Morning Update

Stocks Maintain Slight Gains after Inflation Data

Stocks are modestly higher in morning action, extending yesterday's gains that came from better-than-expected retail sales and the announcement from Fed Chief Ben Bernanke that the recession is "very likely over." The gains are holding up after a report showed consumer prices rose modestly above expectations. Equity news continues to be relatively light, with Adobe Systems topping earnings expectations and announcing a $1.8 billion acquisition of fellow software firm Omniture, and Wells Fargo's CEO telling the Wall Street Journal that losses from recently-acquired Wachovia are still in the same "Zip Code" of its previous forecast. Treasuries are higher following the inflation data and after mortgage applications declined, as traders now look forward to the releases of industrial production and capacity utilization and the NAHB Housing Market Index. Overseas, Asia finished mixed, but Europe is posting respectable gains.

As of 8:48 a.m. ET, the December S&P 500 Index Globex future is 2 points above fair value, the Nasdaq 100 Index is 4 points above fair value, and the DJIA is 16 points above fair value. Crude oil is lower by $0.39 at $70.54 per barrel, and the Bloomberg gold spot price is up $10.08 at $1,017.63 per ounce.

Adobe Systems (ADBE $36) reported fiscal 3Q EPS ex-items of $0.35, one penny ahead of the Street's forecast, as revenues fell 21% to $698 million, which topped the $687 million that analysts had forecasted. Separately, the software company announced that it will acquire fellow software firm Omniture (OMTR $17) for about $1.8 billion. ADBE will commence a tender offer to acquire all of the outstanding common stock of OMTR for $21.50 per share in cash. ADBE is lower and OMTR is nicely higher.

In an interview with the Wall Street Journal, Wells Fargo's (WFC $29) CEO said that losses from the bank's acquisition of Wachovia Corp. are "still in the same Zip Code" as the firm's previous projections. He also said that availability of 30-year mortgages depends almost entirely on the US government's purchase of these loans, saying, "If it's not a government program, it's basically not getting done."

Consumer prices rise slightly more than expected

The Consumer Price Index showed prices were higher in August, gaining 0.4% compared with the 0.3% rise that economists surveyed by Bloomberg had anticipated. The core rate, which strips out food and energy, rose 0.1% in August to match the Street's forecast. While food and energy is the smallest component in the CPI basket, it tends to be the most volatile and often explains a majority of changes in the index at the headline level. On a year-over-year basis, consumer prices were down 1.5% in August, compared to the -1.7% expected, and the core CPI is up 1.4% year-over-year, inline with expectations. Treasuries remain higher after paring some gains following the report.

In other economic news, the US MBA Mortgage Application Index fell 8.6% last week after advancing 17.0% in the previous week, in an index that can be quite volatile on a week-to-week basis. The decline was attributed to the Refinance Index, which fell 7.4%, and a decrease in the Purchase Index, down 10.3%, along with an increase of 6 basis points in the average 30-year mortgage rate to 5.08% versus the previous week. Although the average 30-year mortgage rate remains above the record low of 4.61% that was reached at the end of March, the rate remains below the 5.82% level it sat at a year ago.

Later this morning, we will get reports on industrial production and capacity utilization for August, where production is forecast to increase 0.6%, while utilization is expected to rise from 68.5% in July to 69.0%. Also, the NAHB Housing Market Index-a measure of homebuilder confidence-will be released in afternoon action, and is expected to improve from 18 in August to 19 in September. A reading below 50 means most respondents still view conditions as poor.

Europe up on strength in basic materials

Stocks in Europe are solidly higher in afternoon action, led by basic materials issues as gold prices remain above the $1,000 per ounce mark and as crude oil prices jumped yesterday. Yesterday's upbeat retail sales data in the US and Fed Chief Ben Bernanke's recession comments are helping boost optimism about the global economic recovery and demand for commodities. Encouraging signs about the health of the retail sector are being furthered by a couple of favorable earnings reports in the eurozone. Spanish firm Inditex (IDEXY $11), the world's largest clothing retailer, per Bloomberg, is solidly higher after reporting better-than-expected first half profits, while the number-two UK clothier Next (NXGPY $14) is also gaining ground after it posted first half profits that came in at the high end of the range of analysts' expectations. Automakers are also getting a lift in European trading after Nissan Motor (NSANY $13) reported after the close in Asian trading that it expects sales in China this year to beat its previous forecast. In economic news in the eurozone, the UK ILO unemployment rate reached 7.9%-the highest since 1996, after a separate report showed jobless claims in the region came in slightly below forecasts.

Asia mixed after upbeat US retail data

Stocks in Asia finished mixed with Japan's Nikkei 225 Index rising 0.5%, led by shares of firms that rely heavily on sales in the US after yesterday's favorable economic data in the US and comments from the Federal Reserve's chairman. Australia's S&P/ASX 200 Index was one of the region's best performers after an index of leading economic indicators posted a solid gain. Elsewhere, Hong Kong's Hang Seng Index led the way with a 2.6% advance, while China's Shanghai Composite Index fell 1.1%. There was an M&A announcement in the Asia/Pacific region, with Taiwan Mobile (TWMBF $2) announcing that it has agreed to buy private equity firm Carlyle Group's cable television operator Kbro Co. for about $1 billion. Mining and energy issues were also higher amid the continued strength in gold and crude oil prices.