Morning Market Update

Asian Data Gives Bulls Reason to Rebound

The global equity markets are nicely higher, rebounding from the solid declines to start the week, as the bulls are finding pastures of sustenance from favorable manufacturing data out of China and a strong 2Q GDP report from Australia. The Asian reports are lifting sentiment toward the global economic recovery, overshadowing an unexpected decline in private sector payrolls in the US as reported by ADP. Treasuries are under some pressure amid the improved sentiment and after US mortgage applications rose, but an important read on US manufacturing activity is set to be released after the opening bell. US equity news is light and taking a back seat to the global economic front, with Burger King Holdings Inc receiving a solid boost from a Wall Street Journal report that the fast-food chain is mulling a sale of the company, while HJ Heinz Co reported revenues that were roughly inline with forecasts. Overseas, Australian and Japanese stocks paced the advance in Asia following the aforementioned data, which is also helping European stocks gain solid ground despite a mixed bag of economic reports across the pond.

As of 8:42 a.m. ET, the September S&P 500 Index Globex future is 13 points above fair value, the Nasdaq 100 Index is 27 points above fair value, while the DJIA is 104 points above fair value. Crude oil is up $0.80 at $72.72 per barrel, and the Bloomberg gold spot price is up $6.10 at $1,253.55 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.9% at 82.37.

Burger King Holdings Inc. (BKC $16) is sharply higher after the Wall Street Journal reported that the fast food chain has been in talks with private equity firms in recent weeks regarding a possible sale of the company, citing people familiar with the matter. A spokeswoman for the company declined to comment on the report.

H.J. Heinz Co. (HNZ $46) reported that fiscal 1Q revenues rose 1.6% year-over-year (y/y) to $2.5 billion, roughly matching the Reuters estimate, and the condiment company confirmed yesterday’s preannounced 1Q EPS of $0.75, which exceeded the Street’s forecast of $0.72. HNZ said volume grew 2.5% y/y, led by increases in emerging markets and North American consumer products.

ADP reports jobs unexpectedly decline, mortgage apps rise, ISM read on the horizon

The ADP Employment Change Report showed private sector payrolls declined by 10,000 jobs in August, compared to the forecast of economists surveyed by Bloomberg, which called for a 15,000 increase, and July’s 42,000 job increase was downwardly revised to a 37,000 gain. The release does not include government hiring and firing and comes ahead of Friday’s broader nonfarm payrolls report, where economists expect a decrease of 100,000 in August, after falling 131,000 in July. Excluding government hiring, August private sector payrolls are expected to increase 42,000, after expanding by a disappointing 71,000 in July.

In other economic news, the US MBA Mortgage Application Index rose 2.7% last week, after the index that can be quite volatile on a week-to-week basis, gained 4.9% in the previous week. The gain came as the Refinance Index increased 2.8%, teaming up with 1.8% growth in the Purchase Index. The increase in the overall index came amid a 12 basis-point decline in the average 30-year mortgage rate to 4.43%, a new record low. Treasuries remain lower amid the upbeat global manufacturing and growth data, showing little reaction to the jobs and mortgage reports.

Later this morning, construction spending will be reported, expected to decline 0.5% for July, but the report that will likely come under the most scrutiny today will be the August release of the Institute for Supply Management (ISM) Manufacturing Index, expected to decline from 55.5 in July to 52.7 in August. Although the pace has slowed, the index has depicted expansion of economic activity in the manufacturing sector for twelve consecutive month—as illustrated by a reading above 50—and growth in the overall economy for the fifteenth-straight month—indicated by a level above 42—helping provide a key data point in the argument for the continued economic recovery. With the headline figure of the report expected to show the trends of manufacturing expansion and growth in the overall economy are intact, the components of the release will likely garner the most attention given the resurfacing economic concerns and the acute focus on the employment picture. Although new orders have expanded for thirteen-straight months, the pace has slowed, and could continue to show deceleration in August, as all major regional manufacturing reports, such as yesterday’s report out of Chicago, posted declines, with reads on activity out of New York and Philadelphia showing new orders contracted for the month. However, the employment component of the ISM has expanded for eight-consecutive months and the rate of change increased in July, with ten of the eighteen industries reporting growth in employment. Another favorable employment read could help soothe sentiment and possibly boost some optimism ahead of Friday’s US labor report.

Asian data boosts Europe despite mixed data across the pond

Stocks in Europe are nicely higher in afternoon action, led by basic materials and industrials issues on the heels of the improved sentiment due to the upbeat reads of economic prosperity out of Asia, which are helping traders stomach a mixed bag of European economic reports. The flood of PMI Manufacturing Index reports continued in Europe, with France and euro-zone reports showing expansion—as a reading above 50 denotes economic activity expansion in the manufacturing sector—that exceeded expectations and Germany’s PMI matched forecasts, while reads in Switzerland, Spain, Italy, and the UK all showed decelerating expansion. Outside the manufacturing sector, retail sales in Germany—Europe’s largest economy—unexpectedly fell month-over-month (m/m) in July.

Meanwhile, the equity front across the pond is helping lift sentiment, with shares of Vivendi (VIVDY $23) moving solidly higher after Europe’s largest telecom and entertainment group, according to Reuters, increased its full-year outlook and stood behind paying its dividend after it posted better-than-expected first-half profits. Also, Vinci (VCISY $11) is trading nicely above the flatline after the French construction firm reported first-half earnings that exceeded analysts’ expectations.

The UK FTSE 100 Index is up 1.4%, France’s CAC-40 Index is 1.8% higher, Germany’s DAX Index is advancing 1.1%, Italy’s FTSE MIB Index and Spain’s IBEX 35 Index are rising 1.4%, while Switzerland’s Swiss Market Index is increasing 1.3%.

Upbeat growth figures out of China and Australia boost Asian stocks

Stocks in Asia finished mostly higher as economic sentiment was supported by favorable reports out of China and Australia. China’s PMI Manufacturing Index rose from 51.2 in July to 51.7 in August, above the 51.5 that economists had expected. Also, a separate report showed Chinese Manufacturing PMI rebounding from a level depicting contraction to a reading of growth, as the index increased from 49.4 in July to 51.9 in August to help boost optimism toward the outlook for the Chinese economy, which has led the global economic recovery. Adding to the improved economic outlook, Australia reported much better-than-forecasted domestic output, as its 2Q GDP increased 1.2% quarter-over-quarter (q/q), after increasing 0.7% in 1Q, above the 0.9% growth that was expected. Also, on a y/y basis, 2Q GDP down under rose 3.3%, after posting 2.6% growth in 1Q, and well above the 2.8% increase in output that had been forecasted. Australia’s S&P/ASX 200 Index rose 2.1% to lead the advance in Asia, but stocks in China were mixed as the Hong Kong Hang Seng Index increased 0.4%, while the Shanghai Composite Index declined 0.6% despite the upbeat Chinese manufacturing reports. Meanwhile, Japan’s Nikkei 225 Index gained 1.2% amid the favorable data in the region, which applied some pressure on the yen versus the US dollar, helping soothe some concerns about the recent surge in the Japanese currency and its impact on the outlook for profits of companies that rely heavily on sales abroad. However, after the close in Asia, the yen has regained its upward momentum versus the greenback.

Elsewhere, South Korea’s Kospi Index rose 1.3% on the sweetened sentiment, and favorable sales data out of the auto industry as Hyundai Motor Co. (HYMLF $67) and Kia Motors Corp. (KIMTF $23) reported strong sales figures for August. Rounding out the day, Taiwan’s Taiex Index increased 0.7% and India’s BSE Sensex 30 Index rose 1.3%. In other economic news in Asia, India’s, Taiwan’s and South Korea’s PMI Manufacturing Indexes all decelerated, and India’s imports surged and export growth slowed, while South Korea’s exports and imports rose a pace the was below expectations.