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Markets Are Trading Higher In Early Action

February 6, 2015
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The U.S. equity markets are trading higher in early action, with traders digesting a stronger-than-expected domestic January nonfarm payroll report, which showed strong upward revisions to the prior months’ job growth figures and a solid rebound in wages. Treasuries are trading lower on the heels of the jobs report, along with gold prices, while the U.S. dollar and crude oil prices are gaining ground. Meanwhile, a read on consumer credit is due out in the final hour of trading. In earnings news, Twitter bested the Street’s quarterly forecasts, while Expedia missed earnings projections. In other equity news, Dow member Verizon Communications announced some large transactions designed to further sharpen its strategic focus. Overseas, Asian stocks finished mixed ahead of the U.S. employment report, which is helping European stocks overcome early losses stemming from economic data and continued Greek concerns.

As of 8:53 a.m. ET, the March S&P 500 Index future is 7 points above fair value, the DJIA future is 49 points above fair value, and the Nasdaq 100 Index is 9 points north of fair value. WTI crude oil is gaining $1.76 to $52.24 per barrel and Brent crude oil is rising $1.70 to $58.27 per barrel, while gold is trading $14.92 lower at $1,249.90 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is up 0.8% to 94.34.

Twitter Inc. (TWTR $41) reported 4Q earnings-per-share (EPS) ex-items of $0.12, above the $0.06 consensus estimate of analysts surveyed by FactSet, as revenues jumped 97.0% year-over-year (y/y) to $479 million, compared to the $454 million that the Street had anticipated. TWTR issued full-year 2015 revenue guidance that topped the Street’s forecasts. However, the real time public self-expression and conversation company’s average monthly active users (MAUs) of 288 million missed analysts’ expectations of 292 million.

Dow member Verizon Communications Inc. (VZ $48) announced that it reached an agreement to sell its local wireline operations serving customers in California, Florida and Texas to Frontier Communications Corp. (FTR $8) for about $10.5 billion. Also, VZ agreed to lease the rights to over 11,300 of its company-owned wireless towers to American Tower Corp. (AMT $100), which will also purchase about 165 Verizon towers, for a total upfront payment of approximately $5.0 billion. VZ said the transactions are designed to further sharpen its strategic focus. Additionally, VZ announced a $5.0 billion accelerated share-repurchase program.

Expedia Inc. (EXPE $88) posted 4Q EPS ex-items of $0.86, well below the $1.01 that the Street had projected, with revenues rising 18.0% y/y to $1.4 billion, roughly inline with analysts’ estimates. The travel booking site said its revenue per room night fell 10.0% y/y, due to efforts to expand the size and availability of the global hotel supply portfolio, promotional activities, and an unfavorable book-to-stay foreign currency impact.

January job growth tops forecasts, while wages rebound solidly

Nonfarm payrolls rose by 257,000 jobs month-over-month (m/m) in January, compared to the 228,000 increase that economists surveyed by Bloomberg had forecasted. Moreover, the initial rise of 252,000 seen in December was revised higher to a gain of 329,000 jobs, and the combined net upward revision to job gains for December and November was 147,000. Excluding government hiring and firing, private sector payrolls increased by 267,000, versus the forecast of a gain of 222,000, after expanding by an upwardly revised 320,000 in December, from the 240,000 rise that was initially reported. Meanwhile, theunemployment rate ticked higher to 5.7% from 5.6%, where economists expected the rate to hold, while average hourly earningsjumped 0.5% m/m, compared to expectations of a 0.3% increase, while December’s 0.2% declined was unadjusted. Finally,average weekly hours remained at December’s 34.6 hours level, matching economists’ forecasts.

Treasuries are lower in early action following the employment report, with the yield on the 2-year note jumping 7 basis points (bps) to 0.59%, the yield on the 10-year note increasing 5 bps to 1.87%, and the 30-year bond rate advancing 2 bps to 2.45%.

In the final hour of trading, the domestic economic docket will yield the release of consumer credit, expected to show consumer borrowing was $15.0 billion during December, up from the $14.1 billion posted the month prior.

Europe dipping as traders digest U.S. labor data, while Greek concerns remain

The European equity markets are mostly lower in afternoon action although losses have been pared by the stronger-than-expected January U.S. employment report. However, Greek concerns remain as the nation and Germany appear to be at odds regarding a new debt agreement, while earlier this week, the European Central Bank revoked a waiver that would allowed the country’s debt to be used as collateral for loans from the central bank. Meanwhile, German industrial production rose by a smaller rate than anticipated for December, while French and U.K. trade deficits came in wider than expected. Elsewhere, Spain’s industrial output rose solidly. In earnings news, shares of Alcatel-Lucent (ALU $4) are trading nicely higher after the French network-equipment maker offered a stronger-than-expected forecast for its gross margin.

The U.K. FTSE 100 Index is down 0.2%, Germany’s DAX Index is declining 0.6%, France’s CAC-40 Index and Italy’s FTSE MIB Index are decreasing 0.3%, Spain’s IBEX 35 Index is dipping 0.1%, and Greece’s ASE Athens Index is dropping 2.9%, while Switzerland’s Swiss Market Index is rising 0.4%.

Asia diverges ahead of U.S. employment report

Stocks in Asia finished mixed, with yesterday’s rebound in oil prices lending some support, while mainland Chinese stocks extended their losing streak, Greek concerns continued, and caution ahead of today’s January labor report out of the U.S. set in. Japan’s Nikkei 225 Index advanced 0.8%, with sentiment relatively upbeat toward the nation’s earnings season, highlighted by a sharp rally in shares of Nisshin Steel Co. Ltd. after the company raised its profit outlook and announced a year-end dividend that was above forecasts. Meanwhile, Australia’s S&P/ASX 200 Index gained 0.2%, widening its winning streak to twelve-straight sessions, aided by the rebound in oil and the interest rate cut earlier this week by the Reserve Bank of Australia. However, China’s Shanghai Composite Index fell 1.9%, posting its third-consecutive daily decline, and the Hong Kong Hang Seng Index finished 0.4% lower. Sentiment in China was dampened by looming IPOs to hit the market next week and as a media report quoted a government official saying this week’s cut of banks’ reserve requirement ratio was not the start of aggressive stimulus for the economy. Finally, South Korea’s Kospi Index ticked 0.1% higher, while India’s S&P BSE Sensex 30 Index declined 0.5%.

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