Morning Market Update

Euro-Debt Uneasiness Wanes to Help Stocks Post Solid Gains

The US equity markets are returning from a long holiday weekend in positive fashion, with stocks nicely higher in morning trading on eased concerns about the eurozone debt crisis, particularly regarding a default by the troubled nation of Greece. Treasuries are modestly lower, even after a report showed home prices declined in March, and ahead of a read on consumer confidence and some regional manufacturing reports. US equity news is light, as Ashland Inc announced that it has agreed to acquire chemical maker International Specialty Products Inc for $3.2 billion in all cash. Overseas, Asia finished broadly higher, while financials are helping pace a solid advance in Europe.

As of 8:45 a.m. ET, the June S&P 500 Index Globex future is 11 points above fair value, the Nasdaq 100 Index is 21 points above fair value, and the DJIA is 99 points above fair value. WTI crude oil is $1.76 higher at $102.35 per barrel, and the Bloomberg gold spot price is down $4.11 at $1,534.35 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.4% to 74.62.

Ashland Inc. (ASH $61) announced that it has reached an agreement to acquire privately-held chemical maker International Specialty Products Inc. for $3.2 billion in all cash. ASH said the transaction is expected to be immediately accretive to its EPS and it will expand its position in personal care, pharmaceutical and energy markets.

Home prices decline, consumer confidence and regional manufacturing reports on deck

Just before the opening bell, the S&P/Case-Shiller Home Price Index was released showing a decline in home prices of 3.61% y/y in March, compared to the 3.40% drop that economists surveyed by Bloomberg had expected. Month-over-month (m/m), home prices were 0.23% lower, compared to forecasts, which called for a decline of 0.24%.

Treasuries are modestly lower amid the strong start in the equity markets and despite the home price data, with the yields on the 2-year and 10-year notes, along with the 30-year bond, 1 bp higher at 0.48%, 3.09%, and 4.25%, respectively.

Later this morning, the economic calendar will yield the release of the Consumer Confidence Index, forecasted to increase from 65.4 in April to 66.5 in May, as well as regional manufacturing reports, with the Chicago Purchasing Managers Index expected to decline from 67.6 in April to 62.0 in May, and the Dallas Fed Manufacturing Index, projected to declined from 10.5 to 8.0 for May.

Throughout the holiday-shortened week we will get a plethora of key reports on the health of the economy in May, beginning with tomorrow’s release of the ISM Manufacturing Index, forecasted to decline to 57.6 from 60.4, and the prices paid component is expected to fall to 81.5 from 85.5. Meanwhile, the ISM Non-Manufacturing Index, to be released on Friday, is anticipated to increase to 54.0 from 52.8. A reading of 50 separates expansion from contraction.

However, employment will be the main focus for the week, with readings within the ISM reports, as well as both the ADP Employment Change and initial jobless claims set to be released. The week concludes with the Labor Department’s nonfarm payrolls on Friday, expected to grow 185,000 in May, after rising 244,000 in April, and the unemployment rate is estimated to decline to 8.9% from 9.0%.

Other releases on this week’s US economic calendar include: construction spending, vehicle sales, factory orders, MBA Mortgage Applications, as well as 1Q unit labor costs and nonfarm productivity.

Europe broadly higher as debt worries ease to overshadow data

Stocks in Europe are solidly to the upside in afternoon action, with financials posting a respectable gain as concerns about the eurozone debt crisis are easing somewhat, offsetting some disappointing data in the region. The pull-back in debt uneasiness is coming from a Wall Street Journal report that Germany—which has objected to further bailout aid recently—is considering making concessions to its demands that Greece reschedule its debt before receiving new aid. Germany has not commented on the report. Also, the head of the eurozone finance ministers, Jean-Claude Juncker said that European leaders will decide on a new aid package for Greece by the end of June, and ruled out that a “total restructuring” of the nation’s debt, per Bloomberg. The relative optimism in European action is helping push the euro higher and is weighing on the US dollar, which is helping boost commodity prices, with materials and oil & gas some of the best performers in the today’s action. Industrials are also getting a lift from the improved sentiment, despite data that showed French consumer spending unexpectedly fell, while German retail sales rose at a level that missed expectations and the nation’s unemployment change declined by a smaller amount than projected. However, the eurozone May consumer price estimate unexpectedly declined, decreasing from a 2.8% year-over-year (y/y) forecasted in April to a 2.7% rise. In equity news, Nokia Corp. (NOK $8) is sharply lower after the company issued a 2Q profit warning, due to lower-than-expected sales at its devices and services unit.

The UK FTSE 100 Index is gaining 0.8%, France’s CAC-40 Index is advancing 1.6%, and Germany’s DAX Index is rising 2.0%, while Greece’s Athex Composite Index is rallying 4.7%.

Asia nicely higher on euro-debt optimism

The equity markets finished broadly higher amid eased concerns about the euro-area debt crisis on reports that further aid may be coming to Greece, which cooled some uneasiness about a possible default by the debt-laden nation. Japan’s Nikkei 225 Index closed 2.0% higher, aided by some weakness in the Japanese yen, which helped export issues, while a report on industrial production boosted optimism about the recovery of the nation that was hit by the massive earthquake and tsunami in March. Industrial production in Japan rose 1.0% m/m in April, after falling 15.5% in March, compared to the 2.0% increase that economists had forecasted. However, the report revealed that production in May and June are expected to be solidly higher. The steep advance in Japan came even as Moody’s Investors Service placed the nation’s sovereign credit ratings on review for a possible downgrade. Meanwhile, South Korea’s Kospi Index jumped 2.3%, to lead the advance in the region, supported by a sharp advance in shares of Hyundai Heavy Industries Co. (HYHZF $391) after the shipbuilder posted favorable earnings and reported that it won an order for two natural gas tankers. The advance came in South Korea despite reports that showed its industrial production unexpectedly declined and business optimism decelerated for June.

Elsewhere, stocks in China moved higher, with the Shanghai Composite Index rising 1.4% and the Hong Kong Hang Seng Index advancing 2.2%, amid the improved sentiment in the region and following data that showed Hong Kong retail sales rise more than expected. Rounding out the day, Australia’s S&P/ASX 200 Index gained 0.9%, while India’s BSE Sensex 30 Index closed 1.5% to the upside despite a report that showed the nation’s 1Q GDP grew at a 7.8% y/y rate, compared to the 8.3% expansion seen in the previous quarter, and the 8.1% growth that was expected.