Morning Market Update

Early Advance Wanes amid Rise in Jobless Claims

The morning gains in the US equity markets have be pared by an unexpected increase in weekly initial jobless claims, along with a hotter-than-anticipated reading on producer prices and a wider-than-forecasted trade deficit. Treasuries are modestly lower but losses were hemmed in reaction to the data. Weakness in the dollar is helping lift commodity prices denominated in the greenback as risk taking continues to tick higher in the wake of yesterday’s favorable start to 3Q earnings season in the US and amid lingering expectations of further Federal Reserve stimulus. Meanwhile, Yahoo Inc is sharply higher amid a report from the Wall Street Journal that AOL Inc and some private equity firms are mulling a takeover of the internet search engine. In other equity news, for-profit education firm Apollo Group Inc withdrew its 2011 business outlook amid ongoing regulatory and other scrutiny that is challenging the proprietary education industry. Overseas, Asia was nicely higher on the aforementioned beginning to US profit season and subsequent increase in commodities, while Europe is mixed as strength in materials is being met by weakness in financials.

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 5 points above fair value, while the DJIA is 16 points above fair value. Crude oil is up $0.52 at $83.53 per barrel, and the Bloomberg gold spot price is up $6.60 at $1,378.75 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.8% at 76.47.

Shares of Yahoo Inc. (YHOO $15) are sharply higher amid a report from the Wall Street Journal that internet service provider AOL Inc. (AOL $25) and some private equity groups are discussing the possible acquisition of YHOO. The report cited people familiar with matter, who also said discussions were preliminary, not including YHOO, and the private equity firms have expressed an interest in either a teaming up with AOL or a separate transaction, which would take YHOO private. None of the entities involved has commented on the report.

Apollo Group Inc. (APOL $50) is under heavy pressure after the for-profit education firm withdrew its prior business outlook for fiscal 2011, given the transitional state of its business in light of the ongoing regulatory and other scrutiny that is challenging the proprietary education industry. The announcement came as the company reported fiscal 4Q EPS ex-items of $1.31, compared to the $1.26 Reuters estimate, with revenues increasing 17.4% year-over-year (y/y) to $1.26 billion, roughly inline with the Street’s forecasts.

Producer prices and jobless claims rise, trade deficit widens

The Producer Price Index showed prices at the wholesale level rose 0.4% month-over-month (m/m) in September, after increasing 0.4% in August, and above the forecast of economists surveyed by Bloomberg, which called for a 0.1% rise. Meanwhile, the core rate, which excludes food and energy, increased 0.1% m/m, matching the increase that economists had expected. On a year-over-year basis, headline producer prices were 4.0% higher, and the core rate was up 1.6%.

Meanwhile, weekly initial jobless claims increased by 13,000 to 462,000, versus last week's figure which was upwardly revised by 4,000 to 449,000, and compared to the consensus estimate of economists, which called for claims to come in at 445,000. The four-week moving average, considered a smoother look at the trend in claims, rose by 2,250 to 459,000, and continuing claims fell by 112,000 to 4,399,000, compared to the 4,450,000 that was anticipated by economists.

Elsewhere, the trade deficit widened more than expected, increasing from a slightly downwardly revised $42.6 billion in July to $46.3 billion in August, versus the estimate of economists calling for the deficit to come in at $44.0 billion.

Treasuries are lower, stemming early losses following the inflation, employment, and trade reports.

Europe mixed as financials and materials diverge

The equity markets in Europe are mixed in afternoon action as some favorable corporate reports across the pond are teaming up with yesterday’s favorable start to 3Q earnings season in the US to support materials issues, but financials are finding pressure amid concerns about the need for firms to raise capital in the face of the newly agreed upon “Basel” global capital rules. Shares of Rio Tinto Plc. (RIO $64) are nicely higher after the mining firm is receiving a lift from the strength in metals and after it said 3Q iron ore output rose y/y to 47.6 million metric tons. Also, Syngenta AG (SYT $55) is moving solidly to the upside after the world’s largest maker of agriculture chemicals, per Bloomberg, posted 3Q sales that exceeded analysts’ forecasts, and Germany’s clothing maker Hugo Boss AG (HUGSF $22) increased its annual profit and sales forecast, and shares are steeply higher.

The economic calendar in Europe is relatively light with a report showing Spain’s consumer prices rose 0.1% m/m in September, compared to a flat reading expected by economists, being the lone major piece of data released today.

The UK FTSE 100 Index is 0.1% lower, and France’s CAC-40 Index is up 0.2%, while Germany’s DAX Index and Spain’s IBEX 35 Index are advancing 0.6%.

US earnings enthusiasm lifts Asian equities

Stocks in Asia finished with solid gains on the heels of the favorable earnings out of the US, boosting the region’s export issues and lifting commodity-related stocks, which led the charge in the equity markets. Japan’s Nikkei 225 Index gained 1.9% on optimism regarding the health of the corporate sector in the US, a key business partner of the Asian nation, helping overshadow lingering economic uneasiness as the yen sits at a fifteen-year high versus the US dollar. In economic new, Japan’s machine tool orders were upwardly revised to a 113.6% y/y increase in September, from a preliminary estimate of a 112.9% y/y gain, but down from the 170.0% y/y surge that was seen in August. Meanwhile, the advance in commodities, especially gold, helped support equities in the resource-reliant nations of Australia and New Zealand, with the S&P/ASX 200 Index and the NZX 50 Index gaining 1.7% and 1.0%, respectively. However, gains in New Zealand were limited by a report that showed retail sales were unexpectedly flat m/m, versus the expectation of a 0.3% increase. Elsewhere, stocks in China were higher as the Shanghai Composite Index rose 0.6% and the Hong Kong Hang Seng Index increased 1.7%, while South Korea’s Kospi Index advanced 1.3% the Bank of Korea left its benchmark interest rate unchanged at 2.25%.

In other central bank news, despite a report showing its 3Q GDP contracted an annualized 19.8% quarter-over-quarter (q/q), compared to the drop in output of 15.7% that economists anticipated, Singapore surprisingly tightened its monetary policy. The nation’s central bank tweaks its currency rate to fight price stability instead of changing a key interest rate like most other global central banks, and it announced that it will steepen and widen its target trading band for the Singapore dollar as its seeks to maintain a “modest and gradual appreciation,” with the balance of risks weighted toward inflation going forward. The Singapore Straits Times Index finished 0.2% lower and the US dollar is under broad-based pressure following the report.