Morning Market Update

Rally Rests as Bulls Catch Their Breath

US equity markets are modestly lower in morning action on the heels of the shortened week that has seen solid gains for stocks, providing some needed relief to sentiment. Meanwhile, overseas markets are extending gains, with Asia posting a broad-based advance on improving global recovery sentiment, supported by the unexpected rate hike in South Korea, while European markets are being buoyed by some favorable industrial production data across the pond. Treasuries are nearly unchanged in early action, ahead of a report on wholesale inventories, which will headline a light economic docket in the US. In equity news, Google Inc reported that its Chinese web browsing license has been renewed, and Air Products and Chemicals Inc announced that it has increased its offer to purchase all of the outstanding shares of Airgas Inc.

As of 8:49 a.m. ET, the September S&P 500 Index Globex future is 2 points below fair value, the Nasdaq 100 Index is 5 points below fair value, while the DJIA is 29 points below fair value. Crude oil is down $0.13 at $75.31 per barrel, and the Bloomberg gold spot price is up $5.55 at $1,203.65 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.4% at 84.06.

Google Inc. (GOOG $457) is moving higher after the company said its Chinese web browsing license has been renewed. The world’s largest internet search engine said on its blog, that it looks “forward to continuing to provide web search and local products to our users in China,” without providing any other details.

In M&A news, Air Products and Chemicals Inc. (APD $69) announced that it has increased its offer to purchase all of the outstanding shares of Airgas Inc. (ARG $64) by $3.50 per share to $63.50 per share in cash. The revised offer is a 46% premium over the closing price of ARG the day before the initial offer and APD said the acquisition is expected to be accretive to its EPS immediately. ARG confirmed the sweetened offer and said it will review it to determine the course of action that it believes is in the best interests of the company and its stockholders.

Light day on the US economic front

Treasuries are flat in morning action as today’s economic calendar is fairly light, with the lone release coming after the opening bell, in the form of wholesale inventories, expected to increase by 0.4% in May.

Europe posting modest gains amid mixed data

Stocks in Europe are modestly higher in afternoon action, led by basic materials on improving global economic sentiment in the wake of this week’s solid gains in the global equity markets. Some relatively favorable economic data and dissipating euro-area debt fears as the banking industry across the pond go through stress testing by the European Central Bank have helped soothe sentiment.

There is a plethora of economic data that traders in Europe are digesting, headlined by an unexpected drop in UK producer output prices, while a separate report showed the UK trade deficit widened in May. Industrial production reports were plentiful in the region, with French and Italian manufacturing activity exceeding economists’ forecasts, while Sweden’s industrial production posted a solid gain. Elsewhere, Germany’s consumer prices were left unchanged at a 0.1% rate of growth on a month-over-month basis and a 0.9% increase year-over-year, as expected.

The UK FTSE 100 Index is 0.2% higher, France’s CAC-40 Index is up 0.2%, Germany’s DAX Index is gaining 0.3%, Italy’s FTSE MIB Index is advancing 0.6%, and Sweden’s OMX Stockholm 30 Index is rising 0.9%.

Renewed global recovery optimism and unexpected rate hike boost stocks in Asia

Stocks in Asia moved higher following another strong session the US, which followed a better-than-expected report on US jobless claims, as sentiment is improving regarding the global economic recovery. Chinese equity markets led the way, with the Shanghai Composite Index rising 2.3% and the Hong Kong Hang Seng Index increasing 1.6%, ahead of next week’s GDP report and following the release of a business climate gauge, which increased in 2Q. Economists surveyed by Bloomberg expected China’s 2Q GDP to show a 10.5% expansion year-over-year (y/y), when it is reported on July 14th. A steep gain in shares of Li & Fung (LFUGY $5) aided the advance in China after the consumer goods exporter benefitted from the aforementioned global economic recovery optimism and after the company said it made several acquisition deals that may result in $1 billion in revenue next year. Meanwhile, Japanese stocks moved modestly higher, with the Nikkei 225 Index advancing 0.5%, bogged down by some political uncertainty ahead of Sunday’s Upper House election, as media reports are suggesting Japanese Prime Minister Kan and his Democratic Party of Japan may lose control of both Houses, potentially hampering the government’s ability to implement legislation. A sharp drop in shares of energy firm Inpex Corp. (IPXHY $50) limited the advance in Japan after it announced that it plans to sell over $6 billion in shares to finance a gas project in Australia.

However, the biggest story in the region may have come from the unexpected interest rate increase from South Korea’s central, which boosted its benchmark lending rate by 25 basis points to 2.25%, where economists had expected policy makers to keep its interest rate at 2.00%. The move suggested confidence in the health of the economy and added to the optimistic global backdrop. South Korea’s Kospi Index increased 1.4%, even after a report showed producer prices in Korea remained at a 4.6% y/y rate in June. Rounding out the day, stocks in the resource-reliant nation of Australia posted a solid advance, with the S&P/ASX 200 Index rising 0.9% on the improved sentiment, while Taiwan’s Taiex Index and India’s BSE Sensex 30 Index rose 0.5% and 1.0%, respectively.