Morning Market Update

Data Prompts Bulls to Give Thanks as Jobless Claims Tank

The global equity markets are nicely higher as US stocks look poised to go into tomorrow’s Thanksgiving holiday on a high note aided by a sharp drop in US weekly initial jobless claims and a favorable reaction to Ireland’s four-year austerity plan. Treasuries are lower as the employment data is being complimented by increases in personal income and spending, mortgage applications, as well as a favorable revision to a read on US consumer sentiment, offsetting unexpected drops in durable goods orders and new home sales. In equity news, Deere & Co and Tiffany & Co topped analysts’ earnings expectations, while SAP was ordered to pay Oracle $1.3 billion for copyright infringement. Overseas, Asia was mixed and Europe is rebounding on a favorable report on German business confidence and Ireland’s austerity plan.

At 10:59 a.m. ET, the Dow Jones Industrial Average and the S&P 500 Index are 1.2% higher, while the Nasdaq Composite is gaining 1.8%. Crude oil is up $1.71 at $82.96 per barrel, wholesale gasoline is up $0.04 at $2.13 per gallon, and the Bloomberg gold spot price is down by $1.50 at $1,374.90 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.2% at 79.52.

Deere & Co. (DE $77) 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 are modestly higher.

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 added that this is the largest amount ever awarded for software piracy. ORCL is solidly higher, while SAP is under some pressure.

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. Shares are nicely higher.

Jobless claims fall, offsetting a drop in durable goods, highlighting heavy economic day

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 that was expected by economists surveyed by Bloomberg, but September’s figure was upwardly revised from a 3.3% increase to a gain of 5.0%. Ex-transportation, orders also surprisingly fell, dropping by 2.7%, compared to 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 is overshadowing an unexpected drop in new home sales which fell 8.1% m/m in October to an annual rate of 283,000 units. New home sales fell back near the 275,000 rate hit in August, which was an all-time low since data began in 1963, suggesting sales remain very depressed. The median home price fell 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 expectation of economists, which called for a 0.4% gain, and September’s 0.1% decrease was revised to a flat reading. Personal spending was 0.4% higher in October, compared to expectations of a 0.5% advance, but September’s 0.2% rise was revised to a 0.3% increase. The savings rate moved slightly higher to 5.7% in October, after an upwardly revised 5.6% for September.

Also, the PCE Price Index, which is released with the income and spending data, 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.

Europe using data to rebound

The equity markets in Europe are gaining ground in late-day action as some favorable economic data in the region and out of the US are helping stocks rebound from their recent woes as euro-area debt concerns have pressured sentiment recently. Materials issues are among the biggest advancers across the pond, supported by the highest reading of business confidence in Germany—Europe’s largest economy—since records began in 1991. The German Ifo Business Climate Index increased from 107.7 in October to 109.3 in November, versus the 107.5 reading that economists had 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 is helping add support to sentiment.

Meanwhile, Ireland and the lingering euro-area debt concerns continue to be in focus and is keeping the advance in Europe in check, 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. Moreover, 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. Ireland is expected to announce its budget for next year on December 7.

The UK FTSE 100 Index is 0.6% higher, France’s CAC-40 Index is up 0.3%, Germany’s DAX Index is advancing 1.2%, and Italy’s FTSE MIB Index is gaining 0.3%, while Ireland’s Irish Overall Index erased an early loss and is increasing 0.6% following the austerity announcement.

Asia mixed in the wake of Korean skirmish

Stocks in Asia were mixed following yesterday’s uneasiness that came from an afternoon report of North and South Korean militaries exchanging fire. However, South Korea’s Kospi Index showed some relative resiliency, managing to pare a large majority of early losses to finish with a modest loss of 0.2%. The South Korean government pledged to help stabilize the markets by supplying “ample” liquidity if needed and the US promised support for its ally, per Bloomberg. Meanwhile, Japanese stocks returned from yesterday’s national holiday and the Nikkei 225 Index was one of the biggest losers in region after declining 0.8% in its initial reaction to the conflict in Korea. India’s BSE Sensex 30 Index posted the largest decline among the major markets after falling 1.2%. But stocks in China were a bright spot as the Shanghai Composite Index rose 1.1% and the Hong Kong Hang Seng Index gained 0.6%. Elsewhere, Australia’s S&P/ASX 200 Index dipped 0.1% and Taiwan’s Taiex Index declined 0.4%. In economic news in the region, Australia’s consumer confidence declined, and Japanese department store sales grew.