Morning Market Update

 

Europe Rebounds to Help US Markets Gain Ground

Following yesterday’s decline on exacerbated eurozone sovereign debt concerns, US stocks are nicely higher in early trading, as European stocks are rising broadly after the German Constitutional Court ruled against deeming the participation of Germany in the region’s bailouts as unconstitutional. Treasuries are mostly lower amid the gains in the equity markets, despite a drop in mortgage applications, and ahead of the Federal Reserve’s release of its policy-assisting Beige Book report on economic conditions across the nation. Corporate leadership reorganizing is dominating the equity headlines, with Yahoo Inc announcing the removal of Carol Bartz as Chief Executive Officer, and Dow member Bank of America Corp reporting that President of Global Wealth and Investment Management Sallie Krawcheck, as well as President of Global Consumer and Small Business Banking Joe Price, will be leaving the company. In other equity news, NVIDIA Corp issued full-year revenue guidance that exceeded expectations. Elsewhere overseas, Asian markets moved solidly higher on the heels of some favorable economic reports in the region.

As of 8:49 a.m. ET, the September S&P 500 Index Globex future is 12 points above fair value, the Nasdaq 100 Index is 22 points above fair value, and the DJIA is 109 points above fair value. WTI crude oil is $1.02 higher at $87.04 per barrel, and the Bloomberg gold spot price is down $46.80 at $1,828.45 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.4% to 75.61.

Yahoo Inc. (YHOO $13) announced that the company’s Board of Directors removed Carol Bartz as Chief Executive Officer (CEO), replacing her with Timothy Morse, who will be interim CEO, effective immediately. YHOO said it is commencing a search for a permanent CEO.

In other leadership reorganization news, Dow member Bank of America Corp. (BAC $7) announced that President of Global Wealth and Investment Management Sallie Krawcheck, as well as President of Global Consumer and Small Business Banking Joe Price, will be leaving the company. BAC said it appointed David Darnell and Tom Montag to the newly-created positions of Co-Chief Operating Officers, effective immediately.

NVIDIA Corp. (NVDA $13) issued revenue guidance for fiscal 2013, which begins for the company on January 30, 2012, forecasting revenues to be between $4.7-5.0 billion, compared to the $4.5 billion that analysts surveyed by Reuters had projected. The graphics chip maker said it sees growth across its entire graphics processing unit and mobile-processor business.

Mortgage applications decline, Fed data due out in the afternoon

The MBA Mortgage Application Index declined 4.9% last week, after the index that can be quite volatile on a week-to-week basis, fell by 9.6% in the previous week. The decrease came as a 6.3% fall in the Refinance Index more than offset a 0.2% increase in the Purchase Index. Meanwhile, the decline in refinancing activity came despite a drop in the average 30-year mortgage rate by 9 basis points (bps) to 4.23%.

Treasuries are mostly lower in morning action, with the yield on the 2-year note unchanged at 0.20%, while the yield on the 10-year note is increasing 2 bps to 2.01%, and the 30-year bond rate is 3 bps higher at 3.30%.

However, the main event on today’s US economic calendar will be the midday release of the Federal Reserve Beige Book, wherein Fed staffers summarize anecdotal economic data from all twelve Federal Reserve districts in preparation for the next Federal Open Market Committee (FOMC) meeting scheduled for September 20-21. The Beige Book measures what businesses and consumers are saying about actual current conditions, particularly the state of order books, demand for loans, and sales.

Eurozone debt concerns ease to support European equities

The equity markets in Europe are nicely higher in afternoon action amid a relative easing of eurozone sovereign debt concerns after Germany’s Constitutional Court ruled against a series of lawsuits aimed at deeming the participation of Europe’s largest economy in bailouts of troubled euro-area nations unconstitutional. Greek stocks are moving nicely higher on the ruling, but the German court said the German government must seek the approval of its Parliament Budget Committee before offering bailout funds, which may prolong the approval process if aid is needed.

Meanwhile, the economic front is helping the markets across the pond rebound from their recent sell-off, as German industrial production came in much stronger than forecasted. Production rose 4.0% month-over-month (m/m) in July, after falling a favorably revised 1.0% in June, and compared to the 0.5% increase that economists expected. However, UK data is mixed, with industrial production unexpectedly declining in July and home prices falling more than forecasted for August, while manufacturing production unexpectedly increased in July. In other economic news, Sweden’s central bank left its benchmark interest rate unchanged at 2.00%, as expected.

In equity news, BP Plc. (BP $36) is solidly higher after the oil company and its partner Dow member Chevron Corp. (CVX $96) made a deep water discovery in the Gulf of Mexico.

The UK FTSE 100 Index is gaining 1.7%, France’s CAC-40 Index is rising 2.1%, Germany’s DAX Index is advancing 2.6%, Italy’s FTSE MIB Index is increasing 2.5%, Spain’s IBEX 35 Index is 1.8% higher, and Greece’s Athex Composite Index is rallying 4.1%.

Economic data drives Asia higher

Stocks in Asia finished broadly higher following some upbeat data in the region, which eased concerns about a slowdown in the economy. Japan’s Nikkei 225 Index rose 2.0%, as the Bank of Japan held its benchmark interest rate unchanged near zero, while the nation’s Leading Index rose slightly more than expected in July.  Japan is still trying to address its "three D's" –the structural issues of debt, demographics and deflation. However, we're starting to see signs that Japanese corporations are viewing the crisis as a wake-up call and are slowly adopting practices that may make them more globally competitive. These changes may have the potential to bring about the long-awaited revival of Japanese stocks.

Meanwhile, Australia’s S&P/ASX 200 Index jumped 2.7% following a report that showed the country’s 2Q GDP rose 1.2% quarter-over-quarter (q/q), after contracting a favorably revised 0.9% in 1Q, and compared to the 1.0% growth that economists expected. The stronger-than-forecasted increase in output came amid rising consumer spending and growth in exports.

Elsewhere, China’s Shanghai Composite Index gained 1.8% to contribute to the broad-based strength in the region, aided by a report from the China Securities Journal that the government may ease monetary policy by buying securities from banks or cutting the required reserve ratios for its banks, the media outlet said, according to Bloomberg. A shift away from China’s aggressive monetary policy tightening that begun in early 2010 could help silence the bears’ argument about slowing growth.

Rounding out the day in Asia, South Korea’s Kospi Index rallied 3.8%, Hong Kong’s Hang Seng Index gained 1.7%, and India’s BSE Sensex 30 Index advanced 1.2%.