Morning Market Update

Favorable US Data Being Countered by China Policy Concerns

The equity markets in the US tilted slightly to the upside in late-morning action as improved sentiment from upbeat US trade and consumer sentiment reports is being curbed by policy tightening concerns out of China. Following a jump in exports, the Chinese government boosted the reserve requirements for its banks for the third time in five weeks, and traders are eyeing Chinese inflation data later today as it could prompt further tightening. Treasuries are mixed after the aforementioned US data, which included a jump in import prices. In equity news, Dow member United Technologies issued conservative guidance, Tenet Healthcare Corp rejected a takeover offer from Community Health Systems Inc, and National Semiconductor Corp posted disappointing 2Q revenue and reported 3Q revenue guidance that missed expectations. Overseas, Asia was mixed amid the uneasiness toward China, while Europe is nearly unchanged as traders grapple with data and policy in China.

At 10:56 a.m. ET, the Dow Jones Industrial Average is flat, the S&P 500 Index is up 0.1%, and the Nasdaq Composite is gaining 0.2%. Crude oil is down $0.55 at $87.82 per barrel, wholesale gasoline is off $0.03 at $2.32 per gallon, and the Bloomberg gold spot price is down by $9.37 at $1,377.74 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.2% at 80.21.

Dow member United Technologies Corp. (UTX $78) reaffirmed its 2010 guidance of EPS of $4.70 and sales of $54 billion. Also, the industrial conglomerate said it expects 2011 EPS to be in a range of $5.05-5.35 and sales between $56-57 billion. UTX said in 2011, it anticipates continued broad end market improvement, with particular strength in emerging markets and the commercial aerospace aftermarket. Analysts surveyed by Reuters, expected the company to post 2010 EPS of $4.73 and revenues of $54 billion, and EPS of $5.29 and revenues of $57.1 billion for 2011. Shares are higher.

Tenet Healthcare Corp. (THC $4) confirmed that it has received a takeover proposal from Community Health Systems Inc. (CYH $36) for $6.00 per share in cash and stock. THC said the proposal is “identical in all material respects” to a CYH proposal received by THC on November 12, 2010, and it had determined that the prior proposal was not in the best interests of THC or its shareholders. THC added that it believes the company and its shareholders will be better served by benefitting from 100% of the upside inherent in THC rather than accepting CYH’s “inadequate proposal.” CYH said it is “surprised and disappointed” by THC’s flat rejection of a transaction that would provide a premium of about 40% to THC shareholders and it is convinced this transaction would be very attractive to THC shareholders. THC is up over 50%, while CYH is gaining solid ground as well.

National Semiconductor Corp. (NSM $14) reported fiscal 2Q EPS of $0.34, two cents above the Street’s forecast, but although revenues increased 13% year-over-year (y/y) to $390.4 million, analysts were looking for revenues of $399.5 million. The chipmaker also issued 3Q revenue guidance that missed the Street’s forecasts. Shares are down solidly.

Trade deficit narrows, consumer sentiment improves, while import prices jump

The trade deficit narrowed by a larger amount than expected, falling from an upwardly revised $44.6 billion in September to $38.7 billion in October, versus the estimate of economists surveyed by Bloomberg, which called for the deficit to come in at $43.8 billion. Exports led the way, rising more than 3% month-over-month (m/m), with exports to China increasing almost 30% to help shrink the trade deficit with the Asian nation by 8.3%. However, imports decreased 0.5% m/m as Chinese imports dipped slightly.

Meanwhile, the preliminary University of Michigan Consumer Sentiment Index improved more than expected, rising from 71.6 in November to 74.2 for December, above the 72.5 level that economists had expected. The index sits at the highest level since June 2010 and was supported by improvements in the economic conditions and outlook components of the report. On inflation, consumers downgraded their outlooks slightly for both the one-year and five-year time frames.

Elsewhere, the Import Price Index rose 1.3% m/m for November, compared to the expectation of economists, which called for the index to increase by 0.8%. Year-over-year (y/y), import prices are higher by 3.7%, versus the 2.8% forecast of economists.

Treasuries are mixed following the data, with the yield on the 10-year note extending its recent surge.

Europe nearly unchanged amid mixed data and China concerns

The European equity markets are nearly unchanged in late-day action as euro-area debt concerns are remaining relatively subdued but growing concerns about policy tightening out of China are keeping sentiment in check. Automakers are gaining ground on some positive analyst comments toward the group, but financials are lagging behind as shares of Standard Chartered Plc.(SCBFF $29) are lower after the UK bank received a downgrade by analysts at Bank of America.

Meanwhile, there is a plethora of economic data across the pond for traders to digest, with separate reports showing France’s industrial and manufacturing production unexpectedly fell m/m in October, wholesale prices in Germany—Europe’s largest economy—rising in November, and UK producer prices increasing roughly inline with economists’ forecasts. Elsewhere, data out of Italy was mixed, with the nation’s 3Q GDP being revised higher unexpectedly, while a separate report showed its industrial production increased by an amount that missed expectations.

The UK FTSE 100 Index and France’s CAC-40 Index are down 0.1%, and Italy’s FTSE MIB Index is 0.2% lower, while Germany’s DAX Index is advancing 0.5%.

Asia mixed as China policy tightening remained in focus

Stocks in Asia were mixed amid some uneasiness regarding whether the Chinese government will increase its benchmark interest ahead of key reports on inflation that are due out tonight. Meanwhile expectations of further policy tightening were supported by data last night that showed China’s trade surplus narrowed by a smaller amount than economists expected, as exports and imports surged well above forecasts. However, China’s markets showed some resiliency in today’s trading, as the Shanghai Composite Index overcame early losses and finished 1.1% higher, while the Hong Kong Hang Seng Index finished flat. In other Chinese economic news, new yuan loans came in above expectations and the nation’s money supply topped forecasts, adding to the policy uneasiness. Moreover, after today’s close, the Chinese government did increase the reserve requirement rate—the amount the nation’s banks must keep in reserve—by another 50 basis points to 18.5%, marking the third increase in five weeks.

Elsewhere, Japan’s Nikkei 225 Index declined 0.7% amid the concern toward China and after a report showed Japan’s consumer confidence deteriorated, while India’s BSE Sensex 30 Index jumped 1.4% after a larger-than-expected increase in the country’s industrial production. Also, Australia’s S&P/ASX 200 Index rose 0.1% and South Korea’s Kospi Index declined 0.1%.