Morning Update

Economic Data Dampens Sentiment

After yesterday’s late-day resiliency in the equity markets, which helped the major averages post new highs for 2009, stocks are under pressure in morning action, after erasing modest gains following some key inflation and housing data. The Consumer Price Index rose more than expected on both the headline and core rates, possibly reviving some inflation concerns that have been subdued, while both housing starts and building permits unexpectedly fell, to sour sentiment on the Street. Treasuries remain lower following the reports but did pare losses, and as the MBA Mortgage Application Index declined. In equity news, BJ’s Wholesale matched analysts’ profit projections, while Autodesk topped earnings expectations but offered a disappointing 4Q outlook. Overseas, markets are mixed.

As of 8:52 a.m. ET, the December S&P 500 Index Globex future is 3 points below fair value, the DJIA is 32 points below fair value, and the Nasdaq 100 Index is 7 points below fair value. Crude oil is higher by $0.45 at $79.59 per barrel, and the Bloomberg gold spot price is up $4.40 at $1,145.70 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.5% at 75.03.

BJ’s Wholesale (BJ $36) reported 3Q EPS ex-items of $0.45, matching the expectations of Wall Street analysts, with revenues increasing 2% to $2.45 billion, roughly inline with the Street’s forecast. BJ said including a negative 6.4% impact of gasoline sales, the company’s same-store sales fell 2.5%. The company said it expects 4Q revenue to increase between 10.5 -12.5%, which is above analysts’ expectations, while same-store sales are expected to rise between 5-7%.

Autodesk (ADSK $27) reported 3Q EPS ex-items of $0.27, five cents above the Street’s consensus forecast, as revenues of $417 million were flat versus last quarter and down 31% compared to last year, just above the $415 that analysts were looking for. The software and services firm said, “Our business appears to be increasingly stable,” reflecting the business environment that began stabilizing in 2Q of the year. ADSK said its efforts to reduce operating expenses resulted in a sequential increase in profitability for the second-straight quarter, but the health of the global economy remains mixed and continued job losses in its core markets represent ongoing challenges to a swift recovery in its business. Shares are solidly lower after issuing 4Q EPS guidance that missed analysts’ forecasts.

Consumer prices rise, housing starts and building permits unexpectedly fell

The Consumer Price Index showed prices rose more than expected in October, increasing 0.3%, above the 0.2% that economists surveyed by Bloomberg had anticipated. The core rate, which strips out food and energy, also increased more than anticipated, gaining 0.2% in October, versus the 0.1% that the Street had expected. 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 0.2% in October, compared to the -0.3% expected, and the core CPI was up 1.7% year-over-year, above expectations of 1.6%.

Elsewhere, housing starts for October were reported, showing an unexpected drop, as they fell 10.6% month-over-month (m/m) to an annual rate of 529,000 units from an upwardly revised 592,000 last month. Economists had predicted 600,000 starts. Meanwhile, building permits also revealed a surprising decline, falling 4.0% m/m to an annual rate of 552,000 from last month’s upwardly revised 575,000. The expectation was for a gain to 580,000 units. Treasuries are lower after the inflation and housing reports, but have pared some early losses.

In other economic news, the US MBA Mortgage Application Index fell 2.5% last week, after the index, which can be quite volatile on a week-to-week basis, advanced 3.2% in the previous week. The decrease came despite another 7 basis-point decline in the average 30-year mortgage rate to 4.83% versus the previous week. The decrease in the index was attributed to a 1.4% decline in the Refinance Index, and a 4.7% drop in the Purchase Index. The average 30-year mortgage rate remains above the record low of 4.61% that was reached at the end of March.

Materials regain upward momentum to support Europe

Stocks in Europe are higher in afternoon action, led by basic materials as gold threatens another record high and other key metals prices are gaining ground. In equity news, Cadbury (CBY $54) is higher after reports that both US candy maker Hershey (HSY $38) and Italian firm Ferrero are considering making rival bids for the UK confectionary maker, which may thwart Dow member Kraft’s (KFT $28) more than $16 billion takeover offer. HSY and Ferrero both confirmed that they are reviewing their options on Cadbury, and at this stage there can be no assurance that any proposal or offer from the company’s will be forthcoming. In other corporate news, supermarket and convenience store company Royal Ahold (AHONY $14) announced that it will cut costs by more than 350 million euros over three years after posting better-than-expected 3Q profits. In economic news, the Bank of England released the minutes from its last monetary policy meeting that occurred earlier this month, where it maintained its key lending rate at 0.5% and boosted its bond-purchase program, which pointed out that BoE policymakers were split on the decision to increase its asset purchases.

Asia mixed as financials weigh on Japan

Stocks in Asia were mixed, with Japan’s Nikkei 225 Index and the broader Topix Index declining 0.6% and 0.8%, respectively, as financials led the drop ahead of a key profit report in the nation. After the closing bell, Mitsubishi UFJ Financial (MTU $5) Japan’s largest bank by market value, reported its first-half profit rose over 50% to 141 billion yen ($1.6 billion), on a drop in loan losses and gains in its investment portfolio. Additionally, MTU announced that it may raise as much as 1 trillion yen ($11.2 billion) by issuing new shares. In other equity news, Japan Airlines (JALSY $6) came under pressure to bog down Japanese trading after the country’s transport minister declined rule out bankruptcy for the struggling carrier. In related news, Delta Airlines (DAL $8) announced that it, along with partners in the SkyTeam alliance, are prepared to offer a $1 billion package to Japan Airlines to assist the carrier, which includes revenue guarantees and financing.

Elsewhere, Hong Kong’s Hang Seng Index dipped 0.3%, while China’s Shanghai Composite Index rose 0.6% and Australia’s S&P/ASX 200 Index ticked up 0.2%. Meanwhile, South Korea’s Kospi Index made the largest move out of the major markets in the region, posting a solid 1.1%.