Thursday's Pre-Market Report: ECB in Focus

Today's news slate should be keyed by the decisions of the Bank of England and the ECB. The market widely expects the BOE to cut by a quarter point and the ECB to hold steady as it contends with inflation. We expect that unless the ECB moves by more than a quarter point, American markets will not view its action as adequate. We anticipate this will set today off on a sour note.

ECB in Focus

Economic decline is not as evident yet in the euro zone. Since the U.S. represents Europe’s second biggest export market, economists are paying close attention. If the ECB keeps rates steady, the dollar could weaken further, and eventually U.S. treasury securities could lose foreign interest. There’s concern that this could later drive inflation in America. Last week, European inflation was reported increased to 3.2%, the highest in 14 years, and ECB bankers are on record expressing concern. Thus, if the ECB keeps rates steady, it would not be a great surprise, but still hurt U.S. securities.

International Markets

Hong Kong, Singapore and others joined Taiwan, South Korea and Mainland China in the celebration of the Lunar New Year holiday. Many of the Asian and Pac Rim markets that did open for trade today moved lower for the third straight occasion. Japan's NIKKEI 225 slipped 0.14%; Singapore's STRAITS Times Index fell 3.5%; Australia's All Ordinaries Index moved down 0.55%; New Zealand's All Index fell 1.09%. However, India's BSE Sensex 30 moved 0.21% higher on the day.

Economic Data & Analysis

Today, most retailers will report same-store sales for the month of January. We’re not expecting strong performance as anecdotal evidence has offered signs of weakness. Target (NYSE: TGT) reported earlier this month that its sales had been trending at the low end of its forecast range. Not long ago, Macy’s (NYSE: M) and Talbot’s (NYSE: TLB) announced store closings. Last evening, Macy's increased the stakes by announcing it would dismiss 2,300 employees.

The trouble goes beyond just the anecdotal evidence of individual retailer weakness. Weekly same-store sales data from the International Council of Shopping Centers has shown aggregate sales growth at a much lower rate then during anytime in ’07. The reason behind this deterioration is undeniably the result of rising stresses upon American consumers. Consumer spending has come under intense pressure, due to rising gasoline and food costs, and government relief still looks months way at this point. However, we expect the federal government to move swiftly in getting relief to the populace.

Pending home sales will be announced at 10:00 a.m., and judging by Toll Brothers' (NYSE: TOL) report yesterday, there should not be much to cheer about during brunch. Another homebuilder, D.R. Horton (NYSE: DHI) is scheduled to report a quarterly loss of $0.25 this morning.

Later in the afternoon, Consumer Credit is seen having increased by $7.4 billion in December, after rising by $15.5 billion in November. No surprise here, and it's this portion of the financial sector we view still at risk. The Capital One Financial's (NYSE: COF) of the world could be a drag to financial sector performance in '08. However, we still favor the overall sector for excess return this year after taking a beating in 2007. With rates lower, widening net interest margins and the beginnings of recovery offer the early cyclical group an opportunity to lead us to dry land.

Today's Earnings Calendar Includes:

Activision (Nasdaq: ATVI), Aetna (NYSE: AET), AGCO (NYSE: AG), Apache Corp. (NYSE: APA), AutoNation (NYSE: AN), Cincinnati Bell (NYSE: CBB), Corrections Corp. (NYSE: CXW), D.R. Horton (NYSE: DHI), Deutsche Bank (NYSE: DB), EOG Resources (NYSE: EOG), International Paper (NYSE: IP), Lab Corp. (NYSE: LH), McAfee Inc. (NYSE: MFE), Moody’s (NYSE: MCO), Penn National Gaming (Nasdaq: PENN), PepsiCo (NYSE: PEP), Telefonos De Mexico (NYSE: TMX), Timberland (NYSE: TBL), Unilever N.V. (NYSE: UN), Watson Wyatt (NYSE: WW).