Morning Market Update

Stocks Climb Amid China Data and Eased Euro Debt Concerns

The US equity markets are moving higher in early action, aided by a better-than-forecasted Chinese trade report, along with some relatively eased worries regarding the threat of a restructuring of Greece’s debt. Treasuries are modestly lower amid the advance in stocks, and after reports that showed import prices were hotter-than-forecasted and small business optimism deteriorated by a larger amount than expected, ahead of the release of wholesale inventories. Meanwhile, M&A news is helping boost optimism, highlighted by the announcement that Dow member Microsoft Corp reached an agreement to acquire Skype Technologies SA for $8.5 billion in cash. On the earnings front, Activision Blizzard Inc reported stronger-than-estimated earnings and revenues, while Dean Foods Co topped the Street’s profit expectations despite higher dairy commodity costs. Overseas, Asia was mixed following the Chinese data, while Europe is nicely higher as earnings are helping support sentiment.

As of 8:48 a.m. ET, the June S&P 500 Index Globex future is 5 points above fair value, the Nasdaq 100 Index is 10 points above fair value, and the DJIA is 35 points above fair value. WTI crude oil is $0.57 lower at $101.98 per barrel, and the Bloomberg gold spot price is down $1.68 at $1,512.05 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.1% to 74.59.

In M&A news, Dow member Microsoft Corp. (MSFT $26) announced that it has reached an agreement to acquire internet phone company Skype Technologies SA for $8.5 billion in cash, including debt. MSFT said Skype will support its devices like Xbox and Kinect, Windows Phone and other Windows devices, while Skype users will be connected to Lync, Outlook, Xbox Live and other communities.

Activision Blizzard Inc. (ATVI $12) reported 1Q earnings ex-items of $0.13 per share, above the $0.08 that analysts surveyed by Reuters had expected, with revenues increasing 5.7% year-over-year (y/y) to $755 million, versus the $668 million that the Street had expected. The video game publisher said its results were driven by digital sales and the continued strength of its Call of Duty and World of Warcraft franchises. ATVI increased its full-year guidance.

Dean Foods Co. (DF $11) announced 1Q EPS of $0.14, compared to the $0.06 that analysts had estimated, as revenues rose 3% y/y to $3.05 billion, versus the $3.07 billion that the Street had anticipated. The company said revenues were aided by strong sales growth at its WhiteWave-Alpro segment and the pass-through of higher overall dairy commodity costs that were partially offset by soft volumes at its Fresh Dairy Direct-Morningstar business. Looking ahead, DF said volumes across the conventional milk industry are expected to “remain soft” over the coming quarters and it has stepped up its agenda to reduce costs. Also, it is focused on pricing to offset inflation through efficient pricing mechanisms.

Import prices rise, small business optimism declines, wholesale inventories due out later

The Import Price Index rose 2.2% month-over-month (m/m) for April, compared to the expectation of economists surveyed by Bloomberg, which called for the index to increase by 1.8%. Year-over-year, import prices are higher by 11.1%, versus the 10.4% forecast of economists.

In other economic news, the NFIB Small Business Optimism Index declined by a larger amount than expected, decreasing from 91.9 in March to 91.2 in April, compared to the expectation of economists, which called for the index to decline to 91.8. The decrease came as the number of firms reporting expectations of higher sales dipped, along with plans to increase capital spending, while those planning to increase inventory declined into the red and expectations of a better economy fell further into negative territory. The declines in the above components offset a gain in expectations of higher selling prices, while plans to hire remained unchanged.

Treasuries are lower in morning action following the data, with the yields on the 2-year and 10-year notes, along with the 30-year bond increasing 1 bp to 0.56%, 3.17%, and 4.32%, respectively.

Later this morning, the US economic calendar will bring the release of wholesale inventories, forecasted to increase 1.0% m/m in March, after rising by the same amount in February.

Europe rebounds on earnings and China data

Stocks in Europe are nicely higher in afternoon action, led by basic materials and industrials, following some favorable earnings reports and some stronger-than-expected trade data out of China. Shares of InterContinental Hotels Group Plc. (IHG $21) are solidly higher after the parent of Holiday Inn reported a sharp increase in earnings, aided by a rebound in travel in the Americas. Moreover, Deutsche Post (DPSTF $19) is moving nicely to the upside after the air and sea freight carrier posted better-than-expected profits, while shares of Solvay (SVYSF $115) are sharply higher after the chemical and plastics maker reported earnings that topped forecasts and it issued a favorable outlook. Meanwhile, financials are higher to aid the advance in the region as fears of a debt restructuring in Greece are easing, though the debt-laden nation is expected to conduct a public debt auction later today.

The advance across the pond comes even amid some disappointing manufacturing data in the region, with France reporting that its manufacturing and industrial production unexpectedly fell in March, while growth in Italian industrial production rose at a smaller-than-estimated pace. However, a read on UK home prices unexpectedly improved.

The UK FTSE 100 Index is gaining 1.3%, France’s CAC-40 Index, Germany’s DAX Index, and Italy’s FTSE MIB Index are increasing 1.4%, while Greece’s Athex Composite Index is trading 1.5% to the upside.

Asia mixed following China trade data

The equity markets in Asia finished mixed, with the Shanghai Composite Index rising 0.6% following a report that showed China’s trade surplus widened by a much larger-than-estimated amount, fueled by the nation’s exports outpacing imports in April. The report precedes tomorrow’s data on inflation, industrial production, and retail sales. Volume was lighter than usual in today’s trading session, with markets in Hong Kong and South Korea closed for holidays. Elsewhere, Japan’s Nikkei 225 Index rose 0.3%, helped by a solid gain in shares of Toshiba Corp. (TOSBF $5) after the chipmaker forecasted a steep increase in full-year profits. However, Australia’s S&P/ASX 200 Index declined 0.7% despite the data out of China and a separate report that showed the nation’s trade balance swung to a surplus in March, and India’s BSE Sensex 30 Index declined 0.1%.