Morning Market Update

Modest Gains Even as Economic Catalysts Wane

The US equity markets are slightly above the flatline in early action amid the lack of any major economic catalyst as traders tread cautiously in the face of lingering European debt concerns and ahead of some key economic reports due out later this week. Treasuries are flat following a report that showed home prices declined in July compared to June, while reports on consumer confidence and regional manufacturing are on the morning’s economic horizon. In equity news, Walgreen Co and Paychex Inc both topped analysts’ earnings expectations, while Dow member Pfizer stopped a trial of a prostate cancer treatment. Overseas, Asia finished broadly lower, while Europe is showing some resiliency in afternoon action amid concerns about the sovereign health of Ireland.

As of 8:51 a.m. ET, the December S&P 500 Index Globex future is 2 points above fair value, the Nasdaq 100 Index is at 9 points above value, while the DJIA is 36 points above fair value. Crude oil is down $0.55 at $75.97 per barrel, and the Bloomberg gold spot price is down $7.28 at $1,287.08 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is unchanged at 79.42.

Walgreen Co. (WAG $30) reported fiscal 4Q EPS of $0.49, five cents above the Reuters estimate, with revenues increasing 7.4% year-over-year (y/y) to $16.9 billion, compared to the $16.8 billion that the Street was anticipating. Same-store sales—sales at stores open at least a year—increased 1.5% y/y, with prescription sales, which accounted for 65.9% of sales in the quarter, increasing 1.6%.

Paychex Inc. (PAYX $27) announced fiscal 1Q EPS of $0.36, two pennies north of analysts’ forecasts, as revenues grew 4% y/y to $518.3 million, above the $507 million consensus forecast of the Street. The payroll and human resources outsourcing firm said its client retention improved but sales of new units continue to be difficult. PAYX said although its 1Q was slightly better-than-expected, the company remains cautious on fiscal 2011. The company reaffirmed its full-year earnings guidance.

Dow member Pfizer Inc. (PFE $17) reported that it has stopped a late-stage trial of its prostate cancer pill Sutent, due to interim analysis that the combination of the treatment with another drug was unlikely to improve overall survival.

Home prices mixed, consumer confidence on the horizon

Just before the opening bell, the S&P/Case-Shiller Home Price Index was released showing an increase in home prices of 3.18% y/y in July, compared to the increase of 3.10% that economists surveyed by Bloomberg had expected. Month-over-month (m/m), home prices were 0.13% lower, compared to forecasts, which called for a decline of 0.10%. Treasuries remain nearly unchanged following the home price data.

Later this morning, the economic calendar will yield the releases of the Consumer Confidence Index, forecasted to move lower from 53.5 in August to 52.1 in September, and the Richmond Fed Manufacturing Index, expected to decelerate from 11 in August to 6 in September.

Europe shows some resilience to continued euro-area debt uneasiness

Stocks in Europe have erased early losses and are mostly higher in afternoon action as the equity markets across the pond are showing some resilience in the face of lingering sovereign debt fears in the region. Early losses came as the debt concerns were exacerbated by Standard & Poor’s and Fitch credit ratings agencies warning that they may cut Ireland’s credit rating again on increasing costs pertaining to the recapitalization of the nationalized Anglo Irish Bank. However, some of the concerns were soothed by reports that European central banks purchased government debt of Ireland, according the Bloomberg, which cited people familiar with matter, but the purchases were not confirmed by euro-area policy makers.

Meanwhile, there is a plethora of European economic data for traders to consider: French consumer spending fell much more than economists had expected in August, UK 2Q GDP was unrevised at 1.2% quarter-over-quarter (q/q) growth, German consumer confidence increased more than anticipated for October, the UK 2Q current account deficit narrowed more than anticipated, and Sweden’s retail sales came in flat versus expectations of growth for August. Moreover, inflation readings will come into focus later today, with Germany reporting its latest measure of consumer prices.

In equity news worth a mention, shares of Michelin  (MGDDY $18) are down sharply after the tire maker submitted a 1.2 billion euro rights offering that was deeply discounted in order to boost investments and enhance its credit rating, per Reuters.

The FTSE 100 Index is down 0.1%, France’s CAC-40 Index is 0.1% higher, Ireland’s Irish Overall Index is declining 0.1%, Germany’s DAX Index is advancing 0.2%, and Sweden’s OMX Stockholm 30 Index is 0.8% higher.

Asia sees red following declines in US and Europe

Stocks in Asia were broadly lower on the heels of the decreases yesterday in the US and European markets as traders took a breather to reflect on and book profits from the uncharacteristically-strong September in the equity markets. Festering euro-area debt concerns and upcoming key data out of the US later this week fostered the preference for profit-taking among traders. Japan’s Nikkei 225 Index fell 1.1% on the lack of conviction, which coupled with a stronger yen versus the US dollar and other major currencies to continue to hamstring optimism toward export-related companies’ profit outlooks, and uncertainty resulted as to whether the Japanese government will intervene for a second-time this year to stem the advance in the Asian currency that has threatened overall Japanese economic prosperity. Also, shares of Takefuji Corp. (TAKAY $1) fell sharply after the consumer finance company confirmed recent speculation about its failure, announcing that it has filed for bankruptcy protection. Meanwhile, the economic calendar in the Asia was light, with the lone reports worth mentioning being a deterioration in Japanese small business confidence for September and South Korean consumer confidence ticking lower. South Korea’s Kospi Index declined 0.3%.

Elsewhere, stocks in China were lower, with the Hong Kong Hang Seng Index falling 1.0% and the Shanghai Composite Index declining 0.6%, while Australian equity markets were little changed, as the S&P/ASX 200 Index dipped 0.1%. Rounding out the day, Taiwan’s Taiex Index was flat, and India’s BSE Sensex 30 Index ticked 0.1% lower.