World Business Report

By Markos N. Kaminis - Economy & Markets:

Visit the front pages of Wall Street Greek and Market Moving News to see our current coverage of economic reports and financial markets.

The markets seemed interested in rising today, until the release of economic reports at 8:30. Weekly initial jobless claims and PPI data were not supportive, and set the tone of the trading day. This article serves as a wonderful one-stop shop to study the day's economic data, international market news and corporate drivers. Future editions will also include commodity and currency market commentary when appropriate.

Economic Reports

Weekly Initial Jobless Claims

* Week Ended Feb 14: 627K
* Bloomberg Consensus: 620K
* Prior Week Revised: 627K
* Four Week Average: 619K, +10,500

Weekly claims unfortunately stuck at very high levels last week, and offered a bitter data point for the start of trading on Thursday. The most concerning information in the report is the rising four-week average, which is now solidly above 600K. Also ominous for the February Employment Situation Report and unemployment rate, continuing claims rose 170K, taking insured unemployment to 4.987 million in the week ended February 7th. Insured unemployment increased a tenth of a percentage point in the week measured, to 3.7%. Despite being a lagging indicator, unemployment feeds the vicious cycle of recession by removing fuel from consumer spending, which overwhelmingly drives our economy. Note, this lagging indicator is still a forecasting tool until the economy actually turns.

Producer Price Index (PPI) - January

* PPI M/M: 0.8%
* Consensus: 0.2%
* PPI Y/Y: -1.3%
* Core M/M: 0.4%
* Consensus: 0.1%
* Core Y/Y: 4.2%

Producer prices came in unexpectedly hot for January, and this is not good news. While we would like to avoid deflation at all costs, we need inflation now like a hole in the head. Let's take a closer look.

We expected the absence of drastic energy price decline, with oil prices actually rising in January, would turn headline price decline around. What we got was a bit more. Gasoline prices increased 15% in January. Other finished energy goods, excluding residential natural gas and diesel fuel, also found better pricing last month, explaining the boost in the headline PPI figure. Foods prices generally eased, but not across the board.

Still, we need to explain the three-tenths excess in the Core PPI figure versus consensus expectations. While December's price strength in autos moderated in January, the prices of guns and alcohol rose (and for good reason)! We should note that auto prices still rose, and played a role as well.

Leading Indicators - January

* Leading Indicators Index: 0.4%
* Consensus: 0.0%
* December: 0.2% (revised)

Like last month, leading indicators rose on the push of money supply and interest rate spreads. If the Fed, Treasury and Congressional efforts result in good use of funds and intended economic stimulus, the leading indicators index seems to tell us economic recovery may not be too far out of sight. Excluding the impact of money supply increase, the index would have softened by 0.1%. Execution is the key now for our government. Efforts to target employment, the greatest negative factor in the Indicators Index, seem well-placed. At this point, however, we're still shedding jobs at a dangerous rate. We hope to follow up this article with a detailed report on Leading Indicators, as we've found some interesting tidbits.

Philly Fed Survey - February

* Diffusion Index: -41.3
* Consensus: -26.0
* January: -24.3

The Philadelphia Fed Survey's General Activities Indexes deteriorated in February, which coincided with a similar result from the Empire State Manufacturing Survey. Every facet of this index fell from January, but employment led the decline with a substantial drop-off (its lowest reading in history). Firms reported inventory higher than expected, and they are still seeing prices of inputs and finished goods declining. The only offering of hope came from the Future General Activity Index, which improved to 15.9 from 7.4. Firms still see hours and workers dropping further over the next six months though, but there is a sign of hope. We're guessing government efforts have a lot to do with that. Again, we want to stress how important execution is, or else we might let these folks down.

International News

We had a bunch of international market moving news this morning. The Bank of Japan led things off, holding rates steady in its policy decision. The world's second largest national economy didn't have much room to move today, with its target rate already at 0.1%. The BOJ also introduced a slew of initiatives to spur economic recovery, using creative means similar to our Federal Reserve.

If you thought things were bad in the U.S. during Q4, Japanese GDP contracted at an annualized rate of 12.7%. Annualized rates can be deceiving though; I remember as an analyst how much I enjoyed projecting out returns on an annualized basis to get a laugh or two. The reality is that the Japanese economy would not likely continue its Q4 pace through the full year; but it makes a good headline for popular press nonetheless... Japan declared it would continue to promote liquidity in its marketplace, and extend, expand and broaden measures to do so.

Eastern Europe Leans on Europe Which Leans on Germany

Perhaps a legacy of the ancient monarchies, in times of trouble, Europeans seem to still look for aid from the king. In a Financial Times interview, World Bank President Robert Zoellick said his organization, along with the IMF, sees it imperative to aid Eastern and Central Europe, but he needs the help of the EU to do so. He says quite poetically, "the financial crisis, now economic crisis is expanding to an employment crisis, which threatens to evolve into social, political and even human crises." The EU is not ignoring his plea, but would prefer a nation by nation approach, prioritizing EU members. The article also raises concern about pending runs against currencies of nations in trouble.

Meanwhile, greater Europe is looking to its biggest brother, Germany, to shoulder a heavier load for the greater whole. We noted Germany's soft relative commitment thus far in our article, "Protectionism and Hypocrisy." The euro rebounded today, after taking a recent beating on Eastern European concerns, as speculation mounts that Germany might lead a new EU bailout or fiscal stimulus package. An announcement would help cement some support here, but the absence of one in the near-term would take all support away.

Asia:

1. MSCI Asia APEX 50: 0.0%


2. Japan NIKKEI 225: +0.31%


3. Hong Kong Hang Seng: +0.06%


4. China CSI 300: +0.99%


5. India BSE SENSEX 30: +0.3%

Europe:

1. DJ Euro STOXX 50: -0.17%


2. UK FTSE 100: +0.29%


3. France CAC 40: -0.05%


4. Germany DAX: +0.24%

(Index prices are as available at hour of publishing and may not be the closing price)

Corporate News Drivers

UBS

UBS (NYSE: UBS) has agreed with U.S. tax authorities to share details of U.S. investor funds and portfolios in secret offshore accounts in Switzerland. The $780 million settlement will reveal the names of U.S. tax evaders, and offer yet another scandalous reason for global markets to panic. Seriously, there might have been a better time for this than now, don't you think... Now every capital strapped nation will use this as precedent to chase runaway tax funds in Switzerland. Net net, we think the U.S. is not this cash desperate yet, and the implications only offer more fuel for global market turmoil.

Hewlett-Packard

Hewlett-Packard (NYSE: HPQ) posted EPS in line with expectations. Unit shipments were down though, and revenues were short of expectations as well. HPQ also offered a reduced forecast for Q2 and narrowed its full year forecast short of analyst expectations. The shares are off by more than 7%, despite managing EPS well through cost cutting.

CVS Caremark

Here's a rarity in today's marketplace, profit growth. CVS Caremark (NYSE: CVS) grew its fourth quarter profit by 17%. Revenue and EPS growth exceeded estimates, and CVS shares are up over 7% as a result. When same-store sales are up 3.6% in a horrible quarter, something is working! CVS seems to be managing its operations well, and operates partly in a recession resistant market. The shares are well off their 52-week high, and the valuation looks good to me on a relative and intrinsic basis (P/E and PEG ratios). Again, this is based on a twenty minute take, so take a closer look yourself, unless you want to pay me too.

Sprint Nextel

Sprint Nextel (NYSE: S) reported a $1.6 billion fourth quarter loss, but still beat estimates. A great portion of the loss was due to Nextel acquisition related write-offs, but subscribers and revenue continue to erode as well. As an analyst, the subscriber losses would be my greatest concern here, and how Sprint is addressing them. The company lost 1.3 million subscribers, and its base is down 8.4% from the end of 2007. Now, the company's CEO said it is cash flow positive and can make debt payments through 2010, but bleeding to death slowly is painful for investors too.

While losing market share, the company is not sitting idle either. It's taken steps to improve its shortcomings, working to strengthen customer service. It's going to launch a new smartphone with Palm (Nasdaq: PALM) shortly, and is outsourcing jobs to lower cost markets. The stock is up 24% today, to $3.31; the reason being, change. The initiatives the company is effecting offer opportunity for it to improve competitiveness and stop the bleeding. Investors are betting today that that will occur before it can no longer pay creditors. We would have to take an even closer look before making a recommendation, but I like what I see on the fly anyway.

Today's EPS Reports

Cooper Industries (NYSE: CBE) will hold its annual investor webcast event, and the earnings schedule highlights news from Advance America (NYSE: AEA), Amerigroup (NYSE: AGP), AmSurg (Nasdaq: AMSG), Answers (Nasdaq: ANSW), Apache (NYSE: APA), Barnes (NYSE: B), Brocade Communications (Nasdaq: BRCD), Bucyrus Int'l (Nasdaq: BUCY), Build-A-Bear (NYSE: BBW), Builder's FirstSource (Nasdaq: BLDR), Cabela's (NYSE: CAB), Career Education (Nasdaq: CECO), CenturyTel (NYSE: CTL), Community Health Systems (NYSE: CYH), Chiquita (NYSE: CQB), Crocs (Nasdaq: CROX), CVS Caremark (NYSE: CVS), Diana Shipping (NYSE: DSX), Ditech (Nasdaq: DITC), Eldorado Gold (AMEX: EGO), Expedia (Nasdaq: EXPE), Fairfax Fin'l (NYSE: FFH), Goldcorp (NYSE: GG), Group 1 Automotive (NYSE: GPI), Harleysville Group (Nasdaq: HGIC), Home Properties (NYSE: HME), Hormel (NYSE: HRL), Hornbeck Offshore (NYSE: HOS), Idacorp (NYSE: IDA), Interactive Data (NYSE: IDC), Intuit (Nasdaq: INTU), Kindred Healthcare (NYSE: KND), Morningstar (Nasdaq: MORN), Mylan (NYSE: MYL), Newmont Mining (NYSE: NEM), Noble Energy (NYSE: NBL), Nordson (Nasdaq: NDSN), Oil States Int'l (NYSE: OIS), OSI Pharma (Nasdaq: OSIP), Pool Corp. (Nasdaq: POOL), Pride Int'l (NYSE: PDE), Regal Entertainment (NYSE: RGC), Reliance Steel (NYSE: RS), Spartan Motors (Nasdaq: SPAR), Superior Energy (NYSE: SPN), Sycamore Networks (Nasdaq: SCMR), Tesoro (NYSE: TSO), TheStreet.com (Nasdaq: TSCM), TradeStation (Nasdaq: TRAD), VCA Antech (Nasdaq: WOOF), WebMD (Nasdaq: WBMD), Williams Cos. (NYSE: WMB) and more.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. (Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)