Morning Market Update

Global Reports Trying to Get Rally Back on Track

The global equity markets are nicely higher to begin the new week and month, with positive reactions to mixed manufacturing data in China teaming up with favorable earnings and manufacturing reports in Europe to boost stocks in early action. Treasuries are lower as a result of the upbeat mood, but a key reading on US manufacturing and a speech from Federal Reserve Chairman Ben Bernanke loom on the horizon. Also, traders may be treading lightly ahead of Friday’s US labor report, which could be amplifying early moves. US equity news is light, with Humana Inc posting profits that exceeded expectations, while MetLife Inc announced capital raising efforts to help fund its acquisition of an AIG unit. Overseas, Asia moved nicely higher, while Europe is posting solid gains.

As of 8:54 a.m. ET, the September S&P 500 Index Globex future is 13 points above fair value, the Nasdaq 100 Index is 20 points above fair value, while the DJIA is 104 points above fair value. Crude oil is up $1.49 at $80.44 per barrel, and the Bloomberg gold spot price is up $0.10 at $1,181.10 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.3% at 81.28.

Humana Inc. (HUM $47) reported 2Q EPS of $2.00, well above the $1.68 Reuters estimate, with revenues increasing 9.5% year-over-year (y/y) to $8.7 billion, above the $8.6 billion that the Street had expected. The health benefits company said it benefitted from strength in both its commercial and government segments and its benefit ratio—a key industry metric that measures medical costs—was unchanged y/y. Shares are higher after the results, which also included the company raising its full-year EPS outlook.

In related industry news, MetLife Inc. (MET $42) announced that it will offer 75 million shares of common stock to the public to help finance the $6.8 billion cash portion of the purchase price for its previously announced acquisition of American Life Insurance Company from American International Group, Inc. (AIG $38). Additionally, MET said it plans to offer $3 billion in senior debt to help fund the cash portion of the deal.

US manufacturing data set to add to plethora of global reports

Treasuries are lower in morning action as global economic sentiment is riding high ahead of a busy week for the US economic calendar, which will begin shortly after the opening bell, with the release of the ISM Manufacturing Index, forecasted to decline from 56.2 in June to 54.0 in July, posting the twelfth-consecutive month of expansion, as depicted by a reading above 50. Meanwhile, the compliment to today’s manufacturing report will come on Wednesday in the form of the ISM Non-Manufacturing Index, and the gauge of service sector activity is forecasted to dip from 53.8 in June to 53.0 in July—the seventh-consecutive month of expansion. The ISM reports, especially manufacturing data, have maintained that although growth has slowed, it is not contracting.

Also, construction spending will be released this morning, expected to decline 0.5% in June following the 0.2% decline that was seen in May.

For the week, however, the headlining event will likely come on the final day with the release of the labor report, which is expected to show nonfarm payrolls were 60,000 jobs lighter in July, and the unemployment rate increased from 9.5% in June to 9.6% in July. But, given the noise from the government’s temporary hiring for the 2010 Census, the change in private sector payrolls—forecasted to increase by 90,000 jobs—may be the report that garners the most attention. The employment situation, along with housing, are pistons of the economic engine that have yet to fire, and any hint of stronger-than-forecasted job growth could help solidify arguments that the economy continues down the recovery path offering further support to the equity markets.

Other US reports due out this week include: personal income and spending, factory orders, pending home sales, MBA mortgage applications, ADP employment change, weekly initial jobless claims, and consumer credit.

Data driving solid advance in Europe

Stocks in Europe are nicely higher in afternoon trading, with basic materials leading the way on a plethora of favorable manufacturing reports in the region, which followed a positive reaction to a mixed manufacturing read in China. Reports of PMI Manufacturing across the pond highlighted the economic calendar, with euro-zone activity being revised further into expansionary territory than originally reported for July, and UK manufacturing expanded by an amount that exceeded economists’ forecasts, while manufacturing activity in Germany—Europe’s largest economy—remained at a level depicting solid expansion. Other favorable manufacturing reports in the area included readings from Sweden, France, and Spain, while Italy’s release came in just below expectations, but still showed the expansion in the sector accelerated.

Financials are also leading the charge in Europe, with HSBC Holdings Plc. (HBC $51) posting a respectable advance after Europe’s largest bank, per Bloomberg, easily topped analysts’ profit projections, aided by falling charges for bad loans and a return to profit for its North American unit. Also, a solid gain in shares of BNP Paribas SA (BNPQY $34) is supporting the strength in the financial sector, after France’s largest lender by market capitalization reported 2Q earnings that blew away expectations, as lower provisions for loan losses fell to help boost the firm’s bottomline.

The UK FTSE 100 Index is up 1.9%, France’s CAC-40 Index is 2.1% higher, Germany’s DAX Index is gaining 1.7%, Italy’s FTSE MIB Index is advancing 1.3%, Spain’s IBEX 35 Index is rising 2.0%, and Sweden’s OMX Stockholm 30 Index is increasing 1.7%.

Asia higher despite slower China manufacturing growth

Stocks in Asia were broadly higher with Chinese stocks posting solid gains even after a report that showed the nation’s manufacturing activity slowed in July. The PMI Manufacturing Index decelerated from 52.1 in June to 51.2 in July, compared to the 51.4 reading that economists had expected. A reading above 50 depicts expansion and traders cheered the fact that the sector continued to grow and that the slower rate may keep the government from tightening its policy measures further to prevent the formation of asset bubbles and the overheating of the economy. The Shanghai Composite Index rose 1.3%, while Hong Kong’s Hang Seng Index gained 1.8%. The gains also came despite a separate report that showed Chinese manufacturing activity slowed. Meanwhile, South Korea’s Kospi Index increased 1.3% following reports that showed the nation’s exports surged 29.6% y/y in July, manufacturing continued to expand, and consumer prices increased inline with expectations. Moreover, Australia’s S&P/ASX 200 Index and India’s BSE Sensex 30 Index rose 1.1% and 1.2%, respectively, after manufacturing reports in the countries both showed expansion in the sector accelerated.

However, stocks in Japan showed modest gains, with the Nikkei 225 Index rising 0.4%, as concerns that the recent strength in the Japanese yen compared to the dollar and other major currencies will hamper exporters’ profits limited enthusiasm that came from some upbeat earnings reports in the region. Shares of Honda Motor Co. (HMC $32) moved nicely higher after the company boosted its outlook following its better-than-expected quarterly profits, joining a solid gain in shares of Hitachi Ltd. (HIT $42) after the electronics company swung to a 1Q profit and increased its earnings guidance for the first half of the year, while maintaining its full-year outlook. Elsewhere, Taiwan’s Taiex Index posted a 2.0% increase, showing some resilience in the face of a report that showed the nation’s manufacturing activity slowed, but remained at a level depicting expansion.