Morning Update

Commodities Carrying Early Gains

Stocks are higher in morning action as the dollar’s continued weakness is boosting commodity prices that are denominated in the US currency, helping the major markets rebound from yesterday’s modest declines. Upbeat earnings reports from CarMax and ConAgra Foods are also helping lift sentiment in early action. Treasuries are lower ahead of another report on regional business activity and as the Federal Reserve begins its two-day monetary policy meeting, which will conclude with Wednesday afternoon’s release of its policy statement. Any details on an exit strategy of the massive amounts of stimulus the Fed deployed in an attempt to stem the impact of the financial crisis and any changes to its asset purchase plan will be closely scrutinized. Overseas, markets are mixed.

As of 8:46 a.m. ET, the December S&P 500 Index Globex future is 7 points above fair value, the DJIA is 53 points above fair value, and the Nasdaq 100 Index is 8 points above fair value. Crude oil is higher by $1.50 at $71.21 per barrel, and the Bloomberg gold spot price is up $14.50 at $1,018.20 per ounce.

CarMax (KMX $19) reported 2Q EPS ex-items of $0.36, double what Wall Street analysts had anticipated, as revenues rose 13% to $2.08 billion compared to last year, also topping the $1.8 billion that analysts had forecasted. The nation’s largest retailer of used cars said it had healthy increases in both used and wholesale vehicle sales and the growth was the result of easier year-over-year comparisons, but it also reflected improving customer traffic trends and an improvement in sales execution. KMX said the government’s “cash for clunkers” program resulted in a spike in traffic in late July and August, and it believes this program had a beneficial effect on its sales. Shares are higher.

ConAgra Foods (CAG $22) announced that its fiscal 1Q EPS ex-items rose 41% versus last year to $0.38, four cents above the Street’s expectation, but revenues fell 3.1% $2.96 billion, missing the $3.09 billion that had been expected by analysts. The food company said it is off to a strong start in fiscal 2010, with profit at its consumer foods segment jumping 43% and it expects the balance of the year to show strong profits for this segment due to “manageable inflation good cost savings,” sales growth, and favorable product mix. The company raised its EPS guidance for the full-year.

Regional business activity report set to take the court

Treasuries are lower in morning action ahead of another report from the economic calendar depicting regional business activity as the Richmond Fed Manufacturing Index will be released, forecast to improve from 14 in August to 16 in September. A reading of zero is the demarcation point between expansion and contraction and the report follows last week’s Empire Manufacturing Index and the Philadelphia Fed’s Business Activity Index reports, which both showed continued expansion of business activity.

Also, today the Federal Reserve will begin its two-day Federal Open Market Committee (FOMC) monetary policy meeting with Wednesday’s afternoon policy statement concluding the meeting. The Fed is not expected to change the fed funds target rate of between 0.00-0.25%, but traders will be looking for any comments on the timing of a possible “exit strategy” of the massive amounts of stimulus efforts that were deployed to combat the financial crisis. Also, the Street will look to see if there are any changes made to the Fed’s asset purchase programs—so called quantitative easing—in light of the continued signs of economic recovery and after last week’s comments from Fed Chairman Ben Bernanke that the recession is “very likely over.”

Europe higher as commodities rebound

Stocks in Europe are solidly higher in afternoon action, led by basic materials and oil and gas issues, with key metals and crude oil prices gaining ground, recouping some of yesterday’s steep losses. Some economic growth optimism was supported by the Italian government raising its economic growth forecast, while UK Prime Minister Gordon Brown said, “The stimulus that we have still got to give the world economy is greater than the stimulus we have already had.” In equity news, Air France-KLM (AFLYY $18) is up solidly after Europe’s largest airline cut its passenger capacity by 2% and after an analyst raised its share-price estimates for European airlines. Elsewhere, the Wall Street Journal reported that Cadbury’s (CBY $51) CEO noted that there are some “complimentary aspects” between the UK confectionary firm and Kraft Foods (KFT $27), which has offered $16 billion to acquire the London-based company. Cadbury rejected Kraft’s offer on grounds that it undervalues the company and a company spokesman said today’s comments were not a change in the company’s stance.

Asia mixed as Japan remains on holiday

Stocks in Asia were mixed as China’s Shanghai Composite Index fell 2.3% amid continued concerns about increased supply of equities as more initial public offerings (IPO) were approved by a regulator. Meanwhile, Hong Kong’s Hang Seng Index rose 1.1% and South Korea’s Kospi Index gained 1.4% on strength in shares of Hong Kong’s China Mobile (CHL $51) after the world’s largest cell phone firm by users said it added 5.26 million subscribers in August, topping the 4.55 million that were added in July, and despite STX Pan Ocean (SPNOF $1)—South Korea’s largest commodity shipping line—giving back solid gains that came from the announcement that it won a $5.8 billion order from Brazilian mining firm Vale (VALE $22). Elsewhere, Australia’s S&P/ASX 200 Index declined 0.3% following yesterday’s sizeable losses in the commodity prices, which weighed on the resource-reliant nation. Japanese markets remained closed for a holiday.