Morning Market Update

Soft Dollar Leads Strong Start to Week

The global equity markets are moving higher, led by strength in metals and commodities prices as the US dollar is under broad-based pressure on the heels of the weekend meeting of G20 finance ministers, which concluded with a pledge to avoid competitive currency devaluations. Treasuries are higher in early action ahead of a key report on the housing market in the form of existing home sales, which will kick off a heavy week of housing data. Equity news is relatively light, with RadioShack Corp topping the Street’s earnings expectations and CommScope Inc confirming it is in discussions with private equity firm Carlyle Group to possibly go private. Overseas, Asia was mostly higher, except for Japan as the strength in the yen continued to stymie sentiment, while European markets are higher on strength in materials and following an M&A announcement in the consumer goods sector.

As of 8:46 a.m. ET, the December S&P 500 Index Globex future is 8 points above fair value, the Nasdaq 100 Index is 11 points above fair value, while the DJIA is 52 points above fair value. Crude oil is up $0.79 at $82.48 per barrel, and the Bloomberg gold spot price is up $17.10 at $1,345.55 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.5% at 76.96.

RadioShack Corp. (RSH $23) reported 3Q EPS of $0.37, two cents above the consensus estimate of analysts surveyed by Reuters, with revenues increasing 6.2% year-over-year (y/y) to $1.1 billion, slightly above the $1.0 billion that the Street was looking for. The electronics retailer noted that it saw continued growth in its wireless business and it is “encouraged” by the improvements in its non-wireless product categories, including accessories and power.

CommScope Inc. (CTV $23) is sharply higher after the communication network infrastructure solutions firm confirmed that it is in discussions with private equity firm Carlyle Group regarding a potential transaction that would result in CTV becoming a private company. CTV said the terms of the potential deal would be for Carlyle Group to acquire all outstanding shares of the company for $31.50 per share.

Housing and first glimpse at 3Q output likely to dominate economic calendar this week

Treasuries are mostly higher in early action ahead of today’s release of existing home sales, which reflect closings from contracts entered one to two months earlier, forecasted to increase 4.1% month-over-month (m/m) in September to an annual rate of 4.3 million units, which would be the second consecutive rise post the expiration of the tax incentive. The housing market data will be closely watched this week as homes tend to be the biggest asset for many consumers, and changes in individual’s net worth can have an impact on their attitude toward spending. Other reports on the sector include Wednesday’s release of new home sales, forecasted to show an increase of 4.2% m/m in September to an annual rate of 300,000 and tomorrow’s S&P/CaseShiller Home Price Index, which lags the sales data by a month, anticipated to show a 2.2% rise y/y in August, while falling 0.2% m/m.

Meanwhile, Federal Reserve Chairman Ben Bernanke spoke before the opening bell at a housing conference hosted by the Fed and Federal Deposit Insurance Corp. (FDIC). The topic was on “Mortgages and the Future of Housing Finance,” and the Fed Chief noted that the Fed has been concerned about reported irregularities in foreclosure practices at a number of large financial institutions and it is evaluating the potential effects of these problems on the real estate market and financial institutions.  Recent documentation issues have brought foreclosures back into focus, and while some banks are resuming foreclosure processes this week, the longer-term impact is unclear.

However the economic spotlight may burn the brightest with Friday’s first reading of US 3Q gross domestic product (GDP), expected to grow at a 2.0% quarter-over-quarter (q/q) annualized rate, after expanding by 1.7% in 2Q. The largest component of GDP, personal consumption, is expected to grow 2.4% in 3Q, after advancing 2.2% in 2Q. With regard to inflation readings, the GDP Price Index is expected to rise 1.9%, and the core PCE Index, which excludes food and energy, is forecasted to increase 1.0%.

Consumer spending has been surprisingly strong and business spending has also been an area of strength, growing at a double-digit rate q/q for the past three quarters. In fact, the largest detractor from GDP during 2Q was the trade balance, as imports (a subtraction from GDP) far outpaced exports. Real gross domestic purchases—purchases by US residents of goods and services wherever produced, a good indicator of underlying demand—increased 5.1% in 2Q, compared with an increase of 3.9% in 1Q.

Other releases on this week’s US economic calendar include: durable goods orders, the Conference Board’s consumer confidence, the MBA Mortgage Applications Index, weekly initial jobless claims, the Chicago Purchasing Manager survey of manufacturing and services sectors, and the final University of Michigan Consumer Sentiment Index.

Europe mostly higher as materials lead the way

Most major equity markets in Europe are higher in afternoon action led by a solid advance in materials issues on higher metals prices, supported by a broad decline in the US dollar following the weekend G20 meeting of world finance ministers. The G20 meeting did not produce any new policy initiatives but there appeared to be an agreement among world leaders to not pursue competitive currency devaluations. Consumer goods are also pacing the advance in Europe, aided by a sharp increase in shares of Hermes International (HESAY $25) after luxury goods maker LVMH Moet Hennessy Louis Vuitton (LVMHF $157) agreed to acquire a 17% stake in the French accessories and apparel maker for about 1.45 billion euros ($2.0 billion). Meanwhile, the economic front is also contributing to the advance across the pond after a report showed euro-zone industrial new orders rose m/m in August by twice the expectation of economists, and a report showed loans for home purchases in the UK came in above expectations.

The UK FTSE 100 Index is 0.6% higher, France’s CAC-40 Index is up 0.4%, and Germany’s DAX Index is advancing 0.6%.

Asia mostly higher but Japan lags behind

Stocks in Asia were mostly higher with higher metals prices lifting mining issues and optimism ahead of some major earnings reports this week in the region supporting sentiment. China’s Shanghai Composite Index led the way, rising 2.6%, while M&A news out of Australia helped the S&P/ASX 200 Index post a solid 1.3% advance. Singapore Exchange Ltd. (SPXCF $7) came under pressure after it reached an agreement to acquire Australia’s main stock exchange, ASX Ltd. (ASXFY $37), for A$8.4 billion ($8.3 billion), but approval by government regulators led to some caution about the deal being completed. However, shares in Japan did not participate in the advance, with the Nikkei 225 Index declining 0.3%, as the Japanese yen continued to gain ground on most major currencies and moved closer to the 1995 high versus the US dollar. The US dollar is losing ground versus most major currencies following the weekend G20 meeting of world finance ministers, which suggested competitive currency devaluations may be avoided. Export issues have been hampered by the sharp increase in the yen as it dampens the outlook for profits. Elsewhere, Hong Kong’s Hang Seng Index increased 0.5%, South Korea’s Kospi Index advanced 1.0%, and Taiwan’s Taiex Index gained 1.7%. In economic news, Japan’s exports jumped more than anticipated in September, Australia’s producer prices rose more than double economists’ expectations, and Taiwan’s industrial production rose over 12% y/y but was softer than anticipated.