Morning Update

Favorable Early Move as Bulls Try to Get Back Into the Groove

Stocks are higher in early action following yesterday’s decline on weakness in gold and crude oil prices, which ended a multi-day winning streak. Earnings reports are in focus, with Dow member Walt Disney, JC Penney, and Agilent Technologies all posting better-than-expected profit reports. Also, stocks advanced despite a much larger increase in the trade gap, as import prices came in cooler than anticipated. Treasuries moved lower following the trade data, ahead of a key reading on consumer sentiment. Overseas, markets were mixed, with Europe digesting several major GDP reports in the eurozone region, and amid a major M&A announcement in the airline industry.

As of 8:50 a.m. ET, the December S&P 500 Index Globex future is 6 points above fair value, the DJIA is 46 points above fair value, and the Nasdaq 100 Index is 5 points above fair value. Crude oil is lower by $0.34 at $76.60 per barrel, and the Bloomberg gold spot price is up $4.18 at $1,107.97 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.3% at 75.35.

Dow member Walt Disney (DIS $29) reported 4Q EPS ex-items of $0.46, five cents above the expectations of Wall Street analysts, with revenues increasing 4% versus last year to $9.9 billion, above the $9.3 billion that the Street had forecasted. The parent of ABC and ESPN had a 14% increase in revenues at its media networks segment, which more than offset a 4% decline in revenues at its parks and resorts unit. DIS said growth at ESPN boosted its cable networks segment, due to higher affiliate revenue primarily driven by contractual rate increases, partially offset by decreased advertising revenue and higher programming costs. Meanwhile, its parks and resorts were impacted by decreased guest spending, principally at its domestic parks and resorts, due to lower average ticket prices, lower average daily hotel and room rates and decreased merchandise spending.

JC Penney (JCP $29) reported adjusted 3Q EPS of $0.30, compared to the $0.12 that analysts had expected, with revenues down 3.2% versus last year to $4.2 billion, matching the Street’s expectations. The department store said its results came from better-than-expected improvement in gross margin as it maintained appropriate inventory levels and reduced both clearance selling and unprofitable discounting. JCP raised its full-year same-store sales and EPS guidance.

Agilent Technologies (A $27) reported fiscal 4Q EPS ex-items of $0.32, well above the $0.23, that analysts had expected, with revenues of $1.2 billion, down 21% versus last year, but up 10% versus 3Q, and above the $1.1 billion that the Street had anticipated. The electronic equipment testing firm issued a 1Q 2010 outlook that topped analysts’ expectations.

Trade gap widens, import prices rise less than expected

The trade deficit (chart) widened from an unfavorably revised $30.8 billion in August to $36.5 billion in September, versus the Bloomberg estimate calling for the deficit to widen to $31.8 billion.

Meanwhile, the Import Price Index (chart) rose 0.7% month-over-month for October, below the expected increase of 1.0% of economists surveyed by Bloomberg. Year-over-year, import prices are lower by 5.7%. Petroleum imports rose from -0.9% in September to a gain of 0.9% in October, and industrial supplies jumped by 1.8% from a 0.2% gain in September, to support the advance in the index, but food, feed, and drink prices deteriorated from a 0.5% increase in the previous month to a 0.1% rise. Excluding petroleum, import prices rose 0.7% in October. Treasuries are lower following the trade reports.

Later this morning, the economic calendar will yield the preliminary reading of the University of Michigan’s Consumer Sentiment Index, expected to improve slightly from 70.6 in October to 71.0.

Europe modestly higher amid mixed GDP reports and M&A

Stocks in Europe are higher in afternoon action as a major M&A announcement is helping soothe some of the concerns from a couple of key GDP reports in the eurozone region. British Airways (BAIRY $35) reported that it has agreed to a $7 billion merger with Spanish carrier Iberia Lineas Aereas de Espana (IBRLF $3), in which British Airways shareholders will own about 55% of the business, per Bloomberg.

Meanwhile, traders are mulling over a few major reports on GDP in the eurozone and two of Europe’s largest economies, Germany and France. The European Union reported that 3Q eurozone GDP exited the recession, after posting a 0.4% quarter-over-quarter (q/q) advance, compared to the 0.2% decline in 2Q, but just shy of the 0.5% gain that economists surveyed by Bloomberg had expected. However, Germany’s 3Q GDP rose 0.7% q/q, compared to the consensus of economists, which called for Europe’s largest economy to expand by 0.8%. Moreover, France’s 3Q GDP increased 0.3% q/q, short of the 0.6% advance that had been expected, to limit some of the enthusiasm that stemmed from the eurozone emerging from the recession. Basic materials and oil and gas issues are under some pressure following yesterday’s steep losses in crude oil and gold, also helping stunt some of today’s advance across the pond.

Asia mixed as China manages to post a gain

Stocks in Asia were mixed, with Japan’s Nikkei 225 Index declining 0.4% and Australia’s S&P/ASX 200 Index losing 0.9%, following the snapped winning streak in the US and as commodity prices fell, led by lower crude oil and gold, on the previous two days of strength in the US dollar, which weighed on mining and metals issues. The decline in Japan came despite some better-than-expected Japanese economic data, which showed September industrial production rose from a 1.4% gain in a preliminary report to a 2.1% advance, and Japanese consumer confidence rose more than economists surveyed by Bloomberg had expected. In equity news in Japan, Japan Airlines (JALSY $6) reported a first-half loss of 131 billion yen ($1.5 billion) and Asia’s largest carrier by sales withdrew its full-year guidance as the struggling airline is in heavy negotiations regarding restructuring to avoid bankruptcy. Elsewhere, South Korea’s Kospi Index declined modestly, dipping 0.1% to contribute to the decline in the Asia/Pacific region.

However, stocks in China managed to advance, with the Shanghai Composite Index gaining 0.5% and Hong Kong’s Hang Seng Index advancing 0.7% on optimism about the appreciation of the Chinese yuan, which offset a smaller-than-expected increase in Hong Kong’s 3Q GDP. The Asian nation’s output rose 0.4% quarter-over-quarter, following the previous quarters upwardly revised 3.5% gain, and below the 1.9% increase that economists had expected.