Morning Market Update

US Data Helping Support Stocks After ECB Hikes Rate

The US equity markets erased early losses and are modestly higher in morning action on the heels of an expected rate hike from the European Central Bank and the announcement that Portugal will seek a bailout. Moreover, data from the US is helping support stocks, with weekly initial jobless claims falling more than anticipated and March retail sales coming in mostly better than expected, highlighted by reports from Target Corp and Macy’s Inc. Treasuries are modestly lower following the global events, ahead of an afternoon release of consumer credit. In other equity news, Bed Bath & Beyond Inc posted much better-than-expected earnings. Overseas, Asia was mixed in a relatively subdued session, while Europe is gaining ground on strength in financials.

As of 8:50 a.m. ET, the June S&P 500 Index Globex future is 1 point above fair value, the Nasdaq 100 Index is 1 point above fair value, and the DJIA is 9 points above fair value. WTI crude oil is $0.21 higher at $109.04 per barrel, and the Bloomberg gold spot price is down $1.65 at $1,458.10 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is unchanged at 75.59.

The nation’s retailers are reporting March same-store sales results—sales at stores open at least a year—headlined by Target Corp. (TGT $51), which announced a 5.5% decline year-over-year (y/y), compared to the 6.4% drop that analysts surveyed by Reuters had anticipated. TGT said March sales were inline with its expectations, reflecting the change in Easter timing in 2011.

Costco Wholesale Corp. (COST $75) posted a 13% y/y jump in March same-store sales, including inflation in gasoline prices and strengthening foreign currencies, far above the 7.4% increase that was anticipated. Excluding the impact of fuel inflation and currency fluctuations, sales were 8% higher.

Department store chain, Macy’s Inc. (M $25), achieved 0.9% y/y growth in same-store sales for March, versus the 2.0% decline that analysts had anticipated. The company said it is “optimistic about sales in April,” which should benefit from the Easter shift, as it increased its same-store sales outlook for this month.

In earnings news, Bed Bath & Beyond Inc. (BBBY $49) reported 4Q EPS of $1.12, well above the $0.97 that analysts were expecting, with revenues rising 11.6% y/y to $2.5 billion, above the $2.4 billion that the Street had forecasted. 4Q same-store sales rose 8.5% y/y, and the company issued 1Q EPS guidance that was inline with expectations.

Jobless claims decline, consumer credit due out in final hour

Weekly initial jobless claims fell by 10,000 to 382,000, versus last week's figure which was upwardly revised by 4,000 to 392,000, below the 385,000 level that economists surveyed by Bloomberg had expected. The four-week moving average, considered a smoother look at the trend in claims, fell by 5,750 to 389,500, while continuing claims declined by 9,000 to 3,723,000, above the forecast of economists, which called for continuing claims to come in at 3,700,000.

Treasuries are lower in morning action following the employment data and central bank action in Europe, with the yield on the two-year note up 1 bp to 0.84%, the yield on the 10-year note 3 bps higher to 3.57%, and the 30-year bond yield gaining 2 bps to 4.62%.

In the final hour of trading, the economic calendar will yield the release of consumer credit, forecasted to increase by $4.6 billion in February, after rising by $5.0 billion in January.

Europe higher as ECB hikes rate and Portugal asks for a bailout

The equity markets in Europe are higher in afternoon action, led by a solid gain in financials, as the European Central Bank (ECB) raised its benchmark interest rate and the debt-laden nation of Portugal said it will seek assistance from the euro-zone’s 440 billion euro European Financial Stability Facility (EFSF). The ECB increased its key interest rate by 25 basis points to 1.25%, which was widely expected, and now the attention shifts to the customary press conference by ECB President Jean-Claude Trichet, which follows the announcement, as traders try to gauge if this action will be the start of a rate-hike campaign or just a one-time event. The move comes as inflationary pressures are growing with price stability being the ECB’s lone mandate, and despite the euro-area’s festering debt crisis, which claimed another peripheral nation with Portugal expectedly announcing that it will seek a bailout, joining Greece and Ireland. Portugal’s finance minister will meet with euro-zone officials tomorrow to discuss the rescue plan, which Bloomberg reported could total 75 billion euros ($107 billion). The euro pared losses but remains lower versus the US dollar.

Meanwhile, the Bank of England (BoE) also concluded its monetary policy meeting and left its benchmark interest rate and asset purchase program unchanged at 0.50% and 200 billion pounds, respectively. In other economic news, Germany’s industrial production rose more than expected, and France’s trade deficit unexpectedly widened.

The UK FTSE 100 Index is unchanged, France’s CAC-40 Index is gaining 0.4%, Germany’s DAX Index is rising 0.1%, and Spain’s IBEX 35 Index advancing 0.7%, while Portugal’s PSI 20 Index is increasing 1.6%.

Asia mixed in lackluster session

Stocks in Asia finished mixed with Japan’s Nikkei 225 Index gaining 0.1% following the Bank of Japan’s (BoJ) monetary policy meeting, in which it kept its benchmark interest rate unchanged at near zero. The BoJ did announce that it will introduce a 1 trillion yen ($11.7 billion) loan facility to provide financial institutions in disaster areas with longer-term funds to support future demand for funds for restoration and rebuilding. The BoJ said its economy is likely to remain under strong downward pressure, mainly on the production side, but is expected to return to a moderate recovery path. Also helping stocks in Japan, shares of Elpida Memory Inc. (ELPDF $12) moved nicely higher after the company announced that it will build a 4-gigabit DRAM chip for smart phones, which it will begin production in June. However, Samsung Electronics Co. Ltd. (SSNLF $448) came under pressure to weigh on South Korean stocks, after it posted disappointing 1Q profits, and the Kospi Index finished 0.2% lower. Elsewhere, stocks in China were little changed, with the Hong Kong Hang Seng Index closing flat, while the Shanghai Composite Index rose 0.2%. Finally, Australia’s S&P/ASX 200 Index dipped 0.1% amid some profit taking following the recent advance in the mining sector, even after a report showed the nation’s employment change rose more than expected and its unemployment rate unexpectedly declined from 5.0% to 4.9% in March.