Morning Update

Modest Gains as Data is Weighed

The US equity markets are slightly above the flatline in morning action, as traders are digesting Dow member JPMorgan Chase’s 2Q profit report, which appeared to top analysts’ forecasts, along with a plethora of reports from the US economic docket. Treasuries are lower in early trading after weekly initial jobless claims fell more than expected and producer prices continue to be subdued, while a reading of manufacturing activity in New York fell by a much larger-than-anticipated amount for July. In other equity news, nutritional supplement firm NBTY Inc agreed to be acquired by private-equity firm Carlyle Group in a transaction valued at $3.8 billion, and Marriott International Inc posted profits that exceeded the Street’s forecasts. Overseas, Asian markets declined after a smaller-than-expected expansion in the Chinese economy, which highlighted a heavy dose of data out of the region, while European markets are moving modestly higher on easing euro-area debt concerns.

As of 8:52 a.m. ET, the September S&P 500 Index Globex future is 1 point above fair value, the Nasdaq 100 Index is 2 points above fair value, while the DJIA is 7 points above fair value. Crude oil is up $0.43 at $77.47 per barrel, and the Bloomberg gold spot price is up $5.08 at $1,213.38 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.7% at 82.79.

JPMorgan Chase & Co. (JPM $40) reported 2Q EPS of $1.09, compared to the $0.71 Reuters estimate, but it was unclear if analysts had forecasted items such as a reduction in loan loss reserves ($0.36 per share benefit) and a $0.14 per share charge for a UK bonus tax, which JPM said were included in its results. Revenues declined 7.5% to $25.6 billion, roughly inline with the Street’s forecast.

In M&A news, nutritional supplement firm NBTY Inc. (NTY $37) announced that it has reached an agreement to be acquired by private-equity firm Carlyle Group in a transaction valued at $3.8 billion. Carlyle will acquire all the outstanding common stock of NBTY for $55.00 per share.

Marriott International Inc. (MAR $32) reported 2Q EPS of $0.31, two cents above the consensus estimate, with revenues increasing 8% to $2.77 billion, which roughly matched expectations.

Jobless claims drop, producer prices subdued, NY manufacturing falls, more data on tap

Weekly initial jobless claims dropped 29,000 to 429,000, versus last week's figure which was upwardly revised by 4,000 to 458,000, and compared to the consensus estimate of economists surveyed by Bloomberg, which called for claims to decrease to 445,000. The four-week moving average, considered a smoother look at the trend in claims, declined by 11,750 to 455,250, and continuing claims increased by 247,000 to 4,681,000, compared to the increase to 4,447,000 that was anticipated by economists surveyed by Bloomberg.

Meanwhile, the Producer Price Index showed prices at the wholesale level fell 0.5% month-over-month (m/m) in June, after decreasing 0.3% in May. The average economist forecast called for prices to fall by 0.1%. Meanwhile, the core rate, which excludes food and energy, rose 0.1% m/m, matching the forecast of economists. On a year-over-year basis, headline producer prices were 2.8% higher, and the core rate was up 1.1%.

Elsewhere, the Empire Manufacturing Index, a measure of manufacturing in the New York region, fell in July to a level of 5.08, well below the estimates of economists surveyed by Bloomberg, which expected a decrease to 18.00, from the previous month’s level of 19.57. However, the index remains above the level of zero that suggests conditions are neither contracting nor expanding. The report is the first major piece of data looking at manufacturing conditions in July, and later this morning, the Philly Fed Manufacturing Index will be released, expected to increase from 8.0 in June to 10.0 in the current month, providing further insight into the health of the sector.

Additionally, industrial production will be released later this morning, expected fall 0.1% in June after rising an upwardly revised 1.3% in May, and capacity utilization is forecasted to come in at 74.1% in June after being downwardly revised to 74.1% in May.

Treasuries are lower, modestly adding to losses following the employment, inflation, and manufacturing reports.

Europe modestly higher after overcoming early losses

Stocks in Europe are slightly higher in afternoon action, finding some support from JPMorgan Chase’s earnings report and easing euro-area debt crisis concerns following a debt auction in Spain and a report of some interbank investments in Greece. Spain sold 3 billion euros ($3.8 billion) in 15-year bonds, which came at the top end of the government’s target range, adding to the list of relatively successful debt auctions recently in other debt-laden nations such as Portugal, Greece, and Italy. Also on the euro-area debt front, Greek bank Piraeus Bank (BPIRY $6) offered to purchase stakes in two other area banking firms for about 700 million euros ($897 million), boosting some optimism about consolidation in the group and helping soothe some concerns about the health of the financial sector in the region. In other equity news across the pond, GlaxoSmithKline Plc. (GSK $36) is nicely higher after a US panel of advisors yesterday voted to keep the drugmaker’s diabetes drug Avandia on the market but with stronger warnings about the risks related to the heart. Separately, GSK said it expects to record a 1.57 billion pound ($2.4 billion) charge in 2Q associated with settling cases involving its diabetes drug.

Meanwhile, the European economic calendar is relatively light, with Ireland’s producer prices increasing in May from the previous month, Greece’s unemployment rate increasing from 11.6% to 11.9%, as expected, and Sweden’s average home prices declined in June.

The UK FTSE 100 Index is 0.1% higher, France’s CAC-40 Index is up 0.4%, Germany’s DAX Index is gaining 0.3%, Sweden’s Swiss Market Index is increasing 0.3%, and Greece’s Athex Composite Index is jumping 2.9%, while Ireland’s Irish Overall Index is declining 0.3%.

Momentum stalls in Asia as traders mull economic growth

Stocks in Asia were lower as traders pondered the recent strength in the global equity markets and the prospects for further economic growth, following economic data in Japan and China, which came on the heels of the US Federal Reserve’s minutes, which gave some clarity on its downgraded assessment of the outlook for the economy. Chinese stocks finished lower, with the Shanghai Composite Index falling 1.9% and Hong Kong’s Hang Seng Index dropping 1.5%, in reaction to the release of the nation’s 2Q GDP, which showed a deceleration in growth for the economy that has paced the global economy’s recovery from the recession. China’s economy expanded 10.3% year-over-year (y/y), after growing by 11.9% y/y in 1Q, and compared to the 10.5% expansion that economists had expected.

Meanwhile, there were several other major economic reports released on China that also garnered attention, with producer and consumer prices both rising by smaller-than-forecasted amounts, retail sales and industrial production growing at rates below expectations, while urban investment in fixed assets increased by a larger-than anticipated amount and the Conference Board’s leading economic indicators for China improved from the previous month’s reading.

In other economic news, the Bank of Japan announced that it kept its benchmark interest rate unchanged at 0.1%, as expected, while increasing its current-year economic growth forecast but the BoJ reduced its growth outlook for the following year. Japan’s Nikkei 225 Index fell 1.1% on the report and the plethora of data released in China. Elsewhere, South Korea’s Kospi Index and Australia’s S&P/ASX 200 Index both declined 0.4%, while Taiwan’s Taiex Index and India’s BSE Sensex 30 Index both dipped 0.1%.