Morning Market Update

Stocks Nearly Unchanged To Begin Holiday-Hemmed Session

The US equity markets are hovering around the flatline in early action of a session that may see lighter-than-usual activity, with the Treasury markets closed due to the Columbus Day holiday. Meanwhile, traders may be treading lightly ahead of some key data later this week, highlighted by the release of the minutes from the Federal Reserve’s September monetary policy meeting, retail sales, and as some Dow members report 3Q earnings as the profit season begins to heat up. Equity news is light in morning action, with Chesapeake Energy Corp moving higher after China’s CNOOC Ltd agreed to purchase a third of its acreage in the Eagle Ford oil and natural gas project in South Texas for about $1.08 billion in cash. Overseas, Asia was mixed with Chinese markets getting a boost from materials on optimism regarding further US Fed stimulus, while markets in Japan were closed for a holiday. Elsewhere, Europe is modestly higher in cautious action ahead of the aforementioned data.

As of 8:53 a.m. ET, the December S&P 500 Index Globex future is 1 point above fair value, the Nasdaq 100 Index is at fair value, while the DJIA is 14 points above fair value. Crude oil is down $0.36 at $82.30 per barrel, and the Bloomberg gold spot price is down $5.04 at $1,341.70 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.1% at 77.24.

Chesapeake Energy Corp. (CHK $23) is higher after China’s CNOOC Ltd. (CEO $210) agreed to purchase a 33.3% undivided interest in Chesapeake’s acreage in the Eagle Ford oil and natural gas project in South Texas for about $1.08 billion in cash. In addition, CNOOC has agreed to fund 75% of Chesapeake’s share of drilling and completion costs until an additional $1.08 billion has been paid, expected to occur by year-end 2012.

Although today’s US earnings calendar is absent of any major releases, this week 3Q profit season will begin to heat up, headlined by reports from Dow members Intel Corp. (INTC $20), JPMorgan Chase & Co. (JPM $39), and General Electric Co. (GE $17 ¹).

Bond market closed and economic calendar dormant

Due to the Columbus Day holiday, the Treasury markets are closed today and with the economic calendar void of any major release, today’s action may be lighter than usual. For the rest of the week, however, there will be key reports on the Fed, inflation, and retail sales.

The week’s fireworks may lie with tomorrow’s midday release of the minutes from the September Federal Open Market Committee (FOMC) meeting. In the statement following the meeting, the Fed changed its outlook on inflation, saying it is currently at levels "somewhat" below the level consistent with its dual mandate of price stability and maximum employment, and indicated that they are prepared to provide additional accommodation if needed. With the fed funds target rates already at 0-0.25%, the Fed's most likely form of additional accommodation would come in the form of asset purchases of bonds, commonly known as quantitative easing (QE).

St. Louis Fed President Bullard said that QE was not a given at the November FOMC meeting, as economic data, while soft, wasn’t clearly negative, while New York Fed President Dudley said the expected rate of progress on the economy and job growth was “unacceptable.” Traders will be looking for any nuances as to the uniformity of opinions and satisfaction with current and forecasted economic data and if QE was tied to any quantifiable measures of weakness. Additionally, Bernanke and others have noted the risks to doing more QE, and a discussion of these will also be monitored.

Thursday brings the Producer Price Index (PPI), expected to show prices at the wholesale level advanced by 0.2% month-over-month (m/m) in September, while the core rate, which excludes food and energy, is expected to rise only 0.1%. On a year-over-year (y/y) basis, the PPI is expected to advance 3.7% in September, and 1.5% at the core level. The release precedes Friday’s report on the Consumer Price Index (CPI), forecasted to show a 0.2% m/m increase in September, while ex-food and energy, it is expected to rise 0.1% m/m. On a y/y basis, the CPI is expected to increase 1.2% at the headline level and 0.9% y/y at the core level.

The week concludes with Friday’s release of advance retail sales, forecasted to rise 0.4% m/m in September, the same rate as in August, while sales ex-autos are estimated to grow 0.3%, after advancing by 0.6% in August. Same-store sales results for September —sales at stores open at least a year—reported by retailers were generally better-than-expected. The retail sales report includes spending at supermarkets and gas stations.

Other releases on this week’s US economic calendar include: the NFIB Small Business Optimism Survey, business inventories, the Empire Manufacturing Index, MBA Mortgage Applications, the Import Price Index, weekly initial jobless claims, the trade balance, and the University of Michigan Consumer Sentiment Index.

Europe modestly higher on outlook of further Fed action

Stocks in Europe are gaining slight ground in afternoon action as speculation, aided by Friday’s disappointing US labor report, continues to grow that the US Federal Reserve is nearing the deployment of further economic stimulus in the form of quantitative easing. Technology and materials are the leading advancers in today’s trading. Shares of Salzgitter AG (SZGPY $7) are nicely higher on the optimism in the industrials and materials sectors and after Germany’s second-largest steelmaker, per Bloomberg, reported better-than-forecasted 3Q revenue on higher prices for steel products. However, gains across the pond are being limited by caution ahead of some key economic data and as 3Q earnings season will begin to heat up later this week in the US.

Meanwhile, the economic calendar across the pond is relatively light, with France reporting that separate reads on industrial and manufacturing production came in unexpectedly flat m/m in August, compared to economists’ forecasts for modest gains in both releases. However, Italy reported that its industrial production came in much stronger than expected.

The UK FTSE 100 Index and Italy’s FTSE MIB Index are 0.3% higher, while France’s CAC-40 Index and Germany’s DAX Index are up 0.2%.

Asia mixed as Chinese stocks post solid gains

The Asian equity markets finished mixed as strength in materials issues helped stocks in China post a solid advance amid the backdrop of the growing expectations of further US Federal Reserve stimulus efforts, with the Shanghai Composite Index rising 2.5% and Hong Kong’s Hang Seng Index gaining 1.2%. Baoshan Iron & Steel Co. posted a strong upward move aided by the outlook for further economic stimulus out of the US and after the Chinese steelmaker announced better-than-forecasted profits for the first nine months of the year. Also, stocks in the resource-reliant nation of Australia moved higher as the strength in metals and energy companies buoyed the S&P/ASX 200 Index, which rose 0.3%, despite some sluggishness in the banking sector and some profit-taking as the index is at a five-month high. Fortescue Metals Group’s (FSUMY $29) sharp gain helped equity markets down under after it found a tailwind on the optimism facing the group and after the company announced that it has secured a $2 billion bank loan facility helping it fund expansion plans. However, South Korea’s Kospi Index moved 0.4% lower as weakness in technology issues pressured the index and Taiwan’s Taiex Index finished down 0.8%, weighed down by semiconductor issues. Meanwhile, action may have been lighter than usual as the Japanese markets were closed for a holiday.