Morning Market Update

Bulls Trying to String Together Gains

The US equity markets are higher in morning trading, extending yesterday’s rally on the heels of a report that showed July US retail sales mostly exceeded expectations, while European financials are leading a strong advance across the pond on the announcement of a ban on short-selling in parts of the region. Treasuries remain higher despite the retail sales data, while reports on consumer sentiment and business inventories are due out later this morning. In equity news, J.C. Penney Co. Inc reported earnings that missed expectations, while Nordstrom Inc topped analysts’ expectations and NVIDIA Corp issued an upbeat revenue outlook. Elsewhere overseas, Asian stocks finished out the volatile week mixed.

As of 8:51 a.m. ET, the September S&P 500 Index Globex future is 7 points above fair value, the Nasdaq 100 Index is 5 points above fair value, and the DJIA is 53 points above fair value. WTI crude oil is $1.41 higher at $87.13 per barrel, and the Bloomberg gold spot price is down $14.92 at $1,749.00 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.2% at 74.38.

J.C. Penney Co. Inc. (JCP $27) announced 2Q earnings of $0.07 per share, below the $0.09 consensus estimate of analysts surveyed by Reuters, as revenues declined 0.8% year-over-year (y/y) to $3.9 billion, matching what the Street was expecting. The department store retailer said its 2Q same-store sales—sales at stores open at least a year—increased 1.5% y/y.

Nordstrom Inc. (JWN $42) reported 2Q EPS of $0.80, six cents above the Street’s expectation, with revenues increasing 12.4% y/y to $2.7 billion, compared to the $2.8 billion that analysts were anticipating. The company’s 2Q same-store sales increased 7.3% y/y. JWN raised its full-year EPS outlook.

NVIDIA Corp. (NVDA $13) offered 3Q revenue guidance that exceeded analysts’ expectations after posting 2Q EPS ex-items of $0.32, above the $0.25 estimate, and revenues of $1.0 billion, which matched what the Street was projecting. The graphic chip maker said consumer demand for notebooks drove 2Q revenue growth of 5.7% compared to 1Q.

Retail sales rise, reads on consumer sentiment and business inventories set to come

Advance retail sales for July increased 0.5% month-over-month (m/m), matching the growth that was forecasted by economists surveyed by Bloomberg, and June’s 0.1% gain was revised to a rise of 0.3%. July sales ex-autos were higher by 0.5% m/m, exceeding the 0.3% increase that was anticipated, and June’s flat reading was revised to a 0.2% gain. Sales ex-autos and gas rose 0.3% m/m in July, versus the 0.2% growth that was anticipated, and its June figure was revised from a 0.2% increase to a rise of 0.5%.

Treasuries remain mostly higher in morning action despite the data, with the yield on the 2-year note unchanged at 0.19%, while the yield on the 10-year note is 5 bps lower at 2.29%, and the 30-year bond is losing 3 bps to 3.76%.

Bond yields have moved solidly lower this week amid some heightened flight-to-safety buying despite last Friday’s downgrade by Standard & Poor’s of the US’ credit rating, as eurozone contagion fears ramped up and concerns about a double-dip recession grew. Also, yields found pressure as the Federal Reserve concluded its monetary policy meeting this week by noting that economic growth so far this year has been “considerably slower” than expected, while also saying it anticipates “exceptionally low levels for the fed funds rate at least through mid-2013.” 

Later this morning, the US economic calendar will yield the releases of the preliminary University of Michigan’s Consumer Sentiment Index, expected to decline modestly in August from 63.7 in July to 62.0, and business inventories, which are projected to increase 0.5% m/m in June, after rising 1.0% in May.

Europe solidly higher as short-selling ban outweighs data

The equity markets in Europe are nicely higher in afternoon action, led by solid gains in financials following the announcement of a short-selling ban on financials issues in France, Italy, Spain and Belgium. Also, the US retail sales data helped extend the advance for stocks. French and Italian banks have tumbled this week on exacerbated worries about the eurozone debt contagion and rumors of financial problems in France, including concerns the country may lose its AAA-credit rating. The financials-fueled rally across the pond is overshadowing some disappointing economic data, highlighted by a report that France’s 2Q GDP was flat quarter-over-quarter (q/q), compared to economists’ forecasts of a 0.3% rate of growth. The lack of growth in France was attributed to a drop in consumer spending. Also, a separate report showed eurozone industrial production unexpectedly fell m/m in June, and growth was much smaller than anticipated y/y. In other European economic news, French consumer prices fell more than expected in m/m in July, while Italy’s trade deficit narrowed.

The UK FTSE 100 Index is 2.2% higher, France’s CAC-40 Index is gaining 2.8%, Germany’s DAX Index is rising 3.4%, Italy’s FTSE MIB Index is advancing 3.2%, and Spain’s IBEX 35 Index is up 3.1%.

Asia mixed to end volatile week

Stocks in Asia finished mixed to close out a wild week for the global equity markets, following the sharp rebounds in the US and European equity markets yesterday. Traders lacked conviction heading into the weekend amid the festering eurozone contagion concerns and growing uneasiness regarding the global economy. Japan’s Nikkei 225 Index dipped 0.2% as the exporters found some pressure due to the recent strength in the Japanese yen as risk aversion escalated, while a report showed the nation’s industrial production was revised slightly lower for June. However, shares of Canon Inc. (CAJ $46) moved nicely to the upside to limit losses in the region after the camera maker announced a share repurchase plan. Elsewhere, South Korea’s Kospi Index fell 1.3% amid weakness in auto and chemical issues, while Australia’s S&P/ASX 200 Index rose 0.8%, aided by mining stocks, but it pared an earlier advance in late-day action as financials trimmed gains.

Meanwhile, stocks in China finished modestly higher, with the Hong Kong Hang Seng Index rising 0.1% and the Shanghai Composite Index gaining 0.5%, following reports that showed growth in Chinese yuan loans slowed, rising by an amount that missed economists’ forecasts. After the closing bell, Hong Kong announced that its 2Q GDP unexpectedly contracted q/q and grew at a slower pace than expected compared to last year. Finally, India’s BSE Sensex 30 Index fell 1.3% on the heels of data that showed the nation’s industrial production rose much more than expected in June, despite the government’s recent rate increases aimed at cooling inflation.