Morning Market Update

Stocks Supported by Fed Chief Comments and Favorable Data

The global equity markets have overcome early weakness and are higher following a plethora of favorable US reports on inflation, retail sales, and manufacturing, which coupled with comments from Fed Chief Ben Bernanke to lift stocks. Bernanke preserved growing expectations that further economic stimulus is on the way after noting that “there appears to be a case for further action,” as deflation remains a risk and the unemployment rate is too high. Treasuries are nearly unchanged amid the data and Fed comments and the US dollar is broadly lower. The equity front is also providing some support to sentiment, with Dow member General Electric Co, Google Inc, and Advanced Micro Devices all exceeding the Street’s profit projections. Overseas, Asia was mostly lower ahead of the flood of data in the US and as the Japanese yen remained at a fifteen-year high versus the US dollar, while Europe erased early losses and is higher, due mainly to the aforementioned US data.

As of 8:55 a.m. ET, the December S&P 500 Index Globex future is 8 points above fair value, the Nasdaq 100 Index is 23 points above fair value, while the DJIA is 49 points above fair value. Crude oil is up $0.08 at $82.77 per barrel, and the Bloomberg gold spot price is down $6.65 at $1,374.50 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.3% at 76.33.

Dow member General Electric Co. (GE $17 ¹) announced 3Q EPS of $0.29, two pennies above the Reuters estimate, but revenues were down 5% year-over-year (y/y) to $35.9 billion, below the $37.5 billion that the Street was looking for. The company said its revenues were impacted by lower equipment sales and reduced GE Capital assets. GE said total company orders were up 7% y/y and equipment orders rose 9%, helping the company post growth in both equipment and service orders for the first time in eight quarters. Also, the conglomerate said GE Capital credit losses continued to decline and earnings are improving.

Google Inc. (GOOG $541) reported 3Q earnings ex-items of $7.64 per share, well above the $6.66 that analysts had forecasted, with revenues growing 23% y/y to $7.3 billion, compared to the $7.0 billion that the Street was anticipating, while excluding traffic acquisition costs (TAC), revenues were $5.5 billion. The world’s number-one internet search engine said its aggregate paid clicks increased about 16% y/y, and the company’s cost-per-click rose approximately 3%.

Advanced Micro Devices Inc. (AMD $7) posted 3Q EPS ex-items of $0.15, easily topping the $0.05 estimate of analysts, as revenues rose 16% y/y to $1.6 billion, roughly inline with the consensus estimate, but revenues did decline 2% quarter-over-quarter (q/q). The chipmaker said its 3Q performance was highlighted by solid gross margin, despite “weaker-than-expected consumer demand.” AMD said it expects 4Q revenues to be approximately flat q/q, compared to the $1.7 billion that analysts are anticipating.

Consumer Prices subdued, retail sales rise, NY manufacturing jumps

The Consumer Price Index showed prices at the consumer level were up 0.1% in September month-over-month (m/m), below the forecasted gain of 0.2% by economists surveyed by Bloomberg, and the 0.3% increase seen in August. Meanwhile, the core rate, which strips out food and energy, was flat in September, after also being unchanged in August, and compared to estimates calling for a 0.1% gain. On a year-over-year basis, consumer prices were up 1.1% in September, matching the rate in August, and the core CPI was 0.8% higher y/y, after rising 0.9% in August.

Meanwhile, advance retail sales for September rose 0.6%, compared to the forecast of economists that called for an increase of 0.4%, and August’s 0.4% gain was revised upward to a 0.7% advance. September sales ex-autos gained 0.4%, above the expectation of a 0.3% increase, and August’s 0.6% rise was revised to a 1.0% advance. Sales ex-autos and gas rose 0.4% in September, versus the 0.3% increase that was anticipated, and its August figure was upwardly revised to a 0.9% increase.

Elsewhere, the Empire Manufacturing Index, a measure of manufacturing in the New York region, improved in October, jumping to a level of 15.73, compared to the estimates of economists, which expected an increase to 6.00, from the previous month’s level of 4.10. The index moved nicely above the level of zero, the demarcation point between contraction and expansion. The report is the first major piece of data looking at manufacturing conditions in October, and next week, the Philly Fed Manufacturing Index will be released, expected to increase from -0.7 in September to 0.0 in the current month, providing further insight into the health of the sector.

Treasuries are nearly unchanged after paring gains that immediately followed comments by US Federal Reserve Chairman Ben Bernanke, amid the inflation, retail, and manufacturing data. Later today, we will get the releases of the preliminary University of Michigan’s Consumer Sentiment Index for October, expected to increase slightly from 68.2 in September to 68.9, and business inventories, which are forecasted to rise 0.5% in August.

Fed Chief sounds off before morning session kicks off

US Fed Chief Ben Bernanke spoke on monetary policy objectives and tools in a low-inflation environment at a Boston Fed conference before the opening bell rang. The Fed Chief failed to talk down elevated expectations of further Fed stimulus in the form of asset purchases—known as quantitative easing—saying that there appears to be a case for further action as the actual unemployment rate of nearly 10% is “clearly too high relative to estimates of its sustainable rate.” Bernanke also said the “risk of deflation is higher than desirable,” and with inflation close to levels consistent with price stability, for the first time in may decades, central banks had to “take seriously the possibility that inflation can be too low as well as too high.”

Europe moved into the green following US Fed Chief’s comments

Stocks in Europe have turned higher in afternoon action as traders are digesting the speech from Bernanke. Also some favorable reports out of the US on inflation, retail sales, are helping lift sentiment in Europe. Moreover, traders are sifting through reports on inflation and international trade across the pond. Reports showed that euro-zone consumer prices rose 0.2% m/m in September and the core CPI was 1.0% higher y/y, both matching economists’ expectations, while a separate report showed the euro-zone trade deficit expanded by a much larger amount than was anticipated for August. However, shares of France’s Carrefour SA (CRERY $11) are solidly lower to limit gains in the region after the world’s second-largest retailer, per Bloomberg, lowered its full-year profit forecast and offered some lackluster performance results in Brazil, one of the fastest growing markets for the company.

The FTSE 100 Index is flat, France’s CAC-40 Index is 0.5% higher, and Germany’s DAX Index is up 0.8%.

Asia mostly lower following the lackluster day in US

The equity markets finished mostly lower on the heels of the disappointing jobless claims reading in the US and as the Japanese yen threatened its 1995 highs versus the US dollar, pressuring export issues and dampening the outlook for the economy in Japan. The Nikkei 225 Index fell 0.9% and the broader Topix Index dropped 1.3%, as weakness in the Japanese financial sector on a media report that the sector may need to sell shares to raise capital also helped pace the decline. On the Japanese economic front, the nation’s final revision on industrial production in August was revised lower from a 0.3% decline to a 0.5% contraction. Meanwhile, some profit-taking in China resulted in the Hong Kong Hang Seng Index declining 0.4%, but the Shanghai Composite Index jumped 3.2%, possibly aided by reports that showed the nation’s Leading Index increased 0.7% m/m to 149.9 in August, and property prices decelerated by a smaller amount than economists expected in September. Elsewhere, Australia’s S&P/ASX 200 Index dipped 0.2%, South Korea’s Kospi Index increased 0.1%, Taiwan’s Taiex Index declined 0.1%, and India’s BSE Sensex 30 Index fell 1.8%.