Morning Market Update

Morning Rebound as Durable Goods Orders Aid an Advance

The US equity markets have moved to near the best levels of the day in early action after a report on durable goods showed solid upward revisions to the previous month’s figures and after stripping out the volatile components, demand for goods intended to last more than three years was strong in August. Treasuries are lower, extending losses following the report, and ahead of key report on new home sales. In equity news, Nike Inc posted much better-than-forecasted earnings, while Advanced Micro Devices Inc gave disappointing 3Q revenue guidance. Overseas, Asia was mixed as China’s mainland markets remained closed, while Europe has overcome early losses that came on lingering debt worries, following a favorable read on business confidence in Germany—Europe’s largest economy.

As of 8:53 a.m. ET, the December S&P 500 Index Globex future is 14 points above fair value, the Nasdaq 100 Index is 26 points above fair value, while the DJIA is 128 points above fair value. Crude oil is up $0.81 at $75.99 per barrel, and the Bloomberg gold spot price is up $6.00 at $1,298.45 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.8% at 79.47.

Nike Inc. (NKE $78) reported fiscal 1Q EPS of $1.14, above the $1.01 Reuters estimate, with revenues increasing 8% year-over-year (y/y) to $5.18 billion, compared to $5.22 billion consensus estimate of analysts. The athletic apparel company said its worldwide futures orders for its footwear and apparel, scheduled for delivery from September 2010 through January 2011, are 10% higher y/y at $7.1 billion.

Advanced Micro Devices Inc. (AMD $6) announced that it expects revenue for 3Q ending September 25, to be in the range of down 1-4% versus revenue of $1.65 billion in 2Q. The chipmaker said the sequential decrease is due to weaker-than-expected demand, particularly in the consumer notebook market in Western Europe and North America. Analysts were expecting the company to report 3Q revenues of $1.72 billion.

Durable goods orders mixed, new homes sales report waits in the wings

Durable goods orders fell 1.3% month-over-month (m/m) in August, more than the 1.0% decline that was expected by economists surveyed by Bloomberg, while July’s figure was upwardly revised from a 0.3% increase to a gain of 0.7%. Ex-transportation, orders rose 2.0%, compared to the expectation of a 1.0% increase, while July was adjusted from a 3.8% drop to a decline of 2.8%. Non-defense capital goods excluding aircraft, considered a good proxy for business spending, rose by 4.1% in August, compared to the 3.0% increase that was anticipated, and after dropping by a favorably revised 5.3% in July. Treasuries remain lower, modestly extending losses following the report.

Later on this morning’s economic calendar, new home sales will be released, expected to show a 6.9% m/m increase in August to an annual rate of 295,000 units. New home sales are considered a more timely indicator of conditions in the housing market than existing home sales, released yesterday, which grew 7.6% m/m to exceed the 7.1% increase that was forecasted.

Europe overcomes early pressure on upbeat German data

Stocks in Europe have erased early losses and are modestly higher in afternoon action as a favorable report on business confidence in Germany—Europe’s largest economy—is offsetting a decline in financials as concerns over euro-area sovereign debt continue to stymie the sector. Interest rates to entice lenders to debt-laden nations of Ireland and Portugal rose to record highs compared to the rate of German debt, illustrating the uneasiness. Also, the financial sector is finding some pressure as Reuters reported that a UK commission is launching a probe of the British banking sector and is considering the possible break-up of retail and investment banks. Adding to the pressure on the equity markets, shares of German drugmaker Merck KGaA (MKGAY $31) are down about 9% after the European Medicines Agency rejected the company’s application to gain approval for its multiple-sclerosis pill.

However, resilience in the equity markets across the pond is coming courtesy of the German Ifo Business Climate Index, which unexpectedly increased, rising from 106.7 in August to 106.8 in September—the highest level since June 2007—and compared to the decline to 106.4 that economists had expected. Other reports from the economic front that are helping support European equities included: an unexpected upward revision to France’s 2Q GDP and a favorable retail sales report out of Italy. Inflation reports were also released in the region, with German import prices rising by a smaller amount than forecasted, producer prices increasing in Spain, and a larger-than-anticipated drop in Sweden’s producer prices.

The UK FTSE 100 Index is up 0.1%, France’s CAC-40 Index and Germany’s DAX Index are advancing 0.3%, Spain’s IBEX 35 Index is 0.5% higher, Italy’s FTSE MIB Index is rising 0.3%, and Sweden’s OMX Stockholm 30 Index is gaining 0.9%, while Ireland’s Irish Overall Index is dropping 0.9%, and Portugal’s PSI 20 Index is dipping 0.2%.

Asia mixed as Japan has volatile day on yen speculation

Stocks in Asia were mixed as some major markets returned to action following yesterday’s holiday, while markets in mainland China remained closed, which may have limited trading in the region. Japan’s Nikkei 225 Index fell 1.0% on the heels of the disappointing US employment data and manufacturing and services reports from Europe yesterday, which dampened the outlook for the global recovery. Also, Japanese stocks were at the mercy of the yen, which fell sharply in the second-half of trading on speculation the Japanese government intervened in the currency markets to weaken the Asian currency, which has experienced a recent surge versus most major currencies—hitting a fifteen-year high against the US dollar—to sour the outlook of sales of export companies and threaten the nation’s economic prosperity. However, stocks quickly retreated and finished solidly lower as the government did not confirm that it had meddled in the currency markets. Moreover, speculation that China enacted an embargo on rare earth materials to Japan hurt companies tied to these resources, amid a spat between the two nations regarding Japan’s detention of a Chinese fishing-boat captain. Bloomberg report that China denied any such embargo.

Meanwhile, the economic calendar in the region was void of any major releases, but the aforementioned global recovery uneasiness courtesy of data from the US and Europe pressure the economically-sensitive resource sector, and Australia’s S&P/ASX 200 Index fell 0.7%. However, Hong Kong’s Hang Seng Index increased 0.3%, South Korea’s Kospi Index rose 0.8%, and India’s BSE Sensex 30 Index gained 0.9%. Elsewhere, Taiwan’s Taiex Index decreased 0.4%.