Euro-area Debt Relief and Manufacturing Data Carrying the Bulls
The global equity markets are nicely higher on the heels of some favorable manufacturing reports out of China and the UK, as well as a relative easing of euro-area debt fears. Moreover, a stronger-than-forecasted reading of US private-sector payrolls is also helping sentiment. Treasuries are lower amid the upbeat mood in the markets, showing little reaction to reports that showed an upward revision to 3Q productivity and a drop in mortgage applications. Meanwhile, key reports loom on the horizon, in the form of the US ISM Manufacturing Index and the Federal Reserve’s Beige Book. Equity news is light, with State Street Corp announcing a restructuring plan, which includes a reduction of 1,400 jobs. Overseas, Asia was higher across the board on the Chinese manufacturing data, while Europe is also posting a broad-based gain.
As of 8:51 a.m. ET, the December S&P 500 Index Globex future is 16 points above fair value, the Nasdaq 100 Index is 30 points above fair value, while the DJIA is 142 points above fair value. Crude oil is $1.23 higher at $85.34 per barrel, and the Bloomberg gold spot price is up $0.38 at $1,386.40 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.7% at 80.73.
State Street Corp. (STT $43) announced that it will reduce its workforce by 1,400 employees, beginning in December, as the company announced a four-year restructuring plan. The financial firm also said its plans to record pre-tax restructuring charges of $400-450 million, with $160-165 million being recognized in the current quarter.
Private sector payrolls jump and 3Q productivity revised higher, but more key data on tap
The ADP Employment Change Report showed private sector payrolls rose by 93,000 jobs in November, compared to the forecast of economists surveyed by Bloomberg, which called for a 70,000 increase, and October’s 43,000 job gain was upwardly revised to a growth of 82,000 jobs. The release does not include government hiring and firing and comes ahead of Friday’s broader nonfarm payrolls report, where economists expect an increase of 145,000 jobs in November, after rising a better-than-expected 151,000 in October. Excluding government hiring, November private sector payrolls are expected to increase 155,000, after expanding by a larger-than-forecasted 159,000 in October.
Meanwhile, the final reading on 3Q nonfarm productivity was upwardly revised to a 2.3% increase on an annual basis, compared to the 1.9% increase reported in the preliminary report, and inline with what economists expected. Unit labor costs were 0.1% lower, unrevised from the initial report, versus a decline of 0.2% that was estimated.
In other economic news, the MBA Mortgage Application Index fell 16.5% last week, after the index that can be quite volatile on a week-to-week basis, gained 2.1% in the previous week. The drop came as a 21.6% tumble in the Refinance Index easily offset a 1.1% gain in the Purchase Index. The downward move in the overall index came amid a 6 basis-point increase in the average 30-year mortgage rate to 4.56%, above the record low of 4.21% on October 8.
Later today, the economic docket will continue to roll on with the releases of the ISM Manufacturing Index, forecasted to dip slightly from 56.9 in October to 56.5 in November, and the Federal Reserve’s Beige Book, a compilation of anecdotal economic data from all twelve Fed districts, used to prepare for the next Federal Open Market Committee (FOMC) meeting scheduled for December 14. The ISM manufacturing data has shown the overall economy has expanded for eighteen-consecutive months and the Beige Book has consistently denoted continued improvements in economic activity. However, the most attention on these reports will likely focus on components dealing with areas of the economy related to the dual mandate of the Federal Reserve, such as inflation and employment. The minutes from the most recent Fed meeting on November 3—where it announced $600 billion in further asset purchases known as QE2—showed participants viewed progress in output and employment as “disappointingly slow,” and while they saw only a small risk of deflation, inflation would be below the level consistent with maximum employment and price stability for “some time.”
Treasuries are lower amid the improved global sentiment, showing little reaction to the aforementioned data.
Europe seeing a rebound as financials see strength and data boosts optimism
The equity markets in Europe are enjoying a much needed advance, led by solid gains in financials, which have been ravaged by the recent flare-up in euro-area debt concerns after Ireland’s recent bailout and amid concerns of contagion of other euro-zone nations such as Portugal and Spain. The rebound in stocks and strong advance in financials comes amid comments from European Central Bank President Jean-Claude Trichet yesterday, in which he suggested that the ECB could expand its purchases of government debt. The advance also comes despite Standard & Poor’s placing Portugal’s credit rating on watch for a possible downgrade amid concerns about the nation’s economic growth prospects and the potential that it may need financial assistance from the euro-zone. Also, materials are among the best performers after a favorable reading on manufacturing activity in China and the UK, as well as a much stronger-than-forecasted increase in retail sales in Germany—Europe’s largest economy. The upbeat sentiment is overshadowing a steep drop in shares of Carrefour (CRERY $9) after the retailer reduced its full-year profit forecast for the second time in the last two months on writedowns in Brazil and lower-than-expected demand in Europe, per Bloomberg.
In other economic news in across the pond, UK home prices fell at a smaller pace than economists forecasted, and the nation’s Manufacturing PMI unexpectedly jumped to a 16-year high in November. Moreover, reports out of Ireland and France improved, while similar manufacturing reads out of Germany, the euro-zone, and Italy all remained in expansionary territory but were below expectations. Also, Spain’s Manufacturing PMI fell to a level of 50.0—the demarcation point between expansion and contraction.
The UK FTSE 100 Index is 1.4% higher, France’s CAC-40 Index is up 1.1%, Germany’s DAX Index is advancing 1.8%, Italy’s FTSE MIB Index is gaining 1.4%, Spain’s IBEX 35 Index is surging 3.0%, Portugal’s PSI 20 Index is rising 1.2%, and Ireland’s Irish Overall Index is trading 1.0% to the upside.
Data helps Asia advance
Stocks in Asia were higher as traders digested a plethora of economic data, highlighted by a larger-than-forecasted improvement in a gauge of manufacturing activity in China. The Chinese PMI Manufacturing Index rose from 54.7 in October to 55.2 in November—the fastest pace in seven months, per Bloomberg—compared to the slight increase to 54.8 that economists had expected, with a reading above 50 denoting expansion. Moreover, a separate reading of manufacturing in China also showed expansion, with the HSBC Manufacturing PMI increasing from 54.8 in October to 55.3 in November, but was just shy of the 55.4 forecast. China’s Shanghai Composite Index showed a muted reaction to the data, rising 0.1%, as concerns that the favorable data may prompt the government to tighten monetary policy could have kept the advance limited, but Hong Kong’s Hang Seng Index gained a solid 1.1%. Meanwhile, Japan’s Nikkei 225 Index rose 0.5% following the Chinese data, which complimented a favorable reading of consumer confidence in the US yesterday. The upbeat data also helped Australia’s S&P/ASX 200 Index eke out a 0.1% following a late-day advance which erased early losses that came from a report showing Australia’s 3Q GDP grew at a 0.2% quarter-over-quarter (q/q) pace, which was half the forecast of economists.
Elsewhere, South Korea’s Kospi Index rose 1.3% as a favorable read on the nation’s exports amplified sentiment, India’s BSE Sensex 30 Index gained 1.7% after a report showed the nation’s manufacturing activity expanded, while Taiwan’s Taiex Index advanced 1.8% on the heels of its PMI Manufacturing data showing activity moved into expansionary territory.
Europe seeing a rebound as financials see strength and data boosts optimism
The equity markets in Europe are enjoying a much needed advance, led by solid gains in financials, which have been ravaged by the recent flare-up in euro-area debt concerns after Ireland’s recent bailout and amid concerns of contagion of other euro-zone nations such as Portugal and Spain. The rebound in stocks and strong advance in financials comes amid comments from European Central Bank President Jean-Claude Trichet yesterday, in which he suggested that the ECB could expand its purchases of government debt. The advance also comes despite Standard & Poor’s placing Portugal’s credit rating on watch for a possible downgrade amid concerns about the nation’s economic growth prospects and the potential that it may need financial assistance from the euro-zone. Also, materials are among the best performers after a favorable reading on manufacturing activity in China and the UK, as well as a much stronger-than-forecasted increase in retail sales in Germany—Europe’s largest economy. The upbeat sentiment is overshadowing a steep drop in shares of Carrefour (CRERY $9) after the retailer reduced its full-year profit forecast for the second time in the last two months on writedowns in Brazil and lower-than-expected demand in Europe, per Bloomberg.
In other economic news in across the pond, UK home prices fell at a smaller pace than economists forecasted, and the nation’s Manufacturing PMI unexpectedly jumped to a 16-year high in November. Moreover, reports out of Ireland and France improved, while similar manufacturing reads out of Germany, the euro-zone, and Italy all remained in expansionary territory but were below expectations. Also, Spain’s Manufacturing PMI fell to a level of 50.0—the demarcation point between expansion and contraction.
The UK FTSE 100 Index is 1.4% higher, France’s CAC-40 Index is up 1.1%, Germany’s DAX Index is advancing 1.8%, Italy’s FTSE MIB Index is gaining 1.4%, Spain’s IBEX 35 Index is surging 3.0%, Portugal’s PSI 20 Index is rising 1.2%, and Ireland’s Irish Overall Index is trading 1.0% to the upside.
Data helps Asia advance
Stocks in Asia were higher as traders digested a plethora of economic data, highlighted by a larger-than-forecasted improvement in a gauge of manufacturing activity in China. The Chinese PMI Manufacturing Index rose from 54.7 in October to 55.2 in November—the fastest pace in seven months, per Bloomberg—compared to the slight increase to 54.8 that economists had expected, with a reading above 50 denoting expansion. Moreover, a separate reading of manufacturing in China also showed expansion, with the HSBC Manufacturing PMI increasing from 54.8 in October to 55.3 in November, but was just shy of the 55.4 forecast. China’s Shanghai Composite Index showed a muted reaction to the data, rising 0.1%, as concerns that the favorable data may prompt the government to tighten monetary policy could have kept the advance limited, but Hong Kong’s Hang Seng Index gained a solid 1.1%. Meanwhile, Japan’s Nikkei 225 Index rose 0.5% following the Chinese data, which complimented a favorable reading of consumer confidence in the US yesterday. The upbeat data also helped Australia’s S&P/ASX 200 Index eke out a 0.1% following a late-day advance which erased early losses that came from a report showing Australia’s 3Q GDP grew at a 0.2% quarter-over-quarter (q/q) pace, which was half the forecast of economists.
Elsewhere, South Korea’s Kospi Index rose 1.3% as a favorable read on the nation’s exports amplified sentiment, India’s BSE Sensex 30 Index gained 1.7% after a report showed the nation’s manufacturing activity expanded, while Taiwan’s Taiex Index advanced 1.8% on the heels of its PMI Manufacturing data showing activity moved into expansionary territory.
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