Morning Market Update

Sluggish Start to the Session

US equity markets are modestly lower in early action with a light economic calendar offering little influence in morning trading, while a better-than-expected full-year 2011 forecast from Dow member Hewlett-Packard Co is failing to extend the solid gains for the uncharacteristically strong September. Treasuries are slightly lower amid the lack of major data released today, but the final report on 2Q GDP is set for tomorrow. In other equity news, Family Dollar Stores Inc posted profits that exceeded the Street’s expectations. Overseas, Asia was mixed on a diverse look at business sentiment in Japan, while Europe is nearly unchanged as a lackluster retailer’s report is offsetting some favorable data from the economic front across the pond.

As of 8:45 a.m. ET, the December S&P 500 Index Globex future is 3 points below fair value, the Nasdaq 100 Index is at 2 points below value, while the DJIA is 20 points below fair value. Crude oil is up $0.36 at $76.54 per barrel, and the Bloomberg gold spot price is down $1.15 at $1,307.90 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.4% at 78.67.

Dow member Hewlett-Packard Co. (HPQ $42) issued full-year guidance for its fiscal year 2011, where the company expects EPS ex-items to be in a range of $5.05-5.15, with revenues forecasted to come in between $131.5-133.5 billion. According to Reuters, analysts were expecting the company to post EPS of $5.00 and revenues of $131 billion.

Family Dollar Stores Inc. (FDO $43) reported fiscal 4Q EPS of $0.56, five pennies above the consensus estimate of analysts, with previously reported revenues increasing 8% year-over-year (y/y) to $1.96 billion matching the Street’s estimates. Same-store sales—sales at stores open at least a year—gained 6.1% y/y due to increased customer traffic, with sales in consumables being the strongest.

Mortgage apps tick lower on light economic docket

The lone report on today’s US economic calendar is the MBA Mortgage Application Index, which fell 0.8% last week, after the index that can be quite volatile on a week-to-week basis, declined 1.4% in the previous week. The dip came as the Refinance Index fell 1.6%, which offset a 2.4% increase in the Purchase Index. The decline in the overall index came despite a 7 basis-point drop in the average 30-year mortgage rate to a new record low of 4.38%. Treasuries are nearly unchanged following the report.

Tomorrow, the US economic calendar will begin to heat up, headlined by the final reading of 2Q gross domestic product (GDP), expected to be unrevised at a 1.6% quarter-over-quarter (q/q) annualized rate, after expanding by 3.7% in the first quarter. The final report on GDP typically does not change much from the second reading, and economists are expecting personal consumption to remain at 2.0% and no adjustments to inflation readings, with the GDP Price Index at 1.9%, and the core PCE Index, which excludes food and energy, at 1.1%.

Estimates for 3Q GDP fell from 3.0% in Bloomberg’s June survey of economists, down to 1.9% in the September survey, as a broad range of economic data began to slow. However, better-than-expected releases in September included retail sales, the business spending component of the durable goods report, the labor report, manufacturing PMIs in both the US and China, and Chinese economic data showed signs of life, easing worries about a hard landing. As data has been better and expectations had been lowered, there is the potential for economic forecasts to be revised up.

Europe nearly unchanged as disappointing retailer’s report dampens favorable data

Stocks in Europe are near the flatline in afternoon action as weakness in the retail sector and lingering sovereign debt concerns are offsetting some favorable economic data across the pond. Shares of Hennes & Mauritz (HNNMY $8) are down solidly after Europe’s second-largest clothing retailer—per Bloomberg—posted disappointing 3Q earnings and a narrowed gross margin. The report is pressuring the retail sector and is offsetting some upbeat reports from the economic front such as an unexpected increase in euro-zone economic confidence for September—while euro-area consumer confidence remained unchanged—and a larger-than-forecasted rise in UK mortgage approvals.

Other reports from the euro-zone economic calendar included: UK consumer credit unexpectedly fell in August, French consumer confidence improved in September, Italian business confidence came in below expectations and the nation’s producer prices rose by a smaller amount than anticipated, Spain’s consumer prices grew at a cooler rate than anticipated, while separate reports showed Spanish retail sales fell more than forecasted and the rate of decline in housing permits in the nation increased.

The UK FTSE 100 Index is down 0.1%, France’s CAC-40 Index is flat, Germany’s DAX Index is declining 0.1%, Italy’s FTSE MIB Index is 0.2% lower, and Spain’s IBEX 35 Index is decreasing 0.8%.

Asian market diverge on mixed bag of data

Stocks in Asia were mixed, with Japan’s Nikkei 225 Index increasing 0.7% following the resiliency in the US yesterday in the face of some disappointing data, while traders digested a major report on confidence in the manufacturing sector. The Bank of Japan released its 3Q Tankan Large Manufacturers Index, showing that confidence in the group improved from 1 in 2Q to 8, and compared to the 7 reading that economists has expected. The BoJ’s report is conducted by surveying more than 10,000 companies and a positive reading means more businesses believe their business will improve compared to those that expect a decline. However, Bloomberg noted that this was the smallest increase in the survey since early 2009, and a separate measure of manufacturers’ outlook for the December reading fell from 3 to -1, versus the forecast that called for it to remain at 3. Meanwhile, the same survey of the non-manufacturing sector showed current sentiment moved from -5 to 2, compared to the -2 reading that was expected, while the outlook portion of the survey remained in negative territory but was better than anticipated. The Japanese equity front also contributed to the mixed backdrop. Shares of Nintendo Co. (NTDOY $36) fell solidly after the world’s largest maker of video-game consoles cut its annual profit forecast, as the recent surge in the yen is dampening its outlook, and said its newest handheld game device, the Nintendo 3DS, will be delayed until February—after the holiday shopping season—due to “release conditions” for the handheld game player. However, chipmaker Elpida Memory (ELPDF $11) rose sharply after it announced the mass production of a new DRAM chip.

In other economic news, the Conference Board’s Leading Index for Australia improved in July, but the S&P/ASX 200 Index decreased 0.5%, while stocks in China were mixed, with the Hong Kong Hang Seng Index increasing 1.2% and the Shanghai Composite Index coming in flat, following the HSBC Manufacturing PMI report on the nation, which improved from 51.9 in August to 52.9 in September. Rounding out the day, South Korea’s Kospi Index and Taiwan’s Taiex Index both gained 0.6%, while India’s BSE Sensex 30 Index fell 0.7%.