Evening Market Update

Traders Scoop Up Early Bargains, Thankful Jobs Improve

After the stock market spent most of November under pressure, positive developments today on jobs and consumer sentiment in the US and details of Ireland’s fiscal austerity package gave traders enough to begin nibbling on bargains, prompting gains in stocks and a decline in Treasuries. Additional servings of bullishness about the potential for holiday spending came in the form of higher-than-expected personal income and spending, an earnings beat and positive commentary from Tiffany & Co, as well as a raised forecast for online spending by comScore. Elsewhere, Deere & Co beat but issued cautious guidance, while SAP was ordered to pay Oracle $1.3 billion in a copy infringement case. Meanwhile, durable goods orders and new home sales declined, but mortgage applications rose. Tomorrow, markets in the US will be closed in observance of the Thanksgiving holiday, but will open for a shortened session on Friday.

The Dow Jones Industrial Average gained 151 points (1.4%) to 11,187, the S&P 500 Index rose 18 points (1.5%) to 1,198, and the Nasdaq Composite advanced 48 points (1.9%) to 2,543. In light volume, 829 million shares were traded on the NYSE and 1.6 billion shares were traded on the Nasdaq. Crude oil rose $2.61 to $83.86 per barrel, wholesale gasoline gained $0.07 to $2.16 per gallon, and the Bloomberg gold spot price lost $2.00 at $1,374.40 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was 0.3% higher at 79.79.

Deere & Co. (DE $76) reported fiscal 4Q EPS of $1.07, above the $0.94 consensus estimate of analysts surveyed by Reuters, with revenues increasing 39% year-over-year (y/y) to $6.6 billion, compared to the $6.3 billion that the Street was anticipating. The farm and construction machinery firm said although conditions continued to be positive in the US farm sector, European agriculture markets remained soft. DE issued full-year 2011 earnings guidance that came in short of expectations. Shares fell modestly.

A US federal court ordered the world’s largest business-software firm SAP AG (SAP $48) to pay rival Oracle Corp. (ORCL $28) $1.3 billion for copyright infringement, ending a highly publicized court battle between the two companies. SAP said it is “disappointed by this verdict and will consider all available options.” ORCL said SAP “stole thousands of copies of Oracle software and then resold that software and related services to Oracle’s own customers” and the trial made it clear that SAP’s most senior executives were aware of the illegal activity from the very beginning. ORCL rose, while SAP was slightly lower.

High-end retailer Tiffany & Co. (TIF $61) reported 3Q EPS ex-items of $0.46, above the $0.37 that analysts were expecting, with revenues increasing 14% y/y to $682 million, compared to the $653 million that the Street had forecasted. TIF increased its full-year EPS guidance. The company said that a few weeks into the two-month holiday season, “sales growth is exceeding our expectations,” while noting that the majority of the season is still yet to come. Shares were nicely higher.

Elsewhere, internet measurement research firm comScore (SCOR $22) raised its estimate for holiday e-commerce sales to 11% from a prior view of 7-9%, while sales in 2009 rose 4%. SCOR said that during the first 21 days of November, non-travel retail spending online rose 13% from a year ago. The firm said that consumers seem to be more willing to open up their wallets, but that the early spending reflects “heavy promotional activity.”

Jobless claims fall, while consumer sentiment, income and spending rise 

Weekly initial jobless claims dropped by 34,000 to 407,000, versus last week's figure which was upwardly revised by 2,000 to 441,000, and versus the consensus estimate of economists, which called for claims to decrease to 435,000. The four-week moving average, considered a smoother look at the trend in claims, fell by 7,500 to 436,000, and continuing claims tumbled by 142,000 to 4,182,000, below the forecast of economists, which called for claims to come in at 4,275,000.

However, durable goods orders unexpectedly fell, dropping 3.3% month-over-month (m/m) in October, compared to the 0.1% increase expected, but September’s figure was upwardly revised from a 3.3% increase to a gain of 5.0%. Ex-transportation, orders also surprisingly fell, by 2.7% versus the expectation of a 0.6% increase, and September was adjusted from a 0.8% decrease to a gain of 1.3%. Non-defense capital goods excluding aircraft, considered a good proxy for business spending, fell by 4.5% in October, compared to the 1.0% increase that was anticipated, and after declining by an upwardly revised 1.9% in September.

Moreover, the favorable employment data overshadowed an unexpected drop in new home sales which declined 8.1% m/m in October to an annual rate of 283,000 units, near the 275,000 August rate, which was an all-time low since data began in 1963, suggesting sales remain very depressed. The median home price dropped 13.9% m/m to $194,900. Inventory of new homes for sale fell 0.5% m/m to 202,000 units, representing 8.6 months of supply at the current sales rate. New home sales are considered a timelier indicator of conditions in the housing market than existing home sales—which fell more than expected yesterday—as they are based on signings instead of closings.

Meanwhile, personal income rose 0.5% in October, versus the 0.4% expectation, and September’s 0.1% decrease was revised to a flat reading. Personal spending was 0.4% higher compared to expectation of a 0.5% advance, but September was upwardly revised by 0.1% to a 0.3% increase. The savings rate moved slightly higher to 5.7% in October, after an upward revision of 5.6% for September. The PCE Price Index, was up 1.3% y/y in October, matching expectations, after September’s 1.4% increase was unrevised. The core PCE Price Index, which excludes food and energy, was flat m/m, as economists expected, while y/y core prices moved 0.9% higher, below the consensus 1.0% estimate.

Elsewhere, the University of Michigan’s Consumer Sentiment Index improved more than expected, increasing from 67.7 in October to 71.6 for November, compared to the slight increase to 69.5 from the preliminary reading of 69.3 that economists forecasted. The index rose to the highest level since June, after falling to the lowest level in eleven months in October, as the current conditions and economic outlooks both were revised higher from the preliminary report. Meanwhile, consumers’ expectations regarding inflation over the next 12 months and over the next five years were unrevised at 3.0% and 2.8%, respectively.

Finally, the MBA Mortgage Application Index rose 2.1% last week, after the index that can be quite volatile on a week-to-week basis, fell 14.4% in the previous week. The increase came as a 1.0% decline in the Refinance Index was more than offset by a 14.4% jump in the Purchase Index. The upward move in the overall index came despite a 4 basis-point increase in the average 30-year mortgage rate to 4.50%, above the record low of 4.21% on October 8.

US markets will be closed in observance of the Thanksgiving holiday and open for a shortened session on Friday, and there are no additional US economic releases scheduled for the remainder of the week.

International highlights include Irish budget and downgrade, German optimism

Ireland and the lingering euro-area debt concerns continued to be in focus with Standard & Poor’s downgrading the nation’s credit rating by two levels to A from AA- on concerns about the cost of bailing out its struggling banking sector. However, some of the debt concerns in the region were soothed somewhat as Ireland unveiled its four-year austerity plan to try to help direct the debt-ridden nation down the path to fiscal sustainability, proposing to save 15 billion euros ($20.1 billion) as it tackles its record deficit, with 40% of the adjustments to be made in 2011, per Reuters. Welfare cuts of 2.8 billion euros ($3.8 billion) and income tax increases of 1.9 billion euros ($2.5 billion) are among the measures it plans to take to try to reach its goal of a budget deficit of 3% of GDP by 2014, per Bloomberg. The plan did not include any increase of the nation’s low corporate tax rate. Ireland is expected to announce its budget for next year on December 7.

Bullish economic data from Germany – Europe’s largest economy – was the key focus in Europe, as the German Ifo Business Climate Index posted its highest reading since the nation reunified in 1991, increasing from 107.7 in October to 109.3 in November, versus the 107.5 reading expected, boosted by domestic spending, according to Bloomberg. In other economic news, the UK reported that its 3Q GDP expanded by 0.8% quarter-over-quarter (q/q), inline with expectations, Italian retail sales unexpectedly fell m/m in September, and euro-zone industrial new orders came in below expectations in September. Meanwhile, the favorable US jobless claims data helped add support to sentiment.

In Asia, sentiment was soothed by a pledge by the South Korean government to help stabilize markets by supplying “ample” liquidity if needed and the US promised support for its ally, per Bloomberg, after yesterday’s military skirmish. Elsewhere in the region, Australia’s consumer confidence declined and Japanese department store sales grew.

International economic releases for the remainder of the week include China’s leading index, Japanese and German CPI, French consumer spending and jobseekers, employment data in Brazil and Mexico, Mexico’s 3Q GDP, and the central bank of Mexico meets to discuss monetary policy, where no change to rates is expected.