Morning Update

Data Drives Sentiment in Early Action

After two sessions in the green, stocks are looking to end the week on a positive note, as sentiment is being supported by some favorable data, highlighted by stronger-than-expected increases in retail sales on the headline number and even after stripping out auto sales. However, global economic recovery optimism received an initial boost from a larger-than-expected increase in China's industrial production, which headlined a plethora of data out of the nation, helping Asian and European markets gain solid ground. Equity news is tilted toward the Dow, with member United Technologies offering an upbeat 2010 outlook, while fellow component Boeing suggested it may not need to delay its 787 Dreamliner test flight again. Treasuries are lower amid the aforementioned data and ahead of consumer sentiment and business inventory reports.

As of 8:52 a.m. ET, the March S&P 500 Index Globex future is 7 points above fair value, the DJIA is 56 points above fair value, while the Nasdaq 100 Index is 9 points above fair value. Crude oil is higher by $0.42 at $70.96 per barrel, and the Bloomberg gold spot price is up $5.45 at $1,136.45 per ounce. Elsewhere, the Dollar Index-a comparison of the US dollar to six major world currencies-is up 0.1% at 76.08.

Dow member United Technologies Corp. (UTX $68) is higher after the diversified US manufacturer said "Exceptional execution, aggressive restructuring, and strategic capital allocation have positioned UTC to resume earnings growth in 2010 even in the face of continuing difficult end markets." UTX added that it expects 2010 EPS to grow between 7-13%, or a range of $4.40-4.65, while revenues are expected to be between $54-55 billion, a 2-4% increase versus the prior year. Analysts are expecting the company to post 2010 EPS of $4.53 and revenues of $53.3 billion. UTX also reaffirmed its 2009 full-year earnings forecast.

Meanwhile, fellow Dow component Boeing (BA $55 ¹) is also higher after the company said it has opened the flight-test window for its 787 Dreamliner aircraft beginning December 15, soothing some concerns that the company may delay its latest forecast of executing a test flight by the end of the year. BA is already two years behind schedule for its Dreamliner test flight.

Retail sales and import prices both rose more than expected

Advance retail sales for November rose 1.3%, compared to the Bloomberg forecast of an increase of 0.6%, while October's 1.4% advance was revised to a 1.1% gain. Sales ex-autos gained 1.2%, versus the expectation of an increase of 0.4%. Excluding autos, gasoline and building materials, the figure the government uses to calculate the consumer spending component of GDP, sales increased 0.6%.

Meanwhile, the Import Price Index increased 1.7% month-over-month for November, above the expected increase of 1.2% by economists surveyed by Bloomberg. Year-over-year, import prices are higher by 3.7%, also on top of expectations, which called for prices to be 2.9% higher compared to last year. Petroleum imports jumped from 2.0% in October to a 6.2% advance in November, and industrial supplies rose by 4.8% from a 2.2% gain in October, to support the rise in the index. Elsewhere, food, feed, and drink prices increased from a 0.3% gain in the previous month to a 0.5% advance. Excluding petroleum, import prices increased slightly, rising 0.7% in November. Treasuries moved lower following the trade and retail 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 67.4 in November to 68.8 in December. Business inventories will also be released after the opening bell, forecast to decline by 0.2% for October.

Europe higher as materials move

Stocks in Europe are higher in afternoon action, led by strength in basic materials on some increased optimism regarding the global economic recovery on the heels of an upbeat industrial production report out of China. Mining issues are also higher to support the advance across the pond, while a solid advance in shares of ING Groep (ING $9) is helping keep financials above the unchanged mark. ING-the largest Dutch financial-services firm-is finding support from its confirmation that it will pay back 5 billion euros ($8.3 billion) in state aid including interest and a premium on December 21st.

In economic data, UK producer prices in November rose at the fastest annual pace in nine months, per Bloomberg, and Moody's Investors Service reiterated that it has no current plans to cut the triple-A ratings of the US and the UK, following comments it made earlier this week, when it said the ratings of the two nations may "test the Aaa boundries." Inflation and credit ratings can have a substantial impact on interest rates and prices of bonds and Schwab's Director of Income Planning with Schwab Center for Financial Research, Rob Williams, discusses how bonds can be an important part of your portfolio in his latest article, "10 Reasons Fixed Income Still Makes Sense Today," located in the "bonds" section after clicking on the "investing" link at www.schwab.com/marketinsight. Rob discusses how bonds provide diversification against riskier stock investments and ways to reduce risks involved even if interest rates increase. In other economic news, government heads of the 27-nation European Union said in a statement from a summit in Brussels, which concludes today, that, "Forecasts suggest a weak recovery in 2010, followed by a return to stronger growth in 2011."

Asia advances on China production data, but Shanghai fails to participate

Stocks in Asia were mostly higher, led by Japan as the Nikkei 225 Index posted a solid 2.5% gain on a boost of sentiment by a favorable industrial production report out of China, and support for export issues as the yen came under solid pressure versus the dollar, lifting optimism of profits for companies that rely heavily on sales in the US. The Chinese government reported a plethora of economic data today, headlined by a 19.2% year-over-year jump in industrial production for November, which exceeded the 18.2% gain that economists surveyed by Bloomberg had forecasted, and following the 16.1% rise that was seen in October. Other data out of China included an unexpected drop in exports, coupled with a much larger-than-expected rise in imports, a smaller-than-forecasted increase in retail sales, and consumer prices rising more than expected, while producer prices fell at a slower rate than anticipated. Moreover, the nation's trade balance came in smaller than expected, urban fixed-asset investment fell short of forecasts, while new yuan loans unexpectedly increased. Amid the slew of reports, markets in China were mixed, with Hong Kong's Hang Seng Index rising by 0.9%, while the Shanghai Composite Index dipped by 0.2%.

The upbeat industrial production data out of China supported strong a strong advance in Taiwan, as its Taiex Index gained 1.5%, and a 0.6% upward move in Australia's S&P/ASX 200 Index, as the resource rich nation benefited from an increase in economic recovery optimism and the resulting outlook for commodity demand. Elsewhere, South Korea's Kospi Index rose by 0.3%, but India's BSE Sensex 30 Index declined 0.4%, following a disappointing industrial production report in the emerging market nation.