Morning Market Update

Gains Wane Following Disappointing Data

The US equity markets remain modestly higher in early action following reassuring comments from Germany and France regarding the future Greece as part of the eurozone. However, gains have been pared following some negative US economic data, as consumer prices came in hotter-than-expected on the headline level, jobless claims unexpectedly rose, and a read on manufacturing activity in New York unexpectedly deteriorated in September, while the 2Q current account deficit surprisingly narrowed. Treasuries remain lower despite the data, while reports on mid-Atlantic manufacturing activity, as well as industrial production and capacity utilization are due out after the opening bell. Meanwhile, US equity news is light, with Netflix Inc falling sharply after the company reduced its US subscriber guidance. Overseas, Asian stocks moved mostly higher on eased eurozone debt concerns, which is helping push European equities nicely higher in afternoon action. 

As of 8:47 a.m. ET, the December S&P 500 Index Globex future is 1 point above fair value, the Nasdaq 100 Index is 9 points above fair value, and the DJIA is 26 points above fair value. WTI crude oil is $0.11 higher at $89.02 per barrel, and the Bloomberg gold spot price is down $30.71 at $1,789.09 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.3% to 76.62.

Netflix Inc . (NFLX $209) is sharply lower after the internet movie and TV show subscription service provider lowered its 3Q domestic subscriber guidance. The company said the revised estimate was due to more visibility after it took the strategic step two months ago by separating its streaming and DVD-by-mail units into two distinct services. NFLX added that its financial guidance and its international subscriber outlooks were unchanged.

Consumer prices and jobless claims rise, NY manufacturing drops, more data on deck

The Consumer Price Index showed prices at the consumer level were up 0.4% month-over-month (m/m) in August, more than the forecasts of economists surveyed by Bloomberg, which called for a 0.2% increase, with July’s 0.5% rise unrevised. Meanwhile, the core rate, which strips out food and energy, was 0.2% higher m/m in August, matching estimates, with July’s 0.2% increase unadjusted. On a y/y basis, consumer prices were up 3.8% in August, above economists’ forecasts of a 3.6% increase, and the core CPI was 2.0% higher, versus the 1.9% that was expected. The July y/y figures were gains of 3.6% and 1.8% for the headline and core rates, respectively.

Meanwhile, weekly initial jobless claims rose by 11,000 to 428,000, versus last week's figure which was upwardly revised by 3,000 to 417,000, and compared to the 411,000 level that economists had expected. Also, the four-week moving average, considered a smoother look at the trend in claims, rose by 4,000 to 419,500, while continuing claims fell by 12,000 to 3,726,000, above the forecast of economists, which called for continuing claims to come in at 3,710,000.

Also, the Empire Manufacturing Index, a measure of manufacturing in the New York region, deteriorated further in September, falling to -8.82 from August’s level of -7.72, compared to the estimates of economists, which called for an improvement to -4.00. A reading of zero is the demarcation point between contraction and expansion in activity and the surprising decline came as new orders, shipments and inventories all fell. The report is the first major piece of data looking at manufacturing conditions in September.

Moreover, the 2Q current account deficit came in smaller than expected at $118.0 billion, from a slightly unfavorably revised $119.6 billion in 1Q, and compared to the increase to $122.4 billion that was anticipated by economists.

Treasuries remain lower in early action despite the data, with the yield on the 2-year note up 1 bp to 0.20%, the yield on the 10-year note 8 bps higher to 2.06%, and the 30-year bond rate increasing 4 bps to 3.32%.

Later this morning, the US economic data will continue to pour in with the releases of industrial production and capacity utilization, as production is expected to come in flat m/m in August, and utilization is anticipated to remain unchanged at 77.5%. Finally, we will get the release of the Philadelphia Fed Manufacturing Index, forecasted to improve from August’s shockingly disappointing -30.7 figure to -15.0 in September, but remain at a level depicting contraction, denoted by a reading below zero.

Europe higher as France and Germany lend support for Greece

The equity markets in Europe are nicely higher in afternoon action amid eased concerns regarding the future of Greece as part of the eurozone. Germany and France offered reassuring comments following a late-day conference call yesterday that Greece will remain in the eurozone, and that the troubled nation is committed to meeting its deficit-reduction targets to continue to receive financial aid from the region’s bailout mechanisms. The strong advance in Europe comes despite a sharp drop in shares of UBS AG (UBS $13) after the Swiss bank warned that it may post a loss for 3Q as a trader at the firm lost $2 billion in unauthorized trades. However, shares of Kingfisher Plc. (KGFHY $8) are moving solidly to the upside to help the advance across the pond, after Europe’s largest home-improvement retailer, per Bloomberg, reported earnings that exceeded analysts’ expectations.

On the European economic front, UK retail sales came in better than expected in August, while the Bank of England’s twelve month inflation forecast accelerated. Moreover, eurozone consumer prices rose at a rate that matched economists’ projections in August, while 2Q euro-area employment grew compared to 1Q.

The UK FTSE 100 Index is advancing 1.6%, France’s CAC-40 Index is gaining 2.2%, and Germany’s DAX Index is rising 2.3, while Greece’s Athex Composite Index is declining 0.3%.

Asia mostly higher on Greece optimism

Stocks in Asia finished mostly higher on the heels of yesterday’s conference between Germany, France, and Greece, which eased concerns that the Greek nation will remain in the eurozone, softening growing concerns that the troubled nation will default on its debt obligations. Japan’s Nikkei 225 Index gained 1.8% on the calmed eurozone debt concerns and as shares of Elpida Memory Inc. (ELPDF $7) rose solidly on the news that it may shift some of its domestic production to Taiwan to combat slowing demand and a stronger yen.

Elsewhere, South Korea’s Kospi Index rose 1.4%, Hong Kong’s Hang Seng Index advanced 0.7%, and Australia’s S&P/ASX 200 Index gained 1.7% amid the eased European concerns. However, New Zealand’s NZX 50 Index dipped 0.1% after the nation’s central bank kept its benchmark interest rate unchanged at 2.50%, as expected, amid the growing global growth worries. Finally, China’s Shanghai Composite Index declined 0.2%.