Morning Update

Another Subdued Start to a Session

Amid the continued absence of major market moving data, stocks are nearly unchanged again to start the trading day as traders continue to wait for signals pointing to the next leg of the economic cycle. Treasuries are modestly lower in morning trading, following a tick higher in mortgage applications and ahead of the release of wholesale inventories. Equity news is light to add to the lackluster action, with American Eagle Outfitters posting earnings that matched expectations, while the US Food and Drug Administration expanded the approved use of Allergan Inc’s Botox treatment. Overseas, Asia finished mixed after strong Chinese trading data, while Europe is modestly higher amid a plethora of industrial and manufacturing reports.

As of 8:46 a.m. ET, the March S&P 500 Index Globex future is at fair value, the Nasdaq 100 Index is 1 point above fair value, and the DJIA is 5 points above fair value. Crude oil is up $0.06 at $81.55 per barrel, and the Bloomberg gold spot price is up $0.64 at $1,122.48 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.1% to 80.66.

American Eagle Outfitters (AEO $17) reported 4Q EPS ex-items of $0.33, inline with the consensus estimate of Wall Street analysts, with revenues increasing 7% year-over-year (y/y) to $972 million, compared to the $969 million that the Street had anticipated. The retailer said its same-store sales—sales at stores open at least a year—rose 5% y/y, after posting a 15% y/y decline in the same period a year ago. The company said its gross margin rose by 600 basis points, primarily due to lower markdowns. AEO expects 1Q EPS ex-items to be in a range of $0.15-0.17, compared to the $0.15 that analysts are forecasting.

Shares of Allergan Inc. (AGN $61) are higher in morning trading after the US Food and Drug Administration approved the use of the company’s Botox treatment for spasticity in the flexor muscles of the elbow, wrist and fingers in adults.

Economic calendar yields its first piece of data this week

The US MBA Mortgage Application Index inched 0.5% higher last week, after the index, which can be quite volatile on a week-to-week basis, advanced 14.6% in the previous week. The increase came as the 1.5% decline in the Refinance Index was offset by a 5.7% increase in the Purchase Index. The slight advance in the overall index came despite a 6 basis-point increase in the average 30-year mortgage rate, which rose to 5.01% and remains above the record low of 4.61% that was reached at the end of March 2009.

Treasuries are lower in morning action following the housing data and ahead of the morning release of wholesale inventories, forecasted to increase 0.2% in January, after falling 0.8% in December.

Europe modestly higher amid a flood of data

Stocks in Europe are slightly higher in afternoon action as strength in basic materials, which received a lift from stronger-than-expected trade data out of China, is offsetting some weakness among healthcare issues. Traders are also grappling with a slew of manufacturing and industrial production data across the pond, headlined by reports out the UK. UK manufacturing production fell 0.9% month-over-month (m/m) in January, versus the 0.2% gain that economists expected, and its industrial production fell 0.4% m/m in January, compared to the 0.3% increase that was forecasted. Moreover, trade data out of Germany—Europe’s largest economy—are also in focus, with the German trade surplus and current account balance both coming in below expectations, as exports fell 6.3% m/m in January, which was the largest drop in year, versus the expectation that exports would rise 0.5%, offsetting a larger-than-expected increase in its imports. Meanwhile, French industrial and manufacturing production both rose by amounts that topped forecasts, and Italian industrial production also advanced by a larger amount than anticipated. In other economic news, the German Consumer Price Index was unexpectedly revised higher and Italy’s 4Q GDP was revised to a larger contraction than expected.

Britain’s FTSE 100 Index is 0.1% higher, France’s CAC-40 Index is up 0.4%, Germany’s DAX Index is advancing 0.2%, and Italy’s FTSE MIB Index is trading 0.3% in the green.

Asia mixed on data

Stocks in Asia were mixed as traders mulled some divergent data in the region, while also being hamstrung by the global lack of conviction that has led to several sessions of subdued action recently. Japan’s Nikkei 225 Index, Australia’s S&P/ASX 200 Index, and Hong Kong’s Hang Seng Index all finished near the unchanged mark, while South Korea’s Kospi and Taiwan’s Taiex Indexes both eked out modest 0.1% gains, illustrating the lackluster backdrop in the region. However, one market that showed some decisiveness in either direction was China’s Shanghai Composite Index declining 0.7% on the heels of increased worries that the government may deploy further measures to follow through on its pledge to control excess liquidity and prevent the formation of asset bubbles after better-than-expected trade data was released today. A report showed China’s trade surplus came in at a larger amount than economists expected in February, with exports jumping 45.7% year-over-year (y/y), compared to the 38.3% advance that was forecast, and imports surging 44.7% y/y, versus the 38% gain that was expected. The data will likely draw some scrutiny toward the lack of appreciation of the Chinese yuan, which remains pegged to the dollar, and China’s central bank has hinted toward the possibility of letting the nation’s currency appreciate versus the dollar as it exits some of its policies for dealing with the global financial crisis.

In other economic news, Japanese machine orders fell 3.7% m/m in January, a larger decline than the 3.5% drop that was anticipated, while separate reports showed Australian consumer confidence increased for March, but home loans in the nation unexpectedly fell in January. Elsewhere, Thailand’s central bank kept its benchmark interest rate unchanged at 1.25%. Thailand’s Stock Exchange of Thai and India’s BSE Sensex 30 Indexes both advanced 0.3%, to round out the day in Asia. There was one equity story worth a mention, as China Mobile (CHL $48) agreed to purchase a 20% stake in Shanghai Pudong Development Bank Co. for about $5.8 billion, aimed at boosting its electronic-payment business.