Morning Market Update

Stocks Lower on Jobs Data and European Policy Decisions

US stocks are under pressure in early action following an unexpected rise in US jobless claims and as traders digest some key monetary policy decisions in Europe. Treasuries are higher following the employment data, despite a larger-than-expected narrowing of the US trade deficit. In equity news, Smithfield Foods Inc posted mixed quarterly results, while Pall Corp missed analysts’ earnings expectations. However, the Street is awaiting a speech this afternoon by Federal Reserve Chairman Ben Bernanke and tonight’s Congressional speech by President Obama on the economy and job creation, along with a late-day report on consumer credit. Overseas, Asia finished mixed, while European stocks are under pressure after the Bank of England and the European Central Bank left their benchmark interest rates unchanged.

As of 8:53 a.m. ET, the September S&P 500 Index Globex future is 9 points below fair value, the Nasdaq 100 Index is 13 points below fair value, and the DJIA is 77 points below fair value. WTI crude oil is $0.46 lower at $88.88 per barrel, and the Bloomberg gold spot price is up $39.69 at $1,857.40 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.5% to 75.82.

Smithfield Foods Inc. (SFD $22) reported fiscal 1Q EPS ex-items of $0.69, two cents above the consensus estimate of analysts surveyed by Reuters, with revenues gaining 7% year-over-year (y/y) to $3.1 billion, compared to the $3.2 billion that the Street had forecasted. The company said it posted record profits in its packaged meats business, “in spite of higher raw material costs.” Meanwhile, the meat producer said balanced supply and demand fundamentals coupled with strong exports yielded solid fresh pork margins, while its international group capitalized on “robust demand for pork.”

Pall Corp. (PLL $49) announced fiscal 4Q earnings ex-items of $0.76 per share, below the $0.88 that the Street had projected, while revenues gained 15% y/y to $780 million, exceeding the $759 million that analysts had estimated. The filtration and purification technology company said sales in both its businesses met its expectations against a “backdrop of global macroeconomic challenges,” while its profitability in its industrial segment fell short of estimates, resulting in a “disappointing finish to an otherwise good year.”

Jobless claims rise and trade deficit narrows, consumer credit and Fed speech to come

Weekly initial jobless claims rose by 2,000 to 414,000, versus last week's figure which was upwardly revised by 3,000 to 412,000, and compared to the 405,000 level that economists surveyed by Bloomberg had expected. Also, the four-week moving average, considered a smoother look at the trend in claims, increased by 3,750 to 414,750, while continuing claims dropped by 30,000 to 3,717,000, above the forecast of economists, which called for continuing claims to come in at 3,706,000.

Meanwhile, the trade deficit narrowed more than expected, falling to $44.8 billion in July from a favorably revised $51.6 billion in June, versus the estimate of economists, which called for the deficit to narrow to $51.0 billion.

Treasuries are higher in morning action following the data, with the yield on the 2-year note down 1 bp to 0.19%, the yield on the 10-year note 5 bps lower at 1.99%, and the 30-year bond rate declining 7 bps to 3.30%.

Later this afternoon, the US economic calendar will yield the release of consumer credit, forecasted to rise by $6.0 billion in July, after jumping by $15.5 billion in June.

Also, traders will likely pay attention to the speech by Federal Reserve Chairman Ben Bernanke at 1:30 p.m. ET to the Economics Club of Minnesota on the topic of “The US Economic Outlook.” The comments from the Fed Chief will be scrutinized for any signs of further monetary policy action in light of Friday’s disappointing labor report and the ongoing debt uneasiness on both sides of the Atlantic. Bernanke’s appearance will come before tonight’s Congressional speech by President Obama on the economy and job creation, scheduled for 7:00 p.m. ET. The unprecedented dissent we saw at the last Fed meeting, with three members of the Federal Open Market Committee (FOMC) opposing the change in the language, indicates to us that further action is further off than some are expecting.  And there may be little the Fed can do to overcome the perceived dysfunction on Capitol Hill and in the White House. The debt crisis debate shook confidence of businesses and consumers alike, and the current environment lends itself to little in the way of needed reforms getting done prior to the 2012 elections.

Europe lower as central banks conclude monetary policy meetings

The equity markets in Europe are lower in afternoon action following key central bank meetings in the region. The Bank of England (BoE) and the European Central Bank (ECB) both kept their benchmark interest rates unchanged as expected at 0.50% and 1.50%, respectively. However, sentiment remains skittish as the customary press conference by ECB President Jean-Claude Trichet that followed the interest rate decision is being closely scrutinized. Attention is being paid to the language used by Trichet pertaining to the appropriateness of the central bank’s current policy and how he describes the current inflationary environment, as price stability is the central bank’s lone policy mandate. The ECB has kept rates on hold since July after raising rates twice this year, and investors are waiting to see if Trichet signals that the ECB will move to a more accommodative stance amid the festering eurozone debt crisis, which has ravaged the region’s financial sector and is threatening economic growth. Trichet noted that monetary liquidity remains ample and that inflation rates should fall below its target of 2% next year, and inflation risks are broadly balanced. Also, Trichet said he expects euro-area growth to be moderate.

Elsewhere, the economic calendar across the pond is mostly on the disappointing side, with French 2Q nonfarm payrolls rising by a smaller rate than expected, while a read of the nation’s business sentiment remained unchanged, with economists forecasting a slight decline. Moreover, Germany exports unexpectedly fell in July, resulting in a larger-than-estimated narrowing of the trade surplus in Europe’s largest economy.

The UK FTSE 100 Index is down 0.6%, France’s CAC-40 Index is 0.4% lower, Germany’s DAX Index declining 1.0%, and Greece’s Athex Composite Index is falling 4.6%.

Asia mixed amid and ahead of data

Stocks in Asia finished mixed following yesterday’s steep advances in the US and Europe on eased euro-area debt concerns following a favorable vote in Germany on the legality of the eurozone bailouts, but sentiment was kept in check following some disappointing economic data and ahead of key inflation releases out of China tomorrow. Japan’s Nikkei 225 Index increased 0.3% but gains were limited by a report that showed Japanese machine orders fell nearly twice the expectation of economists, and following an unexpected narrowing of the nation’s trade surplus. Elsewhere, Australia’s S&P/ASX 200 Index inched 0.1% higher after paring gains on an unexpected increase in the nation’s unemployment rate. Meanwhile, South Korea’s Kospi Index gained 0.7%, one of the best performers in the region, on the eased euro-area debt concerns, and as the Bank of Korea kept its benchmark interest rate unchanged as expected at 3.25%. However, stocks in China finished lower, with the Shanghai Composite Index and the Hong Kong Hang Seng Index falling 0.7% ahead of tomorrow’s releases of Chinese consumer and producer prices, which are forecasted to decelerate in August to 6.2% and 7.2% y/y, respectively. In July, China’s consumer and producer prices were 6.5% and 7.5% higher, respectively.