Morning Update

China’s Surprising Reserve Rate Rise, Points to Bulls’ Demise

After getting some clarity on whether Eurozone leaders will provide support to help the deficit problems in Greece, stocks are under pressure in morning action following a surprise rate hike out of China, which is dampening optimism about the global economic recovery. The uneasiness following China’s actions is overshadowing a larger-than-expected rise in US retail sales in January. Treasuries are higher as the equity markets slide, and ahead of reports on consumer sentiment and business inventories. In equity news, Agilent Technologies topped the Street’s profit expectations, while Ingersoll-Rand missed analysts’ earnings forecasts. Overseas, Asia was higher before China’s announcement, and Europe has pared early gains following the news out of China.

As of 8:51 a.m. ET, the March S&P 500 Index Globex future is 5 points below fair value, the Nasdaq 100 Index is 9 points below fair value, and the DJIA is 52 points below fair value. Crude oil is down $1.15 at $74.13 per barrel, and the Bloomberg gold spot price is lower by $7.55 at $1,087.85 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.6% at 80.49.

Agilent Technologies (A $29) reported fiscal 1Q EPS ex-items of $0.38, above the $0.32 that Wall Street analysts were expecting, with revenues growing 4% year-over-year (y/y) to $1.2 billion, matching the Street’s forecast. The company said the economic momentum that it began to see late-last year continued in its 1Q, orders for its electronic measurement were up 8% y/y, with solid demand from industrial, computer, and semiconductor groups. The company said it expects 2Q EPS ex-items to be between $0.38-0.42, and full-year EPS to be in a range of $1.65-1.70, compared to the $0.35 that analysts are forecasting for 2Q and the $1.73 that they are expecting for the full year.

Ingersoll-Rand (IR $34) announced 4Q EPS ex-items of $0.48, short of the $0.53 that the Street were expecting, with revenues falling 10% y/y to $3.3 billion, which was inline with the consensus estimate of analysts. The air conditioning and climate control technology firm said while it continued to see challenges in some of its major end markets, it is also beginning to see improvement in markets that lead the recovery. The company said it expects full-year 2010 EPS ex-items to be between $2.20-2.60 on revenues in a range of $13.5-13.8 billion, compared to the Street’s forecasts of EPS of $2.30 and $13.5 billion for 2010.

Retail sales rise more than expected

Advance retail sales for January rose 0.5%, compared to the Bloomberg forecast of an increase of 0.3%, while December’s 0.3% decrease was revised to a 0.1% decline. Sales ex-autos increased 0.6%, versus the expectation of an increase of 0.5%.Treasuries are higher following the report.

Later this morning, the economic calendar will yield the preliminary University of Michigan’s Consumer Sentiment Index for February, expected to improve to 75.0 from the 74.4 in January, along with business inventories, which are expected to show stockpiles rose 0.2% in December, following the 0.4% increase that was seen in November.

Early gains wane as China tries to pull lending reins

Stocks in Europe are modestly higher in afternoon action, paring early gains amid weakness in financials, materials, and industrials issues, in reaction to China’s surprising efforts to rein in excess liquidity. Early gains came as traders digested a plethora of economic reports in the region and in the wake of yesterday’s pledge by the European Commission to stand behind Greece to help the debt-laden nation try to overcome its deficit problems. Also the International Monetary Fund joined the EC in lending support saying, “We stand willing and able to support Greece in ways that the Greek authorities think is appropriate,” per Reuters.

There were a slew of 4Q GDP reports that came out across the pond, headlined by the Eurozone’s report, which showed output in the 16-nation group rose 0.1% quarter-over-quarter (q/q), short of the 0.3% expansion that economists had expected. Other GDP reports showed output in Germany—Europe’s largest economy—came in flat q/q, compared to the 0.2% that was expected. Moreover, France’s GDP came in higher than expected, while Greece’s output contracted further. In other economic news, Eurozone industrial production unexpectedly fell month-over-month (m/m) in December and Spain’s consumer prices fell 1.0% m/m in January.

Britain’s FTSE 100 and France’s CAC-40 Indexes are flat and Germany’s DAX Index is 0.4% higher. Meanwhile, Spain’s IBEX 35 Index is declining 0.3%, and Greece’s Athex Composite Index is 2.4% in the red.

Asia mostly higher but China surprises after the closing bell

Stocks in Asia were mostly higher on the heels of the Eurozone’s pledge to provide some form of support for Greece’s deficit problems, favorable employment data in the US, and stronger-than-expected loan growth in China. The Nikkei 225 Index increased 1.3%, aided by a report that showed an increase in consumer confidence in January, while China’s Shanghai Composite Index rose 1.1% in the final trading session ahead of a week-long holiday in the nation. However, Hong Kong’s Hang Seng Index declined 0.1% and South Korea’s Kospi Index decreased 0.3% to limit the overall advance in Asia. In other economic news in the region, New Zealand reported an unexpected flat reading of retail sales m/m in December, but its NZX 50 Index managed to gain 0.5%, outpacing its neighbor Australia, as its S&P/ASX 200 Index rose 0.2%. The other economic report that came out during trading hours was a report that showed India’s industrial production rose 16.8% y/y in December—the fastest pace in 16 years per Bloomberg—compared to the 12.4% increase that was expected, but India’s markets were closed today. Markets in Taiwan were also closed today.

However, the biggest story in the Asia/Pacific region came after the markets closed, when China unexpectedly increased the bank reserve requirement—the amount of funds that institutions must set aside instead of lending out—by another 50 basis points (0.50%) effective February 25th, taking the total percentage that the country’s biggest banks must put in reserve up to 16.5%. The move comes before the long holiday in China and is the second increase in a month, which was surprising to some who did not expect the increase so soon. The People’s Bank of China has pledged to rein in excess liquidity recently to avoid an overheating of the economy and the formation of asset bubbles, but following yesterday’s smaller-than-expected rise in inflation in China, expectations that more actions from the Chinese central bank were tempered somewhat. However, yesterday did show that new yuan loans grew more than expected, which may have prompted the decision. The last reserve increase came on January 12th, which marked the first time it had increased the rate since 2008, according to Bloomberg.