Morning Market Update

Strong Asian Data Drives Early Advance

Most global equity markets are higher despite yesterday’s sentiment dampening late-day slide in the US, as the bulls are finding some energy from a plethora of stronger-than-expected economic reports out of Asia, which is helping overshadow a smaller-than-expected decline in US weekly initial jobless claims. Treasuries are moving lower as some of the recently increased risk aversion is waning as stocks move higher in morning trading, and after extending some losses following a smaller-than-forecasted US trade deficit. US equity news is relatively light, with American Eagle Outfitters Inc increasing its dividend, while Del Monte Foods Co issued a mixed earnings report, but boosted its dividend and announced a share repurchase program. Overseas, Asian markets were mostly higher, while Europe is advancing after the Bank of England and European Central Bank both kept their benchmark interest rates unchanged as anticipated.

As of 8:48 a.m. ET, the June S&P 500 Index Globex future is 8 points above fair value, the Nasdaq 100 Index is 10 points above fair value, and the DJIA is 60 points above fair value. Crude oil is up $0.43 at $74.81 per barrel, and the Bloomberg gold spot price is down $7.15 at $1,226.35 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.4% at 87.53.

American Eagle Outfitters Inc. (AEO $12) is higher after the clothing retailer raised its quarterly cash dividend by 10% to $0.11 per share, payable on July 9, 2010. AEO said the announcement reflects the company’s strong cash generation and commitment to enhancing shareholder value.

Del Monte Foods Co. (DLM $15) announced fiscal 4Q EPS of $0.31, above the Reuters estimate of $0.22, but revenues fell 9.8% year-over-year (y/y) to $954 million, below the $1 billion that the Street was expecting. The company said the decline in revenues largely reflects lower volumes due to one extra week in the same period last year, and aside from the extra week, unit volume was lower in its consumer products and pet products. The company announced that it is confident in its future, reflected by a $350 million share repurchase program and an 80% increase in its dividend. DLM also issued full-year EPS guidance that exceeded analysts’ forecasts.

Jobless claims dip, trade deficit modestly widens

Weekly initial jobless claims declined 3,000 to 456,000, versus last week's figure which was upwardly revised by 6,000 to 459,000, and compared to the consensus estimate of economists surveyed by Bloomberg, which called for claims to decline to 450,000. The four-week moving average, considered a smoother look at the trend in claims, rose 2,500 to 463,000, but continuing claims tumbled by 255,000 to 4,462,000, compared to the decrease to 4,640,000 that was anticipated.

The trade deficit widened slightly from the modestly revised $40.0 billion in March to $40.3 billion in April, versus the Bloomberg estimate calling for the deficit to increase to $41.0 billion. Treasuries remain lower, extending some losses on the mid-to-long end of the curve following the jobs and trade reports.

Europe higher as central banks are in focus

Stocks in Europe are higher in afternoon action as traders digest some monetary policy decisions from major central banks in the region, beginning with the Bank of England leaving its benchmark interest rate unchanged at a record low of 0.5%, as widely anticipated. The BoE also kept its 200 billion pound asset purchase target unchanged for the fourth month in a row. Also, the European Central Bank left its key interest rate unchanged at 1.0%, as was expected, and the ECB did not offer any new measures, such as further quantitative easing, aimed at making more capital available to struggling entities in the area in order to try to stabilize the euro-zone financial system, as some had hoped for. Now the attention has shifted to the customary press conference from ECB President Jean-Claude Trichet, which may be garnering more attention than normal in light of the exacerbated euro-area debt crisis and the subsequent tumble in the euro to a four-year low versus the US dollar and an eight-year low compared to the Japanese yen. The euro and the UK pound are both higher following the announcements.

Meanwhile, shares of BP Plc (BP $29) has pared a sizeable decline in European trading to help the advance across the pond. BP has come under intense selling pressure recently as a result of the disastrous oil leak in the Gulf of Mexico. BP said in a statement that it was not aware of any reason justifying the sharp share movement, adding that it is facing the situation as a “strong company,” as it is generating significant additional cash flow. In other equity news, Daimler AG (DDAIF $50) is nicely higher after it said that sales of its Mercedes-Benz brand will double the rate of the overall market in 2010, on strong demand from China.

In other economic news in Europe, Germany’s consumer prices were left unrevised at a 0.1% month-over-month rate of growth, separate reports of manufacturing and industrial production in France were mixed, Italy’s industrial production rose more than expected in April, while the Italian 1Q GDP figure expanded by 0.4% quarter-over-quarter (q/q), compared to the 0.5% expansion that was anticipated.

The UK FTSE 100 Index is 0.2% higher, France’s CAC-40 Index is up 0.9%, Germany’s DAX Index is advancing 0.6%, and Italy’s FTSE MIB Index is gaining 0.9%.

Asia gains ground on flood of data

Stocks in Asia were mostly higher as traders digested a plethora of economic reports that aided sentiment in the region. Japan’s Nikkei 225 Index rose 1.1% following a report that showed the nation’s 1Q GDP was left unrevised at a growth rate of 1.2% quarter-over-quarter, compared to the expectation that output would be downwardly revised to a rate of expansion of 1.0%. Also, the annualized rate of expansion for the Japanese economy was upwardly revised to a 5.0% rate, from the preliminary reading of 4.9% growth, and compared to the 4.2% advance that economists had forecasted. Moreover, a separate report showed Japan’s consumer confidence rose from 42.1 in April to 42.7 in May. Meanwhile, Australia’s S&P/ASX 200 Index rose 1.1% after a report showed the nation’s employment change increased by 26,900 in May, above the 20,000 forecast of economists, and the nation’s unemployment rate unexpectedly fell from 5.4% in April to 5.2%, versus the anticipation that the rate would remain unchanged. In other news in the region down under, New Zealand’s central bank raised its benchmark interest rate from 2.5% to 2.75%, and the NZX 50 Index eked out a 0.1% gain. In other interest rate moves in Asia, South Korea’s central bank left its main interest rate at 2.0% and the Kospi Index rose 0.3%.

Elsewhere, stocks in China were mixed following some trade data, with Hong Kong’s Hang Seng Index increasing 0.1% and the Shanghai Composite Index falling 0.8%, after the nation’s trade surplus increased from $1.68 billion in April to $19.53 billion in May, and compared to the $8.20 billion that was anticipated. Chinese imports grew 48.3% year-over-year (y/y), above the 44.7% that economists forecasted, while exports increased 48.5%, versus the 32.0% that was expected. The data may have lost is power due to yesterday’s report from Reuters that sources cited a Chinese government official at an investor conference saying that exports would increase by about 50%. The report was not confirmed by China’s government and also suggested stronger-than-expected new yuan loans and inflation data—set to be reported tonight—which may be boosting some concerns that the strong data may induce further government actions to slowdown growth in China, and may have led to the lackluster trading action in the region today. A separate report in China showed the pace of housing prices on a month-over-month basis slowed. Rounding out the day, Taiwan’s Taiex and India’s BSE Sensex 30 Indexes both jumped 1.6%.