Evening Market Update

Europe Opens the Week Strong, Helping Boost Early US Trading

The US equity markets are solidly higher in early action, trying to recoup last week’s sharp declines, aided by a strong advance in European stocks on a rally in financials amid a plethora of speculation that eurozone policymakers may be set to deploy further measures to combat the region’s debt crisis. Treasuries are nearly unchanged in morning trading ahead of a read on new home sales, kicking off several reports on the sector, and the release of the Dallas Fed Manufacturing Index. Equity news is light, as billionaire activist investor Carl Icahn announced the withdrawal of his slate of nominations to change the Board of Directors at Clorox Co. Elsewhere overseas, Asian stocks fell broadly, with major markets reaching new lows.

As of 8:51 a.m. ET, the December S&P 500 Index Globex future is 12 points above fair value, the Nasdaq 100 Index is 15 points above fair value, and the DJIA is 101points above fair value. WTI crude oil is flat at $79.85 per barrel, and the Bloomberg gold spot price is down $29.24 at $1,627.50 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.4% at 78.21.

Billionaire activist investor Carl Icahn announced that his High River Limited partnership withdrew its slate of nominations to change the Board of Directors at Clorox Co. (CLX $69), ending his pursuit to have the company sold. Icahn said in a regulatory filing that a “considerable base of shareholders would not support” his stated campaign at this time. Icahn said he continues to believe that the best way to ultimately maximize shareholder value is through a sale of CLX to a strategic buyer. CLX confirmed the withdrawal of Icahn’s board member nominations, noting that the company will not be engaged in a proxy contest this year.

New home sales after the opening bell set to kick off economic calendar this week

Treasuries are flat in morning action as there are no major US economic releases due out before the opening bell, with the yield on the 2-year note unchanged at 0.21%, the yield on the 10-year note 1 bp higher at 1.84%, and the 30-year bond rate flat at 2.90%.

However, after the beginning of trading, we will get the release of new home sales, forecasted to decline 1.3% month-over-month (m/m) in August to an annual rate of 294,000 units. The new home sales report is considered a timely indicator of conditions in the housing market as it is based on signings. Meanwhile, we will also get a look at the Dallas Fed Manufacturing Index, projected to improve from -11.4 in August to -8.0 for September, with a reading below zero depicting contraction.

Today’s housing data will be the first of several reads on the sector this week, continuing with tomorrow’s S&P/CaseShiller Home Price Index, forecasted to show prices rose 0.1% m/m in July, despite falling by 4.5% y/y. Pricing data lags sales data by a month. Also, on Thursday, pending home sales will be released, and the gauge of the pipeline of existing home sales is expected to fall 1.6% m/m in August.

Other releases slated in the US this week include: durable goods orders, the final reading of 2Q gross domestic product (GDP), the Consumer Confidence Index, the Richmond Fed Manufacturing Index, the MBA Mortgage Applications Index, weekly initial jobless claims, personal income and spending, the Chicago Purchasing Manager Index, and the final University of Michigan Consumer Sentiment Index.

Financials leading European advance

The equity markets in Europe are nicely higher in afternoon action, led by financials, amid mounting pressure on eurozone policymakers to step up efforts to try to arrest the eurozone debt crisis and the threat of contagion in the region. Speculation that the European Central Bank (ECB) could cut interest rates at its monetary policy meeting next week is boosting optimism, along with chatter about the possible leveraging of the European Financial Stability Facility (EFSF) and a potential action by the French government to help inject capital into its banking sector. However, none of the potential actions by eurozone policymakers has been confirmed at this point. Meanwhile, German Chancellor Angela Merkel said a barrier must be put in place surrounding Greece to help combat the threat of contagion in the region. Merkel noted that, “We have to be in a position to react.”

On the European economic front, the German Ifo Business Climate Index declined from 108.7 in August to 107.5 in September, but above the 106.5 level that economists had expected. Also, the German Ifo Expectations Index declined by a smaller amount than forecasted.

The UK FTSE 100 Index is rising 1.0%, France’s CAC-40 Index is gaining 2.7%, Germany’s DAX Index is rallying 3.1%, and Switzerland’s Swiss Market Index is advancing 2.1%, while Greece’s Athex Composite Index is declining 0.6%.

Asia pressured by global growth and euro debt concerns

Stocks in Asia finished broadly lower as growing concerns about a possible return to a recession in the US and Europe, combined with the festering uncertainty regarding a Greek debt default, dampened sentiment and drained risk taking among traders. Japan’s Nikkei 225 Index fell 2.2%, the lowest close since April 2009, after returning to trading following a three-day weekend. Elsewhere, Australia’s S&P/ASX 200 Index dropped 1.0%, the lowest level since July 2009, and South Korea’s Kospi Index tumbled 2.6%, a level not seen since June 2010, as resource-related issues and stocks tied to economic prosperity paced the declines. Finally, China’s Shanghai Composite Index dropped 1.6%, hitting a fourteen-month low, while Hong Kong’s Hang Seng Index declined 1.5%, more than a two-year low.