Morning Market Update

Gaining Momentum as Morning Matures

The equity markets have gradually gained steam throughout the morning and have moved above the flatline, as the Federal Reserve is in focus on Wall Street, ahead of Fed Chairman Ben Bernanke’s testimony on Capitol Hill and the afternoon release of the Fed’s Beige Book, a tool used by policymakers as an input regarding monetary policy. Also, a report that China’s exports surged in May is also helping sentiment in early action. Treasuries are lower as stocks are showing some upward momentum, following a decline in the MBA Mortgage Application Index, and before the release of wholesale inventories. In equity news, Texas Instruments Inc raised the bottom ends of its 2Q revenue and EPS guidance in its business update, and healthcare IT firms Allscripts-Misys Healthcare Solutions Inc and Eclipsys Corp agreed to merge for $1.3 billion. Overseas, Asian markets were mixed, with China gaining ground on the aforementioned export report, while European markets are trading in the green in afternoon action across the pond.

As of 8:42 a.m. ET, the June S&P 500 Index Globex future is 5 points above fair value, the Nasdaq 100 Index is 10 points above fair value, and the DJIA is 41 points above fair value. Crude oil is up $1.35 at $73.34 per barrel, and the Bloomberg gold spot price is down $3.48 at $1,233.08 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.3% at 87.86.

Texas Instruments Inc. (TXN $24) provided its scheduled 2Q business update, in which it said revenues are expected to come in between $3.45-3.59 billion, revised from a prior range of $3.31-3.59 billion, and EPS is forecasted to be between $0.60-0.64, from its previous outlook of between $0.56-0.64. The Reuters survey of analysts had called for the company to report 2Q revenues of $3.47 billion and EPS of $0.61. On a conference call following the update, a company spokesperson said it is seeing “broad-based strength,” and that the company does not have a direct exposure to the euro’s depreciation against the dollar, and has not experienced a slowdown in the region, per Dow Jones Newswires.

In M&A news, healthcare IT firms Allscripts-Misys Healthcare Solutions Inc. (MDRX $18) and Eclipsys Corp. (ECLP $19) announced that they have agreed to merge in an all-stock transaction valued at about $1.3 billion. Under the terms of the deal ECLP stockholders will receive 1.2 shares of MDRX for each share they own, a 19% premium based on the June 8th closing price.

Mortgage applications fall, Fed events set to carry the ball

The US MBA Mortgage Application Index declined 12.2% last week, after the index that can be quite volatile on a week-to-week basis, inched 0.9% higher in the previous week. The decrease came amid a 5.7% drop in the Purchase Index, along with a 14.3% decline in the Refinance Index. The decrease in the overall index came despite a 2 basis-point decrease in the average 30-year mortgage rate, which declined to 4.81%, near the record low of 4.61% that was reached at the end of March 2009.

Treasuries are lower in morning trading following the housing data and ahead of some key events from the Federal Reserve. Traders will try to determine when the Fed, in light of the exacerbated euro-area debt crisis and worries of a hard landing in China, will continue to make moves aimed at returning to normal monetary policy conditions. Fed Chairman Ben Bernanke will provide testimony in front of the House Budget Committee on Capitol Hill at 10:00 a.m. ET, regarding economic and financial conditions, and traders will likely be looking for any elaboration on his commentary he provided on Monday evening and the Fed Chief’s take on last Friday’s labor report, which showed much fewer private sector jobs were added to nonfarm payrolls.

Moreover, in afternoon trading, the Federal Reserve will release its Beige Book, wherein Fed staffers summarize anecdotal economic data from all twelve Federal Reserve districts in preparation for the next Federal Open Market Committee (FOMC) meeting scheduled for June 22-23, and is used as an input to the Fed’s decision on whether to make any changes in monetary policy. With excess capacity at factories and little wage pressure due to still-elevated unemployment, it seems unlikely that inflation would be able to gain a stronghold in the near future, so the focus on the report will likely be squarely on the other side of the Fed dual mandate of promoting full employment and factors of economic growth, such as manufacturing, employment conditions, and the health of the consumer. The prior release of the Fed’s report showed a broadening of economic recovery, with bright spots in retail and vehicle sales and tourism, while the overall services sector was seen as mixed. Manufacturing was noted on the rebound, and housing activity had increased. Meanwhile, commercial real estate and banking were seen as weak sectors.

The other release on today’s US economic calendar is wholesale inventories for April, which are expected to increase by 0.5% after a 0.4% rise in March.

Europe mostly higher amid optimism toward China

Stocks in Europe are posting gains in afternoon action, led by industrials, materials, and consumer-related issues on a report that exports in China surged and following a favorable profit report from Inditex SA (IDEXY $10)—the world’s largest clothing retailer, per Bloomberg. Reuters reported that sources at an investor conference cited a government official as saying that Chinese exports grew about 50% year-over-year (y/y) in May. The Chinese government did not confirm the report and it is expected to report its export figures tomorrow, and economists surveyed by Bloomberg are forecasting a 32% y/y gain for May. Meanwhile, Inditex SA is solidly higher after the clothing retailer posted a 64% jump n 1Q net profit, topping analysts’ expectations on continued global expansion and strong traffic for spring and summer items. However, oil and gas issues are lagging behind, limiting gains across the pond, with BP Plc (BP $35) under pressure again amid the fallout from the massive oil leak in the Gulf of Mexico.

In economic news, Sweden’s industrial orders rose 0.9% month-over-month (m/m) in April, compared to the 1.0% increase that economists were anticipating, and the UK trade deficit narrowed by a smaller amount than expected.

The UK FTSE 100 Index is 0.4% higher, France’s CAC-40 Index is up 0.8%, Germany’s DAX Index is rising 1.1%, Spain’s IBEX 35 Index is advancing 1.2%, and Sweden’s OMX Stockholm 30 Index is increasing 1.1%.

Asia mixed as Japan slides, while China rides

Stocks in Asia were mixed amid lingering uneasiness toward the European debt crisis and a report of strong exports in China. Japan’s Nikkei 225 Index fell about 1.0% paced by export issues as the aforementioned euro-area debt fears have recently boosted the Japanese yen to an eight-year high versus the euro, prompting pessimism regarding sales of companies that rely heavily on sales in Europe. The decline in Japan came even after a report showed machine orders rose 4.0% m/m in April, following the jump of 5.4% in March, and compared to the 1.7% increase that economists had expected. Meanwhile, stocks in China led markets on the upside, with Hong Kong’s Hang Seng Index gaining 0.7% and the Shanghai Composite Index jumping 2.8% following the export report by Reuters, which suggested exports surged 50%.

Elsewhere, Australian stocks eked out a 0.1% gain, following data on consumer confidence, which deteriorated for the month of June, while a separate report showed home loans fell by a smaller amount than forecasted. In other economic news, South Korea’s unemployment rate moved lower from 3.7% in April to 3.2% in May, but the Kospi Index moved 0.3% lower. Rounding out the session in the region, Taiwan’s Taiex Index fell 1.1%, while India’s BSE Sensex 30 Index rose 0.3%.