Morning Market Update

Upward Momentum Continues Despite Jobs Data

The US equity markets continue to cut into the sharp losses that were racked up in early August, gaining modest ground despite the ADP private sector payroll report showing a smaller-than-expected rise in jobs, ahead of Friday’s key nonfarm payroll release. Treasuries are mostly higher following the data, which also included a drop in mortgage applications, while reports on Midwest manufacturing activity and factory orders are set to be released just after the opening bell. Meanwhile, crude oil and gold are finding some modest pressure in early action, while the US dollar is nearly unchanged. In equity news, PVH Corp posted better-than-forecasted 2Q earnings and raised its full-year guidance, while Clorox Co rejected activist investor Carl Icahn’s latest $78.00 per share takeover offer. Overseas, Asian stocks finished mostly higher, while European equities are moving solidly higher in afternoon trading.

As of 8:45 a.m. ET, the September S&P 500 Index Globex future is 5 points above fair value, the Nasdaq 100 Index is 8 points above fair value, and the DJIA is 37 points above fair value. WTI crude oil is $0.52 lower at $88.38 per barrel, and the Bloomberg gold spot price is down $2.35 at $1,833.18 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is flat at 73.95.

PVH Corp. (PVH $65) reported 2Q EPS ex-items of $1.07, above the $0.95 consensus estimate of analysts surveyed by Reuters, with revenues growing 21% year-over-year (y/y) to $1.33 billion, compared to the $1.28 billion that the Street had forecasted. The apparel maker said its revenue growth reflected increases in its Tommy Hilfiger unit and Calvin Klein businesses, which posted sales gains of 30% and 19% y/y, respectively. PVH also raised its full-year revenue and earnings guidance.

Clorox Co. (CLX $71) rejected activist investor Carl Icahn’s latest $78.00 per share offer—down from a previous $80.00 per share proposal—to acquire the consumer products maker, noting that it believes his latest bid is “highly conditional, substantially undervalues the company and its not credible.” CLX said its Board of Directors “remains open to any credible proposal.”

ADP private sector payrolls rise less than expected, mortgage apps fall, more data on tap

The ADP Employment Change Report showed private sector payrolls rose by 91,000 jobs in August, versus the forecast of economists surveyed by Bloomberg, which called for a 100,000 increase, and July’s 114,000 job gain was revised to a rise of 109,000 jobs. The release, which does not include government hiring and firing, comes ahead of Friday’s broader nonfarm payrolls report, where economists expect an increase of 70,000 jobs in August, after posting a better-than-expected 117,000 increase in July (economic calendar). Excluding government hiring, August private sector payrolls are expected to increase 100,000, after expanding by 154,000 in July. The unemployment rate is forecasted to remain at 9.1% and average hourly earnings are anticipated to rise 0.2% month-over-month (m/m), after gaining 0.4% in July.

Elsewhere, the MBA Mortgage Application Index fell 9.6% last week, after the index that can be quite volatile on a week-to-week basis, declined by 2.4% in the previous week. The decrease came as a 12.2% fall in the Refinance Index more than offset a 0.9% increase in the Purchase Index. Meanwhile, the decline in refinancing activity came despite a drop in the average 30-year mortgage rate by 7 basis points (bp) to 4.32%.

Treasuries are mostly higher in morning trading following the data, with the yield on the 2-year note flat at 0.19%, while the yields on the 10-year note and the 30-year bond are down 2 bps to 2.16% and 3.50%, respectively.

Later this morning, we will get the releases of the Chicago PMI, and the gauge of Midwest manufacturing activity is forecasted to decelerate from 58.8 in July to 53.3 in August, with a reading above 50 denoting expansion, along with factory orders, anticipated to rise 2.0% m/m in July, after falling 0.8% in June.

Europe nicely higher amid data and following the Fed

The equity markets in Europe are solidly higher in afternoon action on the heels of a relatively upbeat read on German retail sales and as traders digested yesterday’s release of the US Federal Reserve’s minutes that showed policymakers continue to grapple with the direction of monetary policy amid elevated unemployment and the threat of inflation. Industrials and basic materials are leading the advance in Europe, with optimism that the US Fed may still have monetary policy tools left to stimulate the economy, if needed, lending a hand to sentiment. Reports out of Germany are dominating the economic calendar across the pond, showing retail sales in Europe’s largest economy came in flat for July, after jumping 6.3% in June, and compared to the 1.5% drop that economists projected. Also, German unemployment declined by 8,000 in August, versus the 10,000 drop that was anticipated. In other economic news, the eurozone estimate of consumer prices for August held steady at a rise of 2.5% y/y, matching expectations. In equity news, shares of Carrefour SA (CRRFY $6) are under pressure after the world’s second-largest retailer, per Bloomberg, reduced its full-year earnings outlook. Despite the solid gains in the region, stocks are poised to finish the month of August down nearly 12%, the largest drop since October 2008.

The UK FTSE 100 Index is 1.0% higher, France’s CAC-40 Index is gaining 1.9%, and Germany’s DAX Index is advancing 1.3%.

Asia mostly higher despite data

Stocks in Asia finished mostly higher in lighter-than-usual volume as markets in Malaysia, Indonesia, and India were closed for holidays, despite some lackluster economic reports in the region, while traders digested yesterday’s US Federal Reserve’s minutes. Japan’s Nikkei 225 Index finished nearly unchanged in choppy trading following reports that showed Japanese industrial production rose at a smaller rate than expected, vehicle production fell, and construction orders decelerated, while housing starts surged. Also, South Korea’s Kospi Index rose 2.0% on strength in auto stocks even after a report showed the nation’s industrial production unexpectedly fell. Elsewhere, Australia’s S&P/ASX 200 Index rose 0.6%, supported by gains in mining and gold stocks, and the Hong Kong Hang Seng Index advanced 1.6%, while China’s Shanghai Composite Index finished flat. Stocks in mainland China may have been hampered somewhat by comments from Chinese Premier Wen Jiabao suggesting that stabilizing inflation remains the nation’s top priority, dampening hopes that China was near the end of its monetary policy tightening campaign. Finally, for the month of August, Asian stocks fell more than 8%, the most since May 2010, per Bloomberg.