Morning Market Update

Bulls Breathe After Yesterday’s Steep Drop

The US equity markets are nearly unchanged in early trading following the steep losses that were seen yesterday that came courtesy of exacerbated euro-area debt concerns and increased uneasiness toward the likelihood of further policy tightening in China. The euro-area concerns are being somewhat soothed as Ireland agreed to work with European officials to analyze its financial situation. Meanwhile, Treasuries are nearly unchanged, erasing losses following another subdued US inflation report and data that showed building permits and housing starts came in below expectations. In other economic news, US mortgage applications fell as purchases and refinances both declined. Equity news is relatively light, with Target Corp’s better-than-expected profit report for 3Q being the lone story in morning action. Overseas, Asia was mostly lower led by China on the aforementioned tightening uneasiness, while Japan bucked the trend on a lower yen, and European markets are mostly higher, led by healthcare issues and as traders digest the latest news pertaining to Ireland.

As of 8:50 a.m. ET, the December S&P 500 Index Globex future is at fair value, the Nasdaq 100 Index is 4 points above fair value, while the DJIA is 6 points above fair value. Crude oil is $0.50 lower at $81.84 per barrel, and the Bloomberg gold spot price is down $0.78 at $1,338.93 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is flat at 79.18.

Target Corp. (TGT $54) reported 3Q EPS of $0.74, above the consensus estimate of analysts surveyed by Reuters, which called for the company to post profits of $0.68, with revenues growing 2.2% year-over-year (y/y) to $15.6 billion, roughly inline with what the Street had expected.

Consumer prices benign, housing starts and building permits soft, mortgage apps fall

The Consumer Price Index showed prices at the consumer level were up 0.2% month-over-month (m/m) in October, less than the forecasted gain of 0.3% by economists surveyed by Bloomberg, and above the 0.1% increase seen in September. Meanwhile, the core rate, which strips out food and energy, was flat in October, after also being unchanged in September, and compared to estimates calling for a 0.1% gain. On a year-over-year basis, consumer prices were up 1.2% in October, up from 1.1% in September, and the core CPI was 0.6% higher y/y, after rising 0.8% in September.

Elsewhere, housing starts for October came in below expectations, falling 11.7% m/m from a downwardly revised 588,000 annual rate of units in September to a rate of 519,000 units, and compared to expectations of economists, which called for starts to come in at 598,000. Building permits increased slightly m/m in October, rising 0.5% to an annual rate of 550,000, while September’s figure was upwardly revised by 8,000 to 547,000. The expectation was for permits to increase to 568,000 units.

In other economic news, the MBA Mortgage Application Index fell 14.4% last week, after the index that can be quite volatile on a week-to-week basis, increased 5.8% in the previous week. The decline came as the Refinance Index fell 16.5%, teaming up with a 5.0% drop in the Purchase Index. The downward move in the overall index came amid an 18 basis-point increase in the average 30-year mortgage rate to 4.46%, above the record low of 4.21% on October 8.

Treasuries are nearly unchanged after overcoming early loses following the inflation and housing data.

Recent selling pressure in Europe eases

The equity markets in Europe are mostly higher as the recent dose of heavy selling pressure that accompanied resurfaced euro-area sovereign debt concerns has subsided, as Ireland, which has been at the heart of the flare up in the uneasiness, pledged today to work with a team of European officials to determine if the debt-ridden nation needs financial support for its troubled banking sector, comprised of members from the European Union (EU), European Central Bank (ECB), and International Monetary Fund (IMF). Materials, which took the brunt of the blows in yesterday’s steep sell-off are modestly higher today to help stop the bleeding in the stock markets across the pond, but concerns about a possible slowdown in China as a result of further policy tightening is keeping the sector in check. Meanwhile, the healthcare sector is leading the way today, amid a sharp gain in shares of Actelion Ltd. (ALIOF $59) on reports that Amgen Inc. (AMGN $54) is close to launching a bid to acquire the company, although none of the entities involved have commented on the report. Also, a solid advance in shares of GlaxoSmithKline Plc. (GSK $39) is boosting the healthcare group after a US Food & Drug Administration (FDA) panel recommended that the FDA approve the first new treatment for lupus in over 50 years, co-created by the company along with Human Genome Sciences Inc. (HGSI $26).

The economic front is offering little to impact the markets in Europe, with Spain’s 3Q GDP being left unrevised at a flat level of output, while separate reports showed UK jobless claims unexpectedly fell in October and euro-zone construction output declined in September. Elsewhere, the minutes from the most recent Bank of England monetary policy meeting revealed that although some committee members were concerned that the risks to inflation expectations was somewhat greater than previously thought, overall, most fell that the balance of risks had not altered decisively and that the right action at this meeting was to maintain the current, highly expansionary, stance of monetary policy.

The UK FTSE 100 Index is down 0.2%, France’s CAC-40 Index and Germany’s DAX Index are up 0.3%, Spain’s IBEX 35 Index is flat, while Ireland’s Irish Overall Index is gaining 0.8%.

Asia mostly lower as China tightening and euro-area debt concerns stymie sentiment

Stocks in Asia were mostly lower following the steep losses in the US and Europe yesterday on exacerbated euro-area debt concerns and growing uneasiness regarding expected policy measures by the Chinese government to try to stem inflationary pressures. Expectations of such measures were amplified by comments from Chinese Premier Wen Jiabao that the cabinet is drafting measures to counter overly rapid price gains. The equity markets in China led the way, with the Shanghai Composite Index falling 1.9% and the Hong Kong Hang Seng Index dropping 2.0%. Meanwhile, the concerns about the impact of tightening on growth in China’s economy weighed on commodity issues and stocks in the resource-reliant nation of Australia came under pressure, with the S&P/ASX 200 Index falling 1.6%. However, the equity markets in Japan were the lone bright spot in the region with the Nikkei 225 Index rising 0.2% after showing some resilience, overcoming an intra-day drop of more than 1% on the strength of export issues as the Japanese yen continue to retract further from the recent fifteen-year high compared to the US dollar. Elsewhere, South Korea’s Kospi Index declined 0.1% and Taiwan’s Taiex Index decreased 0.7%, while markets in India were closed for a holiday.

The focus on China’s policy and euro-area sovereign debt overshadowed the economic calendar in Asia, but there were some releases worth mentioning, such as Japan’s Leading Index for September being revised slightly lower, while Australia’s Leading Index was flat for September.