future is 8 points above fair value, the Nasdaq 100 Index is 17 points above fair value, and the DJIA is 68 points above fair value. WTI crude oil is $0.25 higher at $106.00 per barrel, and the Bloomberg gold spot price is up $1.00 at $1,438.40 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.3% at 75.75.

Best Buy Co. Inc. (BBY $32) announced 4Q earnings ex-items of $1.98 per share, well above the $1.85 consensus estimate of analysts surveyed by Reuters, even as revenues declined 1.8% year-over-year (y/y) to $16.3 billion, matching the forecast of the Street. The electronics retailer said same-store sales—sales at stores open at least a year—fell by 4.6% y/y.

Red Hat Inc. (RHT $40) reported 4Q EPS ex-items of $0.26, above the $0.22 that analysts anticipated, with revenues increasing 25% y/y to $245 million, exceeding the $236 million that was expected. The open source solutions provider said it had record bookings and billings during 4Q.

Micron Technology Inc. (MU $11) posted fiscal 2Q EPS of $0.07, four cents above the Street’s estimate, with revenues increasing 15% y/y to $2.3 billion, compared to the $2.1 billion that was expected by analysts. The chipmaker said revenue from sales of DRAM products—chips used in PCs and video game consoles—declined 6% quarter-over-quarter (q/q) due to a decline in selling prices, while revenue from NAND flash products—chips used in smartphones, digital cameras, and MP3 players—rose 8% q/q as higher volumes offset a decrease in prices.

Jobless claims decline, durable goods orders surprise to the downside

Weekly initial jobless claims decreased by 5,000 to 382,000, versus last week's figure which was upwardly revised by 2,000 to 387,000, and just below the 383,000 level that economists surveyed by Bloomberg had expected. The four-week moving average, considered a smoother look at the trend in claims, declined by 1,500 to 385,250, and continuing claims ticked lower by 2,000 to 3,721,000, above the forecast of economists, which called for continuing claims to come in at 3,700,000.

Meanwhile, durable goods orders unexpected declined, dropping 0.9% month-over-month (m/m) in February, compared to the 1.2% increase that was expected by economists, but January’s figure was upwardly revised to a 3.6% increase from a 2.7% gain. Also, ex-transportation, orders surprisingly fell, decreasing 0.6% in February, compared to the expectation of a 2.0% rise, but January’s figure was adjusted favorably, to a 3.0% decline, after the initial 3.6% drop that was reported. Meanwhile, orders for non-defense capital goods excluding aircraft, considered a good proxy for business spending, also defied expectations, falling by 1.3% in February, compared to the 4.3% increase that was anticipated, after dropping by a positively revised 6.0% in January.

Treasuries remain lower in morning action following the employment and durable goods data, with the yield on the two-year note up 1 bp to 0.67%, the yield on the 10-year note 2 bps higher to 3.37%, and the 30-year bond yield rising 1 bps to 4.46%.

Europe nicely higher amid strength in materials and retailers

The equity markets in Europe are solidly higher in afternoon, led by continued strength in basic materials issues even after some disappointing manufacturing data, and retailers despite a lackluster UK sales report. Also, stocks are showing some resilience in the face of the resignation of Portugal’s Prime Minister Socrates, after the Parliament rejected his austerity plan, which is supporting growing expectations that the troubled nation will seek a bailout from the euro-zone’s European Financial Stability Facility (EFSF). The European market response may be due to the fact that expectations of a bailout for Portugal have been speculated for some time.

Retailers in the region are shrugging off a report that showed UK retail sales fell more than expected in February, as shares of Kingfisher Plc. (KGFHY $8) are sharply higher after the owner of do-it-yourself stores reported a solid gain in full-year profits. Also helping the sector, shares of the UK’s Next Plc. (NXGPY $16) are moving nicely higher after the clothing retailer reported better-than-expected full-year earnings.

In other economic news, the gains in materials stocks are coming despite reports that showed German and euro-zone PMI Manufacturing activity decelerated more than forecasted. However, France’s manufacturing activity accelerated more than what was expected.

The UK FTSE 100 Index is 1.0% higher, France’s CAC-40 Index is gaining 0.9%, Germany’s DAX Index is advancing 1.6%, and Portugal’s PSI 20 Index is rising 1.1%.

Asia mixed as materials issues gain but Japan slumps

Stocks in Asia finished mixed, with Japan’s Nikkei 225 Index declining 0.2% as concerns about radiation leaks from the damaged nuclear facility hampered sentiment, while losses were limited amid some reports that companies will begin to restart production that has been halted following the massive earthquake and tsunami that hit north of Tokyo earlier in the month. However, shares of Toyota Motor Corp. (TM $82) declined even after it announced that it plans to resume production of hybrids, as the automaker warned that it will reduce production in North America due to supply shortages as a result of the aforementioned production halts. Elsewhere, shares of Tokyo Electric Power Co. (TKECY $31) fell sharply to weigh on Japanese markets after the operator of the damaged nuclear facility said it has changed its dividend payment forecast to “undecided,” per Reuters.

Meanwhile, yesterday’s solid advance in commodity issues helped Australian stocks move higher, with the S&P/ASX 200 Index increasing 1.0%, while strength in automakers helped South Korea’s Kospi Index move 1.2% higher. Moreover, stocks in China were mixed, with Hong Kong’s Hang Seng Index rising 0.4% and the Shanghai Composite Index dipping 0.1%, as property issues found pressure, while oil and financials posted increases. Finally, New Zealand’s NZX 50 Index rose 0.3% amid the gains in commodity prices and after the nation reported slightly stronger-than-anticipated 4Q GDP results.

After the close of trading in Asia, Hong Kong reported a narrower-than-estimated trade deficit as exports jumped more than twice economists’ expectations, to partially offset a solid increase in imports, and Bank of China Ltd. (BACHY $13) posted better-than-forecasted earnings.