Morning Update

Stocks Suffering Slight Losses after Housing Data

Stocks are slightly lower in early morning action, with a light revenue figure from software maker Oracle weighing on the Nasdaq as Wall Street attempts to make it a nearly perfect nine out of the last 10 days of notching gains. The housing sector is in focus again today after housing starts showed that building activity continued to increase last month, although the more-forward looking building permits report rose less than economists had anticipated, weighing on investor sentiment somewhat. Meanwhile, Treasuries are nearly unchanged in early trading after weekly jobless claims showed more signs of moderating. Traders are still waiting for another regional manufacturing report on the economic front. Meanwhile, equity news has been somewhat mixed today, as Oracle, FedEx, and Dress Barn all reported earnings that either matched or beat analysts' estimates, although revenues at all three firms fell short of expectations. In overseas trading, news of a "bad bank" plan in Ireland is lifting Europe, while a commodity boom fueled Asian gains following yesterday's bullish industrial production data out of the US.

As of 8:48 a.m. ET, the December S&P 500 Index Globex future is 1 point below fair value, the DJIA is 4 points under fair value, and the Nasdaq 100 Index is 1 point below fair value. Crude oil is lower by $0.36 at $72.15 per barrel, and the Bloomberg gold spot price is down $0.60 at $1,016.70 per ounce.

Oracle (ORCL $22) matched the Street's earnings target by announcing 1Q EPS ex-items of $0.30, although sales fell 5% to $5.1 billion, which disappointed analysts who had expected $5.3 billion. The company said sales would have fallen just 1% if not for currency fluctuations. ORCL also issued guidance for 2Q of EPS in a range of $0.35-0.36, which was inline with analyst projections of $0.36. Oracle noted that several factors hampered its results during the period, such as a tough comparison with strong results in the same period a year ago and weakness among companies such as SAP (SAP $51) that resell Oracle's database software along with their own products. The company did not provide any new information as to when its pending acquisition of struggling computer server manufacturer Sun Microsystems (JAVA $9) will close, but did say that it expects a boost to its profits of $1.5 billion in the first full year after the merger is completed. The deal is currently being held up by European Union antitrust regulators.

FedEx (FDX $78) reported 1Q earnings down more than 50% at $0.58 per share, inline with estimates, as revenues shrank 20% to $8.0 billion - below the $8.2 billion that had been expected. The company said recession-dampened demand and a substantial decline in fuel surcharges negatively impacted the results, while strict cost control and one additional operating day offset that weakness somewhat. Following the earnings announcement, the company reiterated its earnings expectations for 2Q at $0.65-0.95, compared to the $0.83 that Wall Street is expecting. CEO Alan Graf said that while he sees "signs of improvement in the economy," the company's comparison basis will remain difficult next quarter.

Dress Barn (DBRN $18) announced adjusted 4Q EPS of $0.39, ahead of the average analyst estimate of $0.37, while revenues grew 4% to $399 million, coming in shy of the $401 million forecast. Same-store sales increased 1% during the period. DBRN made upbeat comments about recent operating trends, saying that early indications of sweater sales are off to a good start, which could set the tone for the fall season as sweaters form the largest category in that season. The retailer also gave an outlook for 2010 earnings of $1.10-1.20 per share, while analysts had been expecting the company to earn $1.24. The company told analysts that same-store sales growth of 2% will be an important threshold for the company going forward, as once growth accelerates beyond that pace it sees significant upside potential to its earnings.

Housing market shows more signs of firming, jobless claims drop

Housing starts for August were reported this morning, showing a 1.5% month-over-month (m/m) increase to an annual rate of 598,000 homes - inline with economist forecasts - while last month's data was revised up from 581,000 to 589,000. Meanwhile, building permits, the more forward-looking indicator of homebuilding activity, came in 2.7% higher m/m to an annual rate of 579,000, compared to expectations of 583,000. These reports have tended to be rather volatile, however, as the multi-family segment in particular is subject to volatile swings on a month-to-month basis.

Separately, weekly initial jobless claims showed improvement with just 545,000 people filing for unemployment benefits, well below the average forecast of 557,000. Meanwhile, last week's data was revised up from 550,000 to 557,000. A Labor Department analyst cautioned that the Labor Day holiday may have influenced the larger-than-anticipated drop. Elsewhere in the report, the four-week moving average, considered a smoother look at the underlying trend in claims, declined by 8,750 to 563,000, and continuing claims increased by 129,000 to 6,230,000, higher than the forecast of 6,100,000.

Later today, the Philadelphia Fed's Business Activity Index, will be reported at 10:00 a.m. ET. The index is expected to rise to 8.0 in September from 4.2 in August, compared to a reading of zero which depicts conditions are neither expanding nor contracting.

Financials lift Europe

Stocks in Europe are broadly higher in afternoon trading. In Ireland, the benchmark index is ahead by more than 2%, with the financial sector leading the way after the country announced plans to spend approximately $80 billion to shift toxic assets from bank balance sheets to a new state-run "bad bank" called the National Asset Management Agency. The bank will buy loans in exchange for government debt, which can then be used as collateral with the European Central Bank to reinvigorate lending. Shares in Allied Irish Banks (AIBSF $3) have soared approximately 20% after the announcement, while Bank of Ireland (IRLBF $4) is gaining roughly 10%. Elsewhere in Europe, British home improvement retailer Kingfisher (KGFHF $3) is trading higher after its 1H earnings rose 37% on a 7% rise in revenues. On the downside, the software industry is under pressure in sympathy with US bellwether Oracle, whose soft 2Q sales figures dented investor hopes that an imminent recovery in business spending on technology is afoot. German software giant SAP (SAP $51) is trading lower, as is compatriot Software AG (SWDAF $71).

Asian markets make new 2009 highs on commodity strength

Hong Kong's Hang Seng Index was up 1.7% to a new 13-month high, while Australia's S&P/ASX 200 gained 1.4% to reach a level not seen since October 2008. Strength across the region was broad-based, with South Korea and Taiwan also seeing new yearly highs. The main culprit for the rally in Asia appeared to be the bullish Industrial Production report out of the US yesterday, which has increased confidence in a global economic recovery and helped fuel commodity-related buying throughout the world. In equity news, Toyota Motor (TM $82) gained almost 2% on news that the auto giant is preparing a $1 billion marketing campaign to boost US sales. The Wall Street Journal also reported that Toyota is planning to expand its line of hybrid gas-electric models under the Prius brand, citing people briefed on the plans. Elsewhere, one area not participating in today's gains was the financial sector in Japan, after the country's newly-appointed banking minister said he will seek to aid small businesses in the region by allowing them to extend payment on their existing loans by three years. Japanese lender Sumitomo Mitsui Financial Group (SMFNF $42) tumbled almost 6% after the announcement. Also in Japan, the central bank left its key interest rate target unchanged at 0.1%, as widely expected, while the bank also gave a more optimistic tone in its policy statement, announcing that "Japan's economic conditions are showing signs of recovery." The Nikkei 225 was 1.7% higher on the day.