Morning Market Update

Markets Escaping the Red Ahead of Fed

The US equity markets are modestly higher in early action as traders are playing their cards close to the vest ahead of tomorrow’s Federal Reserve’s monetary policy meeting, and before the town-hall event on the economy with President Obama. Treasuries are modestly higher in morning trading amid the cautiousness, and ahead of a report on homebuilder sentiment. In equity news, Dow member International Business Machines Corp reached an agreement to acquire business analytics firm Netezza Corp for $1.7 billion, while homebuilder Lennar Corp easily topped the Street’s EPS and revenue forecasts. Overseas, Asia was mixed in a lackluster session with Japanese markets closed for a holiday, while the UK is leading Europe higher.

As of 8:54 a.m. ET, the December S&P 500 Index Globex future is 2 points above fair value, the Nasdaq 100 Index is 4 points above fair value, while the DJIA is 18 points above fair value. Crude oil is down $0.16 at $74.76 per barrel, and the Bloomberg gold spot price is up $4.88 at $1,279.18 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is flat at 81.42.

Dow member International Business Machines Corp. (IBM $130) announced that is has reached an agreement to acquire business analytics firm Netezza Corp. (NZ $25) for $27 per share in cash, or about $1.7 billion. The deal is said to expand IBM’s business analytics initiatives to help clients gain faster insights into their business information, with increased performance at a lower cost.

Homebuilder Lennar Corp. (LEN $14) reported fiscal 3Q EPS of $0.16, after posting a loss of $0.97 per share in the same period a year ago, compared to the $0.04 Reuters estimate. Revenues increased 14% year-over-year (y/y) to $825 million, compared to the $769 million that was anticipated by analysts. However, the company said new orders were down 15%, as a result of the expiration of the Federal homebuyer tax credit.

Homebuilder sentiment due out after the open, but Fed meeting on the minds of the Street

Treasuries are modestly higher in morning trading as today’s economic calendar is relatively light, with the NAHB Housing Market Index, a gauge of homebuilder sentiment, being the lone release slated for today. The index unexpectedly fell to 13 in August, to the lowest level since March 2009, and is forecasted to tick higher to 14 for September—any reading below a level of 50 indicates more respondents feel conditions are poor. Also, President Obama is expected to hold a town hall meeting at 12:00 p.m. ET today and traders will be looking for any new insight into how the Administration will try to jumpstart employment and boost the economy.

However, the week’s headlining event will likely be tomorrow’s one-day Federal Open Market Committee (FOMC) meeting and mid-day statement release. No changes are expected to the fed funds target rate, currently at a level between 0-0.25%. At the last FOMC meeting held August 10, the Fed downgraded its economic outlook and made a slight policy change to prevent its balance sheet from shrinking. The Fed noted that with the pace of economic recovery more modest than previously anticipated, and to support further recovery, they would keep the balance sheet constant by reinvesting proceeds of principal payments from mortgage-backed securities into Treasuries, as prepayment of mortgage-backed securities threatened to shrink the balance sheet, a defacto form of tightening.

Other US economic releases this week include housing starts and building permits, existing and new home sales, durable goods orders, the MBA Mortgage Applications Index, weekly initial jobless claims, and the Conference Board’s Index of Leading Indicators.

Europe in the green as UK markets are posting solid advance

Stocks in Europe are mostly higher in afternoon action, led by stocks in the UK following an affirmation of the nation’s Aaa debt rating by Moody’s Investors Service and as BP Plc. (BP $38) is moving higher after it was announced that the well responsible for the massive Gulf of Mexico oil spill was “officially dead,” according to the head of the oil spill response team. Per Dow Jones Newswires, retired US Coast Guard Admiral Thad Allen said, “Additional regulatory steps will be undertaken, but we can now state, definitively, that the Macondo well poses no continuing threat to the Gulf of Mexico.” Meanwhile, Moody’s affirmed its top debt rating for the UK, and an analyst for the ratings firm said, “The commitment to fiscal consolidation and putting debt on a declining path are important” to supporting the rating, and, “everything they’re doing and saying so far is consistent with the Aaa,” per Bloomberg.

From the economic calendar across the pond, UK home prices fell 1.1% month-over-month (m/m) in September and the year-over-year (y/y) rate of growth slowed from 4.3% in August to 2.6% in September, while a separate report showed mortgage approvals in the nation rose by a smaller amount than anticipated. Elsewhere, Italy’s trade balance swung to a larger-than-forecasted surplus, and Greece’s current account deficit narrowed.

The UK FTSE 100 Index is up 1.1%, France’s CAC-40 Index is 0.7% higher, Germany’s DAX Index is advancing 0.5%, and Italy’s FTSE MIB Index is 0.2% higher, while Greece’s Athex Composite Index is down 1.6%.

Modest moves in Asia amid subdued session

Stocks in Asia finished not too far away from the flatline line as conviction was curbed by light participation with the Japanese markets closed for a holiday, major holiday breaks on the horizon for the Chinese markets, and ahead of tomorrow’s US Federal Reserve’s monetary policy announcement. China’s Shanghai Composite Index declined 0.4%, and South Korea’s Kospi Index rose 0.3%, while Australia’s S&P/ASX 200 Index dipped 0.2% and Hong Kong’s Hang Seng Index was unchanged. The Asian economic calendar was also light today to add to the lackluster action with slight improvements seen in New Zealand’s consumer confidence and services activity, along with a much better-than-forecasted jump in Taiwan’s export orders, being the few reports worth mentioning. New Zealand’s NZX 50 Index rose 0.2% and Taiwan’s Taiex Index increased 0.4%. However, India’s equity markets posted a move that was anything but lackluster, as the BSE Sensex 30 Index advanced 1.6%.