Morning Market Update

Modest Pressure Following Last Week’s Solid Drop

The US equity markets are under slight pressure in morning action, in the wake of the steep losses last week, with economic uneasiness carrying over courtesy of a much smaller-than-forecasted reading of Japan’s 2Q GDP and a report on manufacturing activity in the New York region. Meanwhile, Lowe’s Companies Inc missed analysts’ profit and revenues forecasts, kicking off a busy week of earnings reports out of the sector. Treasuries are higher in morning trading, following the aforementioned data, and ahead of a report on homebuilder sentiment. However, some M&A news is helping limit losses, with Dell Inc announcing it has agreed to acquire storage solutions firm 3Par Inc for $1.2 billion, while UK mining firm Vedanta Resources Plc announced that it has agreed to purchase up to a 60% stake in the Indian unit of UK oil company Cairn Energy Plc for as much as $9.6 billion. Overseas, Asia was mostly lower, but China moved higher, while Europe is under some pressure.

As of 8:54 a.m. ET, the September S&P 500 Index Globex future is 3 points below fair value, the Nasdaq 100 Index is 5 points below fair value, while the DJIA is 19 points below fair value. Crude oil is up $0.28 at $75.67 per barrel, and the Bloomberg gold spot price is up $10.63 at $1,226.13 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.7% at 82.35.

Lowe’s Companies Inc. (LOW $20) reported 2Q EPS of $0.58, one penny short of the Reuters estimate, with revenues also coming in below expectations, rising 3.7% year-over-year (y/y) to $14.4 billion, compared to the $14.5 billion that the Street was looking for. Same-store sales—sales at stores open at least a year—increased 1.6% y/y. The world’s number-two home improvement retailer said, despite economic uncertainty, its prudent expense management yielded solid results and, “with limited visibility into near-term demand,” it continues to focus on operational efficiency to create shareholder value. LOW narrowed its full-year EPS outlook, while lowering its full-year revenue forecast.

In M&A news, Dell Inc. (DELL $12) announced that it has signed an agreement to acquire storage solutions firm 3Par Inc. (PAR $10) for $1.15 billion in cash. DELL will commence a tender offer to acquire all of the outstanding common stock of PAR for $18 per share.

NY manufacturing activity rises but misses forecasts, homebuilder sentiment due up next

The Empire Manufacturing Index, a measure of manufacturing in the New York region, rose in August to a level of 7.10, but was below the estimates of economists surveyed by Bloomberg, which expected an increase to 8.00, from the previous month’s level of 5.08. But 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 August, and later this week, the Philly Fed Manufacturing Index will be released, expected to increase from 5.1 in July to 7.0 in the current month, providing further insight into the health of the sector. Treasuries remain higher following the report.

Later this morning, the NAHB will release its Housing Market Index, and the gauge of homebuilder sentiment is forecast to increase slightly from 14 in July to 15 in August, with a reading below a level of 50 indicating more respondents feel conditions are poor.

The bulk of this week’s US economic releases will be released tomorrow, beginning with the Producer Price Index (PPI), expected to show prices at the wholesale level rose 0.2% month-over-month (m/m) in July, on the heels of a 0.5% decrease in June, while the core rate, which excludes food and energy, is expected to rise 0.2% after increasing a mere 0.1% the prior month. On a year-over-year (y/y) basis, the PPI is expected to show a 4.2% rise in July versus 2.8% the prior month on a headline basis, and a 1.3% increase at the core level, up from a 1.1% increase in June.

Additionally, a reading on industrial production will be released, expected to grow 0.5% in July after rising 0.1% in June, and capacity utilization is forecasted to increase to 74.6% from 74.1% in June.

Rounding out the busy day Tuesday is the report on housing starts for July, expected to show an increase of 2.0% m/m to an annual rate of 560,000 units, after falling the two prior months, by 5.0% in June and plunging 14.9% in May. Meanwhile, building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, are forecasted to fall 0.9% m/m in July to 578,000 units after rising 2.1% in June. The increase in permits in June was driven by a 20% increase in multi-family applications, while single-family permits fell 3.4%, to the lowest level since April 2009.

Other releases on the US economic calendar this week include the MBA Mortgage Applications, initial jobless claims, and the Conference Board’s Index of Leading Indicators.

Europe pressured by continued global economic fears

Stocks in Europe are under some pressure in afternoon action, led by weakness in financials and oil & gas issues as a disappointing Japanese economic output report is preserving the recent uptick in global economic recovery concerns. Also, shares of BP Plc. (BP $39) are lower to aid the decline in the region as the company suspended efforts to permanently seal the oil well that was responsible for the massive Gulf of Mexico oil spill as its conducts further analysis to try to prevent a new oil leak from springing up. However, some M&A activity is helping limit losses in Europe as UK mining firm Vedanta Resources Plc. (VDNRF $34) announced that it has agreed to purchase up to a 60% stake in the Indian unit of UK oil company Cairn Energy Plc. (CRNCY $15) for as much as $9.6 billion. Shares of both firms are nicely higher. Also helping stem the decline across the pond, retailer Hennes & Mauritz (HNNMY $6) is moving nicely higher after it reported strong same-store sales, and Germany’s largest construction firm Hochtief (HOCFF $65) provided an upbeat outlook for new orders.

The European economic calendar is relatively light, with a report showing UK home prices declined m/m in August, and the euro-zone Consumer Price Index falling by a smaller amount than forecasted m/m in July.

The UK FTSE 100 Index is down 0.4%, France’s CAC-40 Index is 1.0% lower, and Germany’s DAX Index is declining 0.3%.

Asia mostly lower, but China finishes in the green

Stocks in Asia were mostly lower to begin the week, with Japanese stocks finding some pressure following a much smaller-than-forecasted expansion in the nation’s GDP. Japan’s 2Q GDP increased 0.1% quarter-over-quarter (q/q) after expanding by a slight downwardly revised 1.1% in 1Q, and short of the 0.6% gain that was anticipated by economists. On an annualized basis, the Japanese economy expanded by 0.4%, slowing from the 4.4% increase seen in the prior quarter, and compared to the 2.3% rise that was anticipated. Japan’s Nikkei 225 Index declined 0.6%, after coming off of the worst levels of the day. The disappointing output data in Japan added to recent string of lackluster global economic data to exacerbate sentiment regarding the continuation of the global recovery and the safe-haven yen, along with the Swiss franc, is moving solidly higher versus the US dollar following the report. However, stocks in China managed to escape red figures as solid gains in basic materials led the Shanghai Composite Index to a 2.1% advance, while property issues limited gains in Hong Kong after the government cracked down on mortgage lending, and the Hang Seng Index rose 0.2%.

Meanwhile, Australian stocks came under pressure amid the increased global economic uneasiness, with the S&P/ASX 200 Index declining 0.5%, and after a report showed the nation’s new motor vehicle sales fell 2.6% m/m in July. Elsewhere, South Korea’s Kospi Index declined 0.2% and India’s BSE Sensex 30 Index decreased 0.6%, while Taiwan’s Taiex Index rose 0.6%.