Markets Gaining Ground Despite Slowing Manufacturing Growth
US stocks are modestly higher heading into afternoon action despite reports that showed manufacturing activity is slowing, as the bulls are finding some aspects within the data to help support the argument against a double-dip recession. Treasuries are mixed amid the readings from the economic calendar, which also contained a drop in mortgage applications. In equity news, MasterCard Inc announced a plan to repurchase up to $1.0 billion in its common stock, Savient Pharmaceuticals Inc received approval from the FDA for its gout treatment, Pall Corp posted better-than-expected quarterly results, and Beazer Homes USA Inc warned that it could miss its prior new home order forecast. Overseas, Europe came under pressure amid mixed data.
At 12:56 p.m. ET, the Dow Jones Industrial Average is 0.3% higher, the S&P 500 Index is 0.1% higher, and the Nasdaq Composite is advancing 0.3%. Crude oil is down $1.21 at $75.59 per barrel, wholesale gasoline is off $0.01 at $1.96 per gallon, and the Bloomberg gold spot price is down by $4.90 at $1,266.80 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.4% at 81.53.
MasterCard Inc. (MA $212) reported that its Board of Directors has approved a share repurchase program of up to $1.0 billion of Class A common stock in open market transactions, effective immediately. The credit card transaction processor said the stock repurchase program is a result of a periodic review of its capital structure and is enabled by its strong and consistent cash flow. The company also said that it expects net income growth of about 20% this year, putting its estimate roughly inline with analysts’ forecasts. Shares are higher.
Meanwhile, Savient Pharmaceuticals Inc. (SVNT $18) is up over 25% after the US Food & Drug Administration (FDA) approved its drug KRYSTEXXA for the treatment of chronic gout in adult patients. SVNT said the drug is the first FDA approved treatment to show significant clinical improvement within six months of therapy.
Pall Corp. (PLL $41) is up over 5% after the filtration and purification firm reported fiscal 4Q EPS ex-items of $0.72, above the $0.64 that analysts were expecting, with revenues increasing 4.1% year-over-year (y/y) to $678.6 million, topping the $676.6 million that the Street was forecasting. The company said overall orders were up 19%, with its industrial business continuing to rebound. PLL issued full-year EPS guidance that exceeded expectations.
Beazer Homes USA Inc. (BZH $4) is down solidly after the homebuilder warned that due to a slower-than-anticipated improvement in new home orders after the April expiration of the government’s home-buyer tax incentive, this year’s performance in new home orders may come up short of last year’s figure. BZH had forecasted previously that it will exceed last year’s home orders result. BZH also said it expects its land & land development spending to be below its previous forecast for the year.
Industrial production matches forecasts, NY activity decelerates, import prices rise
Manufacturing activity was in focus, headlined by the August reading of industrial production (chart), which rose 0.2% month-over-month (m/m), inline with the expectations of economists surveyed by Bloomberg, but July’s strong 1.0% growth reading was downwardly revised to a 0.6% increase. Manufacturing was supported by increases in construction and business equipment, but consumer goods output fell. Capacity utilization came in at a lower-than-forecasted 74.7% from a downwardly revised 74.6% in July, versus the expectation that called for an increase to 75.0%. Utilization remains 5.9% below its average from 1972 to 2009.
Meanwhile, a key regional read, and one of the more timelier looks at the manufacturing sector came in the form of the Empire Manufacturing Index, a measure of activity in the New York region, which unexpectedly fell in September, dropping to a level of 4.14, compared to the estimates of an increase to 8.00, from the previous month’s level of 7.10. But the index remains above the level of zero, the demarcation point between contraction and expansion. The report is the first major region to report on manufacturing conditions in September, and tomorrow, the Philly Fed Manufacturing Index will be released, expected to increase from -7.7 in August to 0.3 in the current month, providing further insight into the health of the sector.
However, this was the second-straight disappointment out of the New York manufacturing sector, though new orders and employment components of the survey both improved, and the July figure of industrial production—which was a source of enthusiasm during the month—was revised down due partly to newly available data on output of iron & steel, and construction machinery. The data is likely to be source for the bears to point to the slowing manufacturing activity and the negative impact that could have on the recovery.
Elsewhere, the Import Price Index rose 0.6% m/m for August, compared to the expectation of economists, which called for the index to increase by 0.3%. Year-over-year (y/y), import prices are higher by 4.1%, versus the 3.8% forecast of economists.
In other economic news, the US MBA Mortgage Application Index declined 8.9% last week, after the index that can be quite volatile on a week-to-week basis, slipped 1.5% in the previous week. The decrease came as the Refinance Index dropped 10.8%, accounting for the bulk of the decline, as the Purchase Index dipped 0.4%. The fall in the overall index came despite a 3 basis-point decrease in the average 30-year mortgage rate to 4.47%, near the record low of 4.43% reached on August 27.
Treasuries are mixed in afternoon trading amid the manufacturing, inflation, and housing reports.
Europe under pressure despite gains in retailers and automakers
Stocks in Europe traded lower, despite some positive moves out of the retail sector and automakers, with oil & gas issues leading the downward move. On the heels of yesterday’s favorable retail sales data out of the US, the sector received a boost from a solid advance in shares of Next Plc. (NXGPY $17) after the UK’s number-two clothing retailer posted a double-digit increase in first-half profits, while it reiterated its second-half outlook and offered some upbeat commentary toward the consumer. Meanwhile, shares of automakers were higher to help limit losses in Europe following some upbeat analyst comments toward components of the sector and as shares of Renault (RNSDF $44) finished nicely higher, aided also by gains in Japanese exporters, such as Nissan Motor Co. (NSANY $17), which gained solid ground in Asian trading and is partly owned by Renault, after the Japanese government intervened to help stem to surge in the yen. However, shares of drugmaker AstraZeneca Plc. (AZN $52) found pressure after the US FDA delayed a decision on the company’s experimental blood thinning drug Brilinta, due to more time needed to study the treatment.
The economic front across the pond yielded some key reports that deserve a mention, with the UK releasing a disappointing employment report, which showed jobless claims unexpectedly rose and average weekly earnings increasing by a smaller-than-forecasted amount. In other labor data, euro-zone employment growth was flat in 2Q. Also, inflation numbers continued to pour in, with euro-zone and Italian consumer prices rising in August m/m to match expectations, but the y/y core rate of consumer prices in the euro-zone rose more than forecasted.
The UK FTSE 100 Index was 0.2% lower, France’s CAC-40 Index finished down 0.5%, Germany’s DAX Index declined 0.2%, and Italy’s FTSE MIB Index decreased 0.6%.
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