Morning Market Update

US Data Helps Get the Bulls Running Again   

After a sluggish session yesterday, US stocks are moving higher in early action, aided by a strong earnings report from Google Inc, which was complimented by a better-than-expected read on US retail sales in September. Meanwhile, European equities are gaining ground to help boost sentiment despite a downgrade of Spain by Standard & Poor’s and a ratings cut by Fitch Ratings on UBS, as it also put several US and European banks on watch for a possible downgrade. Treasuries are mostly lower following the data, which also included hotter-than-forecasted import price figures, ahead of reads on consumer sentiment and business inventories. In other equity news, Mattel Inc posted 3Q results that were inline with forecasts, while boosting its share repurchase program. Elsewhere overseas, Asian stocks finished mostly lower on the heels of the aforementioned sluggishness in the US yesterday, and after some inflation data out of China, which remained elevated. 

As of 8:48 a.m. ET, the December S&P 500 Index Globex future is 12 points above fair value, the Nasdaq 100 Index is 28 points above fair value, and the DJIA is 99 points above fair value. WTI crude oil is gaining $2.15 to $86.38 per barrel, and the Bloomberg gold spot price is up $11.45 at $1,679.50 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.3% at 76.85.

Google Inc . (GOOG $559) reported 3Q EPS ex-items of $9.72, above the $8.74 consensus estimate of analysts surveyed by Reuters, with revenues increasing 3% year-over-year (y/y) to $7.5 billion, exceeding the $7.2 billion that the Street had forecasted. The world’s largest internet search engine said its Google sites revenues—which account for 69% of the total—rose 39% y/y, while Google network revenues increased 18% y/y. The company’s “paid clicks” increased 28% y/y, while its cost-per-click rose 5% compared to the same period a year ago.

Mattel Inc . (MAT $28) posted 3Q earnings of $0.86 per share, inline with the Street’s forecast, while revenues rose 9% y/y to $2.0 billion, also roughly matching analysts’ forecasts. The toy company said it continued to benefit from the strength of its core brands—Barbie, Hot Wheels, Fisher-Price, and American Girl—but this year’s Cars 2 entertainment property also fueled momentum, and domestic gross sales rose 6%, while international sales gained 13%. MAT also announced that it plans to increase its share repurchase program by $500 million.

Retail sales rise solidly, while import prices gain, more data on tap

Advance retail sales for September rose 1.1% month-over-month (m/m), compared to the 0.7% growth that was forecasted by economists surveyed by Bloomberg, and August’s flat reading was revised to a gain of 0.3%. September sales ex-autos were higher by 0.6% m/m, above the 0.3% increase that was anticipated, and August’s 0.1% gain was revised to a 0.5% rise. Sales ex-autos and gas increased 0.5% m/m in September, versus the 0.4% growth that was anticipated, and its August figure was revised from a 0.1% increase to a gain of 0.5%.

Elsewhere, the Import Price Index unexpectedly rose, increasing 0.3% m/m for September, compared to the expectation of economists, which projected a 0.4% decline for the index. The drop follows a 0.2% decline seen in August, which was revised from a 0.4% decrease. Year-over-year, import prices are higher by 13.4%, versus the 12.4% forecast of economists, and the unrevised 13.0% gain that was posted in August.

Treasuries are mostly lower in morning action following the data, with the yield on the 2-year note flat at 0.28%, while the yield on the 10-year note is gaining 6 bps to 2.24%, and the 30-year bond rate is advancing 8 bps to 3.23%.

Later this morning, the US economic calendar will yield the releases of the preliminary University of Michigan Consumer Sentiment Index, expected to improve modestly from 59.4 in September to 60.2 for October, as well as business inventories, forecasted to increase 0.4% m/m for August.

Europe gaining ground despite bank and Spain downgrade

The equity markets in Europe are moving higher in afternoon action, led by technology issues on the heels of Google Inc’s better-than-forecasted profit report, while growing optimism about the eurozone’s ability to combat the region’s debt crisis continues to support sentiment. As the G-20 group of finance ministers and central bank heads of the world’s leading economies meet in Paris today, Bloomberg is reporting that policymakers have discussed expanding the IMF’s firepower ahead of an EU summit on October 23, which is boosting confidence regarding the containment of the eurozone’s debt crisis. The advance across the pond comes even as Spain had its credit rating downgraded by Standard & Poor’s, due to slowing growth and the threat that has emerged for the banking sector. Also, stocks are showing some resiliency in the face of Fitch Ratings downgrading UBS’ (UBS $12) credit rating, while placing several European and US banks on watch. Moreover, Italy’s Prime Minister Burlusconi is reported to have won enough votes in the first round of balloting to survive a confidence vote in parliament today, per Bloomberg, which is lifting Italian stocks.

On the economic front, eurozone core consumer prices came in slightly hotter than expected for September, while the headline figure matched expectations, and the eurozone’s trade balance swung to a smaller-than-forecasted deficit for August.

The UK FTSE 100 Index, France’s CAC-40 Index, Germany’s DAX Index, and Switzerland’s Swiss Market Index are rising 1.4%, Italy’s FTSE MIB Index is trading 2.4% higher, and Spain’s IBEX 35 Index is up 0.4%.

Asia mostly lower following recent gains and Chinese data

Stocks in Asia finished mostly to the downside in the final trading session of the week following the recent gains seen in the region, as traders digested some inflation data out of China. Also, a credit downgrade of Spain and Europe’s UBS, as well as yesterday’s lackluster earnings report from US Dow member JPMorgan Chase & Co. (JPM $31), dampened sentiment. Chinese stocks found some pressure, with the Hong Kong Hang Seng Index falling 1.4% and the Shanghai Composite Index declining 0.3%. China reported that consumer prices decelerated from 6.2% y/y in August to 6.1% in September, as expected, but inflationary pressures remained well above the government’s target of 4%, per Bloomberg, exacerbating concerns that the government will continue to aggressively fight inflation, while ignoring economic growth implications. However, China’s producer prices cooled more than anticipated, falling from a 7.3% y/y rate in August to 6.5% for September, versus the 6.9% rate that economists had expected. Moreover, China’s new yuan loans unexpectedly declined m/m, gaining by 470 billion in September versus 548.5 billion in August, compared to the increase of 550 billion that was projected.

Elsewhere, Japan’s Nikkei 225 Index declined 0.9% after reaching a one-month high this week, amid the aforementioned data out of China, as well as the US and Europe, while shares of Olympus Corp. (OCPNY $32) fell sharply after the company announced that it ousted its CEO. Meanwhile, Australia’s S&P/ASX 200 Index decreased 0.9% amid some weakness in materials and resource-related stocks, while South Korea’s Kospi Index showed some resiliency, overcoming early weakness to finish 0.7% higher, led by telecommunications issues.