Morning Market Update

Jobless Claims and Euro Financial Worries Pressure Stocks   

The US equity markets are under some pressure in early action as European stocks are being bogged down ahead of results from Ireland’s banking sector stress tests, and following a higher-than-forecasted level of US initial jobless claims. Treasuries are higher following the jobs report, ahead of a look at Midwest manufacturing activity and factory orders. Meanwhile the equity front is providing some news worth noting as a key executive surprisingly resigned from Berkshire Hathaway Inc, Hershey Co raised input prices, and the Federal Reserve rejected AIG’s proposal to buy back assets that were sold during the financial crisis. Elsewhere overseas, Asia finished mostly higher following yesterday’s gains in the US and Europe. 

As of 8:46 a.m. ET, the June S&P 500 Index Globex future is 2 points below fair value, the Nasdaq 100 Index is 3 points below fair value, and the DJIA is 11 points below fair value. WTI crude oil is $1.06 higher at $105.33 per barrel, and the Bloomberg gold spot price is up $7.90 at $1,430.93 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.3% at 75.85.

Berkshire Hathaway Inc . (BRK/B $85) announced that David Sokol, Chairman of several Berkshire subsidiaries, resigned from the company. Sokol, who had been considered a likely candidate to replace Warren Buffett, said, “it is my goal to utilize the time remaining in my career to invest my family's resources in such a way as to create enduring equity value and hopefully an enterprise which will provide opportunity for my descendents and funding for my philanthropic interests.” The resignation also follows Sokol’s purchase of shares of Lubrizol (LZ $134) before he suggested to Berkshire Hathaway Chairman and CEO Warren Buffett the acquisition of Lubrizol. However, Warren Buffett said the resignation came as a surprise as he did not ask for David to step down and, “Neither Dave nor I feel his Lubrizol purchases were in any way unlawful.”

Hershey Co . (HSY $55) announced an increase in wholesale prices across the majority of its US, Puerto Rico and export portfolio, with a weighted average price increase of 9.7% effective today. The company said these changes will help offset part of the “significant increases in Hershey’s input costs, including raw materials, packaging, fuel, utilities and transportation.” HSY also reaffirmed its 2011 outlook.

American International Group Inc . (AIG $36) said it was “highly disappointed” by the announcement that the Federal Reserve Bank of New York rejected the company’s offer to buy back $15.7 billion in Maiden Lane II assets that were purchased by the Fed during the financial crisis. The Fed said, after careful review, it has judged that the public interest would be better served by an alternative approach to realizing value that is also more consistent with normal market practice.

Jobless claims decline, Midwest manufacturing and factory orders set to follow

Weekly initial jobless claims declined by 6,000 to 388,000, versus last week's figure which was upwardly revised by 12,000 to 394,000, but came in above the 380,000 level that economists surveyed by Bloomberg had expected. The four-week moving average, considered a smoother look at the trend in claims, increased by 3,250 to 394,250, while continuing claims fell by 51,000 to 3,714,000, above the forecast of economists, which called for continuing claims to come in at 3,705,000.

Treasuries are higher in morning action following the employment data, with the yield on the two-year note down 1 bp to 0.77%, the yield on the 10-year note 2 bps lower to 3.41%, and the 30-year bond yield declining 3 bps to 4.48%.

Later this morning, the economic calendar will yield the releases of the Chicago Purchasing Manager’s Index, expected to decline from 71.2 in February to 69.9 for March, and factory orders, which are forecasted to rise 0.5% month-over-month (m/m) in February.

Europe bogged down ahead of Irish banking sector stress tests

Stocks in Europe are lower in afternoon action, led by weakness in financials amid some uneasiness ahead of the release of the results from the Irish government’s stress tests of its banking sector, which are due out later today. Also, retail issues are under some pressure after a report showed retail sales in Germany—Europe’s largest economy—unexpectedly fell and as shares of Sweden’s Hennes & Mauritz (HNNMY $7) are down solidly after the world’s second-largest clothing retailer, per Bloomberg, posted 1Q earnings that missed analysts’ forecasts. The earnings disappointment came as the company faces near record high prices for cotton.

However, losses across the pond may be being limited by some favorable economic news in the region, highlighted by a larger-than-forecasted drop in German unemployment and UK consumer confidence coming in above economists’ forecasts. However, the euro-zone estimate for consumer prices unexpectedly rose to 2.6% year-over-year (y/y) for March, compared to forecasts for the figure to remain at a 2.4% increase that was reported in February. Also, expectations for Portugal to seek a bailout increased after the troubled nation’s budget deficit as a percentage of its GDP rose much more than forecasted. Bond yields of the troubled nation’s debt climbed, with the 2-year rate exceeding the 10-year rate for the first time since 2006, per Bloomberg.

The UK FTSE 100 Index is down 0.2%, France’s CAC-40 Index is declining 0.4%, Germany’s DAX Index is flat, Portugal’s PSI 20 Index is decreasing 0.8%, and Sweden’s OMX Stockholm 30 Index is 0.2% lower, while Ireland’s Irish Overall Index is gaining 0.4%.

Asia mostly higher as global economic optimism supports stocks

The equity markets in Asia finished mostly higher following the advance in the US and Europe as sentiment improved regarding the resiliency in the global economy in the face of the tragedy in Japan, Middle East turmoil, and the euro-area debt crisis. Japan’s Nikkei 225 Index rose 0.5% as the recent weakness in the yen helped support the advance, while issues tied to the restructuring efforts in the nation following the massive earthquake and tsunami that hit earlier this month also aided the upward move. The advance came even as Japan continues to try to avoid a meltdown at a nuclear facility that was damaged by the natural disaster. Elsewhere, Australia’s S&P/ASX 200 Index gained 0.3% amid the optimism regarding the global economy, and following a report that showed the nation’s retail sales grew more than forecasted, helping offset a separate report that showed building approvals unexpectedly declined. Moreover, South Korea’s Kospi Index increased 0.7%, but stocks in China were mixed, with the Shanghai Composite Index falling 0.9% and the Hong Kong Hang Seng Index rising 0.3%. Finally, Taiwan’s Taiex Index gained 0.4% ahead of the nation’s central bank policy meeting, in which it increased its benchmark interest rate from 1.625% to 1.750% after the close of today’s trading session.