Morning Market Update

Morning Markets Managing to Maintain Momentum

US stocks are higher in morning action as the global equity markets are broadly higher, extending gains from last week that came as euro-area fears eased and economic recovery optimism is resurfacing. Treasuries are lower in early action amid the advance in the equity markets as the risk aversion that has ramped up recently is waning, and as there are no major US economic reports due out today. However, a better-than-expected industrial production report in Europe is helping foster some of the aforementioned optimism, and markets across the pond are higher. In equity news, Cablevision Systems Corp announced that it will acquire Bresnan Communications for about $1.4 billion and separately announced a $500 million share repurchase program, while Human Genome Sciences Inc received some disappointing feedback from the FDA regarding a treatment for hepatitis C. Elsewhere in overseas action, Asian stocks finished solidly higher, led by technology issues.

As of 8:49 a.m. ET, the September S&P 500 Index Globex future is 8 points above fair value, the Nasdaq 100 Index is 13 points above fair value, and the DJIA is 56 points above fair value. Crude oil is up $1.95 at $75.73 per barrel, and the Bloomberg gold spot price is down $3.30 at $1,223.40 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 1.2% at 86.42.

Cablevision Systems Corp. (CVC $23) announced that the company and Bresnan Communications announced a definitive agreement under which CVC will acquire Bresnan in a transaction valued at about $1.4 billion. Bresnan is majority owned by private equity firm Providence Equity Partners and has cable operating systems in Colorado, Montana, Wyoming and Utah. CVC also announced that it has authorized a share repurchase program to buy up to $500 million of its shares. CVC is lower.

Human Genome Sciences Inc. (HGSI $27) announced that the US Food and Drug Administration (FDA) provided feedback on an approval application submitted for treatment of chronic hepatitis C, expressing concerns regarding the risk benefit assessment of the drug dosed every two weeks. HGSI said it has concluded that licensure of this dosing regimen is “unlikely.” Shares are lower.

Economic calendar quiet today, but will heat up

Treasuries are lower as the equity markets are moving higher in morning trading and as there are no major economic reports scheduled for release on today’s economic calendar. However, the rest of the week will yield some major releases for traders to digest, with the economic docket reaching its pinnacle at midweek.

Wednesday will bring a plethora of key releases, beginning with the Producer Price Index (PPI), expected to show prices at the wholesale level were down 0.5% month-over-month (m/m) in May, on the heels of a 0.1% decrease in April, while the core rate, which excludes food and energy, is expected to rise a mere 0.1% after increasing 0.2% the prior month. On a year-over-year (y/y) basis, the PPI is expected to show a 4.9% increase on a headline basis, but only a 1.1% increase at the core level. The release precedes the Thursday report on the Consumer Price Index (CPI), forecasted to show a 0.2% m/m decrease and 2.0% y/y increase, while ex-food and energy, it is expected to rise 0.1% m/m and 0.9% y/y.

Wednesday also yields the release of housing starts for May, expected to show a decrease of 3.3% m/m to an annual rate of 650,000 units, after increasing 5.8% in April, while building permits, one of the leading indicators tracked by the Conference Board, are forecasted to be 2.9% higher m/m in May after falling a surprising 11.5% in April. This report has been volatile in recent months, distorted by the initial expiration of the buyer tax credit, as well as seasonality and weather. Rounding out the busy Wednesday will be the May reading of industrial production and capacity utilization, which are both expected to improve, after lackluster increases in April. Economists are looking for industrial production to climb 0.9%, after a 0.8% increase last month, while capacity utilization is expected to come in at 74.5%, up from a previous reading of 73.7%.

Other releases on the US economic calendar this week include the import price index, the Empire Manufacturing Index, the NAHB Housing Market Index, MBA Mortgage Applications, initial jobless claims, the current account balance, the Philadelphia Fed’s Business Activity Index, and the Conference Board’s Index of Leading Indicators.

Europe gaining ground on favorable economic data

Stocks in Europe are higher in afternoon action as an upbeat reading from the euro-zone economic calendar is boosting optimism that the economic recovery across the pond will be able to overcome setbacks from the emergence of the euro-area debt crisis. Euro-zone industrial production rose 0.8% m/m in April, above the 0.5% increase that was anticipated by economists, and the y/y rate gained 9.5%, compared to the consensus forecast of an 8.7% rate of growth. Some M&A chatter in the financial sector is also helping the advance in Europe, with shares of AXA SA (AXAHY $16) posting a solid gain after it said that it was in talks to sell its UK life insurance unit to Resolution Ltd. for about 2.75 billion pounds ($4.1 billion). Mining issues are also contributing to the gains in the region, led by a surge in shares of Weir Group Plc. (WEIGF $13), after it issued a second-half profit forecast.

However, stocks in the UK are lagging behind, after the government issued a report, which showed its forecast for GDP next year was downwardly revised to a rate of growth of 2.6%, but it said its budget deficit will be lower than expected, ahead of its budget report on June 22nd. Also, gains in Britain are being limited and oil & gas issues are lower on weakness in shares of BP Plc. (BP $34) amid continued worries about the impact of the massive oil leak in the Gulf of Mexico on the company, and as it meets to discuss the costs—which it has said so far amounts to $1.6 billion—of the oil leak and the future of its dividend.

In other economic news in the region, Italy’s labor costs increased more than expected in 1Q, Sweden’s unemployment rate declined to a level below economists forecasts, Switzerland’s producer and import prices increased, and Spain’s housing transactions jumped 17.6% y/y.

The UK FTSE 100 Index is 0.5% higher, France’s CAC-40 Index is up 1.2%, Germany’s DAX Index is gaining 1.1%, Switzerland’s Swiss Market Index is advancing 0.5%, Italy’s FTSE MIB Index is rising 1.7%, Sweden’s OMX Stockholm 30 Index is 1.4% in the green, while Spain’s IBEX 35 Index is down 0.4%.

Asia moves higher on technology issues

Stocks in Asia were nicely higher following Friday’s advance in the US as a gauge of consumer sentiment helped offset a disappointing reading on retail sales, with technology issues leading the way. Japan’s Nikkei 225 Index rose 1.8%, aided by weakness in the yen, which is helping alleviate some of the pressure on export issues. The recent surge in the Japanese currency—reaching an eight-year high versus the euro on a surge in flight-to-safety buying amid the emergence of the euro-zone debt crisis—has dampened the outlook for revenues of companies that rely heavily on sales outside the Asian nation. On the Japanese economic front, the Bank of Japan began its monetary policy meeting, and later today, it is expected to leave its benchmark interest rate unchanged at 0.1%, and a report showed the nation’s industrial production rose 1.3%. Meanwhile, South Korea’s Kospi Index increased 0.9%, led by strength in semiconductor issues on increasing optimism about demand for chips, showing little reaction to the announcement by the government limiting the use of some foreign exchange strategies, such as forward contracts. The gains in South Korea also followed a report that showed export and import prices in the region increased.

Elsewhere, Hong Kong’s Hang Seng Index increased 0.9%, after reports showed industrial production and producer prices increased in 1Q, India’s BSE Sensex 30 Index gained 1.6% even after a report showed wholesale prices jumped 10.16% y/y in May, above the 9.60% that economists expected, and Taiwan’s Taiex Index posted a solid 1.2% advance to round out the day. However, today’s volume was lighter than usual as Australian markets were closed for a holiday, and China’s Shanghai Composite Index did not trade, and will not trade through Wednesday due to a holiday.