Jobless Claims In-Line, and a Few Notable Earnings Beats Should Lift Stocks at Open

April 23, 2009 – The futures are indicating higher openings for the broader markets this morning as the Street reacts to a number of better-than-expected earnings reports and breathes a sigh of relief that the weekly jobless claims didn’t come in higher than expected.

Weekly jobless claims came in at 640,000, the twelfth straight week over 600,000. The number was in line with estimates, so the markets didn’t react too much. The question is whether jobless claims have peaked at 674,000. The insured unemployment rate is up to 4.6% from 4.4% last week. While the four-week moving average has come down a bit.

The dollar is slightly weaker against the euro this morning with the euro trading at $1.3030. The relative strength in the euro is being driven largely by some modestly upbeat economic data released this morning in the euro zone for the industrial and services sectors. Gold prices are up marginally at $0.50 to $893. While oil prices are up $0.70 to $49.55.

Oil is reportedly strengthening on a weaker dollar, though we would also point to the upcoming OPEC meeting as contributing to oil’s buoyancy. We would be surprised if OPEC does not cut production at this meeting.

On the corporate front,

·         Air Delivery & Freight Sector – UPS (NYSE:UPS) reported a 13% Y/Y decline in Q1 revenue to $10.94 billion, and a 55% Y/Y decline in profit to $401 million, or $0.40 per share. Expectations were for earnings of $0.56 per share.

·         Financial Sector – Credit Suisse (NYSE:CS) reported Q1 profit of 2 billion Swiss francs, ($1.72 billion). Expectations were for a profit of about 1 billion francs. PNC Financial (NYSE:PNC) reported a 22% Y/Y increase in Q1 profit to $460 million, or $1.03 per share. Expectations were for earnings of $0.42 per share.

·         Hospitality Sector – Marriot (NYSE:MAR) reported a 15% decline in Q1 revenue to $2.5 billion, and a $23 million loss, or $0.06 per share, compared to a profit of $121 million, or $0.33 per share for the same period last year. Expectations were for a profit of $0.14 per share.

·         Technology – Apple (Nasdaq:AAPL) reported after the close yesterday Y/Y revenue growth in Q2 of more than 8% in Q2 and a 15% Y/Y increase in profit to $1.21 billion, or $1.33 per share. Expectations were for earnings of $1.09 per share.

In international markets, in Japan, Toyota said global production fell 46% in March on a Y/Y basis, Honda’s production fell 37%, Nissan’s production fell 45%, Mitsubishi’s fell 57% and Mazda slipped 55%. In the euro zone, the preliminary purchasing managers index rose to a six-month high of 36.7 in April, while the equivalent for the service sector increased to 43.1, both indications that conditions are perceived to be improving – though still recessionary. In Germany, the economy is projected to contract by 6% in 2009.

In terms of what we expect in today’s session, if the past couple sessions are any indication about how today’s session will play out, stocks should be able to stay in positive territory. There really doesn’t seem to be any conviction on the Street about which direction stocks should go, and that has been resulting in choppy trading sessions and relatively low volume.

Today, a handful of better-than-expected earnings and an on-target weekly jobless claims report (still dismal at 640,000 jobs lost) should be enough to buoy stocks and stem any sharp moves to the downside. The question is whether stocks can move higher on any meaningful volume, which will be needed to get convincingly back over key resistance levels.

We still think the markets still have more moves in them to the downside, so we aren’t accumulating into strength at current levels. We are still long the Short Dow30 Pro Shares (basically shorts on the DJIA) that we put in to effect a couple weeks ago when the DJIA first rallied over 8,000, thinking that a re-test in the 7,500 range is on tap (at least).

Obama Meets with Credit Card Industry

It shouldn’t be any secret or surprise that credit card companies are a big issue these days. Concerns are mounting about their exposure. But then they were the ones playing fast and loose extending credit (on increasingly usurious terms) to people that shouldn’t have qualified, and we were the ones that took it, maxing out our credit lines, spurred on by the nations politicians and economists that counted on us to drive more than 70% of the GDP. How else were we going to do it?

Well, the problem is now that credit companies are exposed by consumers that are increasingly ill-equipped to service their debt. And a bigger problem is that credit companies are increasingly using shady tactics to mitigate their risk – increasing rates arbitrarily and cutting credit lines indiscriminately.

Obama is meeting with CEOs in the industry urging for more protection for consumers. It is about time! The former president favored the credit industry with his policies. Obama’s focus is on “abusive and deceptive” practices that result in higher-than-expected fees and rates. Again, it is about time.

Yesterday, the House Financial Services Committee voted 48-19 to approve a bill to clamp down on rates and fees; nine Republicans (out of 29) joined the panel's Democrats (all of them) in voting for it.