Morning Market Update

Trying to Rebound from Yesterday’s Lackluster Session

US stocks are modestly higher in morning action following yesterday’s sluggish start to the week, with a successful debt auction in Portugal helping soothe some recently resurfaced banking sector concerns to aid a rebound in European markets. Treasuries are lower on the slight gains in the equity markets, despite a decline in mortgage applications, and ahead of afternoon reports on consumer credit and economic activity across the US Federal Reserve Districts. In equity news, Oracle Corp’s CEO offered some tough comments regarding a lawsuit filed by Dow member Hewlett-Packard Co pertaining to the company’s hiring of its former Chief Executive, while chipmaker Altera Corp raised its revenue outlook. Elsewhere overseas, Asia came under pressure following the broad-based declines in the US and Europe.

As of 8:53 a.m. ET, the September S&P 500 Index Globex future is 3 points above fair value, the Nasdaq 100 Index is 9 points above fair value, while the DJIA is 24 points above fair value. Crude oil is down $0.21 at $73.88 per barrel, and the Bloomberg gold spot price is down $1.30 at $1,254.25 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.1% at 82.83.

Following the lawsuit filed by Dow member Hewlett-Packard Co. (HPQ $40) against Oracle Corp. (ORCL $24) pertaining to yesterday’s announcement that ORCL has hired former HPQ CEO Mark Hurd as its President, ORCL’s CEO Larry Ellison said ORCL has viewed HPQ as an important partner but offered a tough response. Ellison said, “By filing this vindictive lawsuit against Oracle and Mark Hurd, the HP board is acting with utter disregard for that partnership, our joint customers, and their own shareholders and employees. The HP board is making it virtually impossible for Oracle and HP to continue to cooperate and work together in the IT marketplace.”

Altera Corp. (ALTR $27) said based on quarter-to-date results and the company’s outlook for the remainder of the quarter, 3Q revenue at the semiconductor firm to be 10-14% above 2Q levels, versus its prior view of sequential growth of between 4-8%. ALTR said the telecom and wireless vertical market is on track to be the fastest growing portion of its business, driven in large part by 3G wireless deployments and needs for additional wireless backhaul capacity.

Mortgage applications dip, but key reports set for the afternoon

The morning’s economic calendar is relatively light with the lone release in the first-half of today’s session being the US MBA Mortgage Application Index, which declined 1.5% last week, after the index that can be quite volatile on a week-to-week basis, gained 2.7% in the previous week. The decrease came as the Refinance Index fell 3.1%, more than offsetting a 6.3% gain in the Purchase Index. The decline in the overall index came amid a 7 basis-point rise in the average 30-year mortgage rate to 4.50%, off of the record low of 4.43% reached in the previous week. Treasuries are lower following the report and amid the slight rebound in the equity markets.

Meanwhile in the second-half of today’s session, consumer credit will be reported, forecasted to decline by $4.5 billion in July after falling $1.3 billion in June, but the headlining event of the day will come in the form of the afternoon release of the Federal Reserve’s Beige Book. The report is a summary of anecdotal information gathered from all twelve Federal Reserve Districts across the US depicting current economic conditions and is one of the tools used by Federal Open Market Committee (FOMC) members in forming monetary policy. The last report at the end of July noted that economic activity continued to increase, but some Districts reported the level of economic activity generally held steady, and a number of them noted that increases were modest, while two said the pace of activity had slowed recently.

Europe overcoming early losses from continued banking concerns

Stocks in Europe are gaining ground in afternoon action, overcoming early weakness that came from resurfacing euro-area banking concerns, on a successful debt auction on Portugal. Also, a report showed Portuguese 2Q GDP expanded by a larger amount than initially projected. The resiliency in the European markets comes in the face of a steep loss in shares of National Bank of Greece (NBG $2) after the nation’s largest lender announced plans to raise about 2.8 billion euros ($3.6 billion) to bolster its capital position. A report that showed Greece’s 2Q GDP was revised to a larger-than-initially forecasted amount is doing little to help stocks in the Greek nation and soothe sovereign debt concerns. Also, stocks are overcoming banking uneasiness that came as concerns about the economy and banking sector in Ireland lingered, exacerbated by a report by Reuters that the Irish government extended guarantees to its banking industry and depositors. In other equity news, BP Plc. (BP $37) is moving higher after it released results of its internal investigation of the cause of the massive Gulf of Mexico oil spill, saying that no single factor caused the deepwater oil rig explosion and decisions by multiple companies contributed to the spill.

Moreover, the advance across the pond is coming despite some disappointing data in the region’s largest economies, with a report showing industrial production in Germany—Europe’s largest economy—increased by a much smaller amount than anticipated, as it rose 0.1% month-over-month (m/m) in July, versus the 1.0% increase that was forecast. Also, a separate report showed UK industrial production rose by a smaller-than-expected amount. Other economic reports included: a smaller-than-expected contraction in Germany’s trade surplus, France’s business sentiment remained unchanged but its trade deficit widened by a larger amount than anticipated, Spain’s industrial output dropped, UK home prices unexpectedly increased in August, and Sweden’s 2Q GDP was revised to a higher expansion that forecasted.

The UK FTSE 100 Index is 0.2% higher, France’s CAC-40 Index is up 0.5%, Germany’s DAX Index is advancing 0.3%, Spain’s IBEX 35 Index is rising 0.6%, and Sweden’s OMX Stockholm 30 Index is gaining 0.3%, while Greece’s Athex Composite Index is declining 1.4%, Portugal’s PSI 20 Index is decreasing 1.0%, and Ireland’s Irish Overall Index is falling 0.7%.

Asia declines as euro-area bank concerns carry over and yen continues to rise

Stocks in Asia were mostly lower following the losses in the US and Europe yesterday as euro-area banking industry concerns resurfaced to stymie sentiment toward the health of the sector. Meanwhile, continued strength in the Japanese yen versus the dollar, which sits at a fifteen-year high versus the US currency, exacerbated the uneasiness to weigh on stocks in the Asian nation as the Nikkei 225 Index fell 2.2%. Export issues, which rely heavily on sales in the US and other global economies, led the decline in Japan, as the surge in the yen versus the greenback and other major currencies is souring the outlook of profits in these companies. The dampened sentiment overshadowed some upbeat economic data from the Japanese docket, as stocks posted solid declines despite a report that showed machine orders jumped 8.8% m/m in July, more than four times the growth expected by economists. Also, a separate report showed the Japanese trade surplus widened by a larger-than-forecasted amount even amid the steep gains seen in the yen. However, there was a report that marked a tally on the negative side of the economic ledger, with separate surveys of current and expected economic conditions in Japan both came in below economists’ forecasts.

In other economic news in Asia, Australia’s home loans in July rose by a larger amount than expected. Australia’s S&P/ASX 200 Index declined 0.8% amid the aforementioned uneasy sentiment toward Europe and Japan, and amid carried over weakness in mining stocks in the nation on the heels of the week’s announcement that the Labor Party’s Prime Minister Gillard secured a second term in office and it vowed to press ahead with a proposed new mining tax. However, the decline down under was limited by some M&A news, with shares of Foster’s Group Ltd. (FBRWY $5) moving solidly higher after it announced that it has rejected an offer to acquire its wine business from a private equity firm worth between A$2.3-2.7 billion ($2.1-2.5 billion), but it will continue its existing plans to split its beer and wine units into separate companies. Rounding out the day, Chinese stocks were also lower, with the Hong Kong Hang Seng Index falling 1.5% and the Shanghai Composite Index dipping 0.1%, while South Korea’s Kospi Index declined 0.5% and Taiwan’s Taiex Index decreasing 0.4%, but India’s BSE Sensex 30 Index rose 0.1%.