Morning Market Update

Rally Stalls Following Disappointing China Trade Data   

Despite a slightly smaller-than-forecasted read on US jobless claims and a roughly inline report on our nation’s trade deficit, stocks are under pressure following the recent rally as of late. The upward momentum has hit a snag on the slowest pace of export growth in China in seven months, fostering concerns about a hard landing for the Chinese economy and dampening the global economic outlook. Treasuries are higher in early action despite the US employment data. Meanwhile, traders are digesting the 3Q earnings report from Dow member JPMorgan Chase & Co, which saw revenues top expectations but its earnings were boosted by a sizeable gain due to a valuation adjustment. Overseas, Europe is under pressure amid the aforementioned China trade data, while Asian stocks managed to gain ground.

As of 8:50 a.m. ET, the December S&P 500 Index Globex future is 9 points below fair value, the Nasdaq 100 Index is 7 points below fair value, and the DJIA is 62 points below fair value. WTI crude oil is declining $1.09 to $84.48 per barrel, and the Bloomberg gold spot price is down $8.98 at $1,667.32 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.2% at 77.22.

Dow member JPMorgan Chase & Co. (JPM $33) reported 3Q earnings of $1.02 per share, above the $0.91 consensus estimate of analysts surveyed by Reuters, but it was unclear whether analysts had factored in a large gain from a valuation adjustment. However, although revenues were roughly flat year-over-year (y/y) at $24.4 billion, the figure topped the $23.4 billion that the Street had forecasted. The company said mortgage net charge-offs—the amount of loans that the company does not expect to be repaid—“improved slightly but remained at extremely high levels,” and it expects mortgage credit losses to “remain elevated.” On its credit card portfolio, JPM noted that the net charge-off rate improved and its total credit reserves remained relatively flat quarter-over quarter (q/q).

Elsewhere, the company said its investment banking revenues were “down substantially,” excluding a favorable valuation adjustment, its retail financial services demonstrated good underlying performance, and its consumer and business banking segment posted solid revenue. Also, JPM said its private equity results were negatively affected by market conditions, while its tier 1 common equity ratio was 9.9%, versus 10.1% in 2Q, but above the 9.5% in the same period last year.

Jobless claims tick lower, trade deficit roughly inline with forecasts

Weekly initial jobless claims dipped by 1,000 to 404,000 last week, after the previous week’s figure was upwardly revised by 4,000 to 405,000, and just below the 405,000 level that economists surveyed by Bloomberg had expected. However, the four-week moving average, considered a smoother look at the trend in claims, fell by 7,000 to 408,000, and continuing claims dropped by 55,000 to 3,670,000, below the forecast of economists, which called for a 3,710,000 reading.

Meanwhile, the trade deficit remained at $45.6 billion in August after July’s $44.8 billion was revised higher, versus the estimate of economists, which called for the deficit to come in at $45.8 billion. Exports dipped by 0.1% month-over-month, while imports were nearly unchanged compared to the previous month.

Treasuries remain higher in morning action following the data, with the yield on the 2-year note down 1 bp to 0.28%, the yield on the 10-year note 3 bps lower at 2.18%, and the 30-year bond rate declining 2 bps to 3.17%.

Chinese trade data and retailer report stymieing recent momentum

After posting a string of strong gains on growing optimism about a eurozone plan to fight the festering debt crisis, the equity markets in Europe are under pressure in afternoon action. The pressure on stocks follows a smaller-than-forecasted increase in Chinese exports for September—the slowest pace in seven months—fostering some concern about a hard landing for China’s economy. Also, shares of Carrefour SA (CRERF $24) are solidly lower to weigh on the equity markets after Europe’s largest retailer issued a profit warning due to the slowing growth in the region. However, shares of Alcatel-Lucent (ALU $3) are sharply higher after the Financial Times reported that the telecommunications equipment maker has agreed to sell its corporate call center services business for as much as $1.5 billion, though the company declined to comment on the report.

In economic news, German consumer prices for September were unrevised as expected from the preliminary report, while the UK trade deficit came in much smaller than economists had forecasted in August after a large favorable revision to the previous month’s figure.

The UK FTSE 100 Index is down 1.0%, France’s CAC-40 Index is declining 1.1%, Germany’s DAX Index is falling 1.2%, and Switzerland’s Swiss Market Index is decreasing 0.9%.

Asia higher on European optimism

Stocks in Asia finished to the upside following the gains in Europe and the US yesterday amid some favorable manufacturing data in the eurozone and optimism toward the containment of the European debt crisis. Japan’s Nikkei 225 Index rose 1.0%, aided by some strength in chipmakers following ASML Holding’s (ASML $39) upbeat earnings report yesterday in Europe and export-related issues amid the aforementioned optimism. Meanwhile, Chinese stocks continued to show some strength, with the Shanghai Composite Index gaining 0.8% and the Hong Kong Hang Seng Index rising 2.3%, as property stocks advanced amid upbeat contract sales results out of the sector and continued optimism about recent reports of government support for companies in the region. The gains in China came despite a report showing the country’s trade surplus shrank more than expected in September as exports increased at a smaller rate than economists forecasted.

Elsewhere, Australia’s S&P/ASX 200 Index gained 1.0% following a report that showed the nation’s employment change rose by about twice the amount that was anticipated for September, bringing the unemployment rate down to 5.2% from 5.3%, where it was expected to remain. Finally, South Korea’s Kospi Index advanced 0.8%, led by banks and airlines, while the Bank of Korea left its benchmark interest rate unchanged at 3.25% as expected.