Morning Market Update

Nearly Unchanged Amid Some Mixed Global Data

The US equity markets are flat in early trading as early declines were pared as Target Corp and Costco Wholesale Corp reported better-than-expected August same-store sales, while jobless claims declined slightly more than projected. Meanwhile, global manufacturing is in focus and some relatively favorable Chinese data is being offset by downward revisions to eurozone activity, while traders are awaiting a national read on US manufacturing output. Treasuries are higher amid the data, which also showed 2Q productivity was revised lower, while labor costs were adjusted higher. In other equity news, Bank of New York Mellon Corp announced that its Chairman and CEO Robert Kelly has stepped down, “due to differences in approach to managing the company.” Overseas, Asia finished mostly higher, while European equities are moving lower.

As of 8:51 a.m. ET, the September S&P 500 Index Globex future is at fair value, the Nasdaq 100 Index is 4 points above fair value, and the DJIA is 3 points above fair value. WTI crude oil is $0.17 lower at $88.64 per barrel, and the Bloomberg gold spot price is up $1.95 at $1,827.50 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.5% to 74.49.

The nation’s retailers are reporting results for August same-store sales—sales at stores open at least a year—headlined by Target Corp. (TGT $52), which announced a 4.1% increase year-over-year (y/y), compared to the 3.5% gain that analysts surveyed by Reuters had anticipated. TGT said August sales were “in line” with its expectations, reflecting “solid results” in its back-to-school and back-to-college categories.

Meanwhile, Costco Wholesale Corp. (COST $79) posted a same-store sales jump of 11% y/y, including the impact of fuel sales and foreign currency fluctuations, above the 9.3% increase the Street had forecasted. Excluding fuel and foreign currency, COST’s sales grew 7%. Additionally, the company announced that its Chief Executive Officer (CEO) Jim Sinegal plans to step down effective January 1, 2012, and current President and Chief Operating Officer, Craig Jelinek, will be the new CEO.

In other equity news, Bank of New York Mellon Corp. (BK $21) announced that its Chairman and CEO Robert Kelly has stepped down, “due to differences in approach to managing the company,” and Gerald Hassell has been appointed Chairman and CEO, effective immediately.

Jobless claims fall, 2Q productivity drops, manufacturing data on the morning’s horizon

Weekly initial jobless claims fell by 12,000 to 409,000, versus last week's figure which was upwardly revised by 4,000 to 421,000, and compared to the 410,000 level that economists surveyed by Bloomberg had expected. However, the four-week moving average, considered a smoother look at the trend in claims, increased by 1,750 to 410,250, and continuing claims fell by 18,000 to 3,735,000, above the forecast of economists, which called for continuing claims to come in at 3,681,000.

Meanwhile, the final reading on 2Q nonfarm productivity (chart) showed a 0.7% decline on an annual basis, revised down from the 0.3% drop that was initially reported, and compared to the 0.5% decrease that economists had expected. 2Q’s drop compared to the 0.6% decline that was seen in 1Q. Unit labor costs came in at a 3.3% increase, versus a gain of 2.2% that was recorded in the preliminary estimate, and compared to the 2.4% growth that was estimated. 1Q unit labor costs were 6.2% higher.

Treasuries are higher in early action following the data, with the yield on the 2-year note down 1 bp to 0.19%, while the yields on the 10-year note and the 30-year bond are declining 2 bps to 2.21% and 3.58%, respectively.

However, shortly after the opening bell, the global manufacturing focus will continue with the release of the ISM Manufacturing Index, which is forecasted to decline from 50.9 in July to 48.5 for August. The estimated deterioration would be the first time the index has fallen to a level depicting contraction—denoted by a reading below 50—in the manufacturing sector for the first time since July 2009. We have had several regional reports show activity contracted in August leading up to the report, highlighted by the Philly Fed Manufacturing Index, which fell to the lowest level since March 2009, boosting elevated recession chatter. Key components of today’s report that will likely garner the most attention are new orders and inventories, and their corresponding relationship, for signs of current demand and the outlook for future activity. Also, ahead of tomorrow’s labor report, the employment component could potentially find some increased scrutiny as the jobs sector is one that has appeared to have baffled the US Federal Reserve at its meetings for some time.

Finally, the last report on today’s US economic docket will be the release of construction spending, expected to rise 0.2% month-over-month (m/m) in July, matching the gain seen in June.

Europe under pressure as manufacturing data is revised lower

The equity markets in Europe are broadly lower, as some relatively favorable Chinese manufacturing data was offset by some lackluster manufacturing data out of the eurozone and the UK, and a disappointing debt auction in Spain, which maintained concerns about the debt crisis in the region. The eurozone PMI Manufacturing Index for August was revised from a preliminary reading of 49.7—where economists had expected the index to remain-to 49.0, with a reading below 50 denoting a contraction in activity. July’s reading of manufacturing activity in the eurozone was 50.4. The downward adjustment came as PMI Manufacturing Indices out of France and Germany—Europe’s largest economy—were also revised lower, but the German index did remain above the key 50 level. Elsewhere, the UK PMI Manufacturing Index decelerated from an upwardly revised 49.4 in July to 49.0 in August, matching expectations. In other economic news, German 2Q GDP was left unrevised at a 0.1% quarter-over-quarter (q/q) rate of expansion, as stronger-than-expected exports were offset by declines in construction investment and private consumption. In other GDP news, Switzerland’s 2Q GDP expanded at a 0.4% q/q rate, matching expectations, while 1Q was revised higher.

The UK FTSE 100 Index is down 0.1%, France’s CAC-40 Index is declining 0.7%, Germany’s DAX Index is falling 1.6%, Switzerland’s Swiss Market Index is 0.3% lower, and Spain’s IBEX 35 Index is decreasing 1.1%.

Asia mostly higher following China manufacturing data

Stocks in Asia finished mostly higher to begin the new month, on the heels of yesterday’s better-than-forecasted manufacturing data out of the US, complimented by reports showing improved manufacturing activity in China. The Chinese PMI Manufacturing Index accelerated from 50.7 in July to 50.9 for August, compared to the 51.0 level that economists had estimated. Output increased and new orders remained in expansion territory, while new export orders fell to a level depicting contraction. Meanwhile, a separate Manufacturing PMI report from HSBC showed China’s activity rose from 49.3 in July to 49.9 for August. PMI readings above 50 denote expansion in activity. Japan’s Nikkei 225 Index gained 1.2% to lead the way, while Australia’s S&P/ASX 200 Index and Hong Kong’s Hang Seng Index both advanced 0.3%. Elsewhere, South Korea’s Kospi Index finished flat amid the Chinese data, which may have been offset by a report that showed South Korean manufacturing slowed from 51.3 in July to 49.7 in August. However, China’s Shanghai Composite Index declined 0.4% despite the data, which fostered some concerns that further monetary policy tightening by the government may be on the way, exacerbated by yesterday’s report that Chinese Premier Wen Jiabao noted that stabilizing inflation remains the nation’s top priority.