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Morning Volatility Amid US Jobs Data and Eurozone Reports

Morning Volatility Amid US Jobs Data and Eurozone Reports
February 09
07:51 2012

 

The US equity markets have reversed modestly to the upside in early action, on the heels of a much larger-than-anticipated drop in US jobless claims and reports that Greece has reached an austerity deal that will likely pave the way for further bailout aid. Meanwhile, European stocks are moving higher on the Greek reports and as the Bank of England boosted its asset purchase program and the European Central Bank announced it will make changes to its loan collateral requirements, after the two left their respective benchmark interest rates unchanged as expected. Treasuries are mostly lower on the US and European reports, ahead of a report on wholesale inventories. On the US earnings front, Dow member Cisco Systems Inc, PepsiCo Inc, and Visa Inc all topped analysts’ quarterly expectations. However, shares of Diamond Foods Inc are tumbling after the company announced that its financial statements for 2010 and 2011 need to be restated as payments to walnut growers were not accounted for in the correct periods. Elsewhere overseas, Asian stocks were mixed amid Greek uncertainty and after showing a modest reaction to an acceleration in Chinese consumer inflation.

Jobless claims fall, wholesale inventories report due out later this morning

Weekly initial jobless claims dropped by 15,000 to 358,000 last week, compared to the 370,000 level that economists surveyed by Bloomberg had expected, after last week’s figure was upwardly revised by 6,000 to 373,000. Also, the four-week moving average, considered a smoother look at the trend in claims, fell by 11,000 to 366,250 while continuing claims rose by 64,000 to 3,515,000, above the forecast of economists, which called for an increase to 3,500,000.

Treasuries are mostly lower in early action following the employment data, with the yield on the 2-year note unchanged at 0.26%, while the yields on the 10-year note and the 30-year bond are gaining 3 basis points (bps) to 2.05% and 3.18%, respectively.

Later this morning, the US economic calendar will yield the release of wholesale inventories, forecasted to rise 0.4% month-over-month (m/m) in December, after increasing 0.1% in November.

Europe moving higher following central bank meetings

The equity markets in Europe are moving higher in afternoon action, on the heels of monetary policy meetings by the Bank of England (BoE) and the European Central Bank (ECB), aided by reports that an agreement by Greece on its austerity measures appears to be helping support sentiment. An agreement on tough spending cuts will likely pave the way for the debt-laden nation to receive further bailout aid and restructure its debt with its private creditors. The euro moved decisively to the upside on the reports, but has given back the gains amid some continued skepticism as traders await confirmation of the agreement by Greece. However, ECB President Mario Draghi said he was informed of an agreement in Greece. Meanwhile, the BoE expectedly held its benchmark interest rate unchanged at 0.50%, but boosted its asset purchase program (quantitative easing) by 50 billion pounds to 325 billion pounds, due to economic sluggishness and the threat of the eurozone debt crisis. The move was anticipated by economists. Moreover, the ECB also kept its main interest rate unadjusted at 1.0%, as expected, but President Draghi is holding a press conference following the announcement and he noted that the central bank will announce collateral changes for loans amid the eurozone debt crisis. However, he did offer some cautious commentary about risks to the eurozone economy, though he sees some signs of stabilization.

Elsewhere, the equity front is mixed, with Daimler AG (DDAIY $60) moving nicely higher after posting better-than-forecasted earnings and raising its dividend, while Credit Suisse Group (CS $28) is under pressure after it reported an unexpectedly loss.

The UK FTSE 100 Index is gaining 0.4%, France’s CAC-40 Index is rising 0.7%, Germany’s DAX Index is 0.8% higher, Italy’s FTSE MIB Index is advancing 0.2%, Switzerland’s Swiss Market Index is trading 0.2% to the upside, Spain’s IBEX 35 Index is increasing 0.6%, and Greece’s Athex Composite Index ascending 0.1%.

Asia mixed amid Greek uncertainty and muted reaction to Chinese inflation data

Stocks in Asia finished mixed as traders remained cautious amid the uncertainty of a Greek default as a resolution on whether the troubled nation will get the next round of bailout aid continued to be elusive. Also, stocks in the region showed little reaction to an unexpected acceleration in China’s consumer prices, as its Consumer Price Index rose 4.5% y/y for January, compared to the 4.1% increase in December, and the 4.0% gain that economists had anticipated. The modest reaction may have been due to the earlier Lunar New Year holiday in 2012 (January) compared to last year (February), which may have distorted the data. Separately, China’s Producer Price Index increased 0.7% y/y in January, after December’s 1.7% gain, and the 0.8% rise that was expected. China’s Shanghai Composite Index rose 0.1% and Hong Kong’s Hang Seng Index finished flat following the data, and despite a solid gain in shares of Lenovo Group Ltd. (LNVGY $16) after the computer maker posted better-than-forecasted earnings.

Elsewhere, Japan’s Nikkei 225 Index declined 0.2%, following the Chinese inflation data and a separate report that showed Japanese machine orders fell more than expected m/m in December, which was partially offset by another report showing consumer confidence in Japan unexpectedly improved. In Japanese equity news, shares of Alibaba.com (ALBIY $5) were suspended as the company prepares a statement involving a transaction with major shareholder Yahoo! Inc. (YHOO $16). Reports are suggesting ALBIY is in the process of obtaining about $3 billion to buy back the 40% of its shares that YHOO owns of the company. Meanwhile, South Korea’s Kospi Index rose 0.5%, as the Bank of Korea expectedly held its benchmark interest rate unchanged at 3.25%, Australia’s S&P/ASX 200 Index decreased 0.2%, and India’s BSE Sensex 30 Index gained 0.7%.

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