Morning Market Update

Rally Continues on US Data and European Bank Optimism

After two-straight late-day rallies, the US equity markets are extending gains in early action, following a smaller-than-forecasted increase in weekly initial jobless claims and continued optimism that European leaders are nearing possible banking sector recapitalization efforts. Also, September same-store sales results from the nation’s retailers are coming in mostly above forecasts to help buoy stocks. Treasuries are lower amid the rise in stocks and the favorable employment data ahead of tomorrow’s labor report. However, traders are looking across the pond at the press conference by the European Central Bank for any signs that the central bank will deploy measures to help stabilize the eurozone’s financial sector. In other equity news, the Chairman and co-founder of Apple Inc Steve Jobs died on Wednesday at the age of 56. Overseas, Asian markets finished broadly higher in the wake of the strong gains in the US and Europe yesterday, while European markets are higher on the aforementioned banking sector optimism and after the Bank of England and European Central Bank both kept their benchmark interest rates unchanged as expected.

As of 8:47 a.m. ET, the December S&P 500 Index Globex future is 3 points above fair value, the Nasdaq 100 Index is 6 points above fair value, and the DJIA is 34 points above fair value. WTI crude oil is increasing $0.99 to $80.67 per barrel, and the Bloomberg gold spot price is up $3.95 at $1,644.80 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.5% at 79.34.

The Chairman and co-founder of Apple Inc. (AAPL $378) Steve Jobs died on Wednesday at the age of 56. After battling pancreatic cancer and receiving a liver transplant several years ago, Jobs stepped down as CEO in August, with Tim Cook taking over as the company’s chief executive.

Meanwhile, the nation’s retailers are reporting results for September same-store sales (sss)—sales at stores open at least a year—headlined by Target Corp. (TGT $50), which announced a 5.3% increase year-over-year (y/y), compared to the 3.9% gain that analysts surveyed by Reuters had anticipated. TGT said September sales were “somewhat ahead of our expectations,” as it experienced “strong sales” throughout the month and across a broad array of merchandise categories, even in “this soft economic environment.”

Also, Macy’s Inc. (M $26) posted September sss growth of 4.9% y/y, above the 4.4% increase that the Street had forecasted, and J.C. Penney Co. Inc. (JCP $28) reported a decline of 0.6% in sss for the month, versus the increase of 0.6% that analysts had projected, while TJX Companies (TJX $56) announced a 4.0% rise in sss, above the 3.2% gain that analysts anticipated.

Elsewhere, Gap Inc. (GPS $17) reported a 4.0% drop in y/y September sss, versus the 3.8% decline that analysts had projected, and Limited Brands Inc. (LTD $40) said its sss for the month grew 11%, exceeding the 4.6% increase that the Street was expecting.

Jobless claims rise after the previous week’s tumble

Weekly initial jobless claims  rose by 6,000 to 401,000 last week, following the steep decline in the previous week to 391,000, which was revised to 395,000, and below the 410,000 level that economists surveyed by Bloomberg had expected. Also, the four-week moving average, considered a smoother look at the trend in claims, declined by 4,000 to 414,000, and continuing claims dropped by 52,000 to 3,700,000, below the forecast of economists, which called for a 3,725,000 reading.

Treasuries are mostly lower following the employment data, with the yield on the 2-year note unchanged at 0.26%, while the yields on the 10-year note and the 30-year bond rate are gaining 7 bps to 1.96% and 2.92%, respectively.

Europe rallying on bank support hope and following central bank meetings

The equity markets are higher in afternoon action, led by basic materials and financials on hopes that eurozone leaders are nearing a coordinated effort to support the region’s banking sector. The optimism follows comments from European Commission President Barroso suggesting a potential coordinated recapitalization of eurozone banks to try to boost confidence toward the battered banking sector. Barroso said, “We are determined to do everything necessary to ensure that Europe’s banks are able to play their essential role in lending,” per Bloomberg, adding that “close coordination” at the European level is essential.

Meanwhile, traders are digesting monetary policy meetings from the Bank of England (BoE) and the European Central Bank (ECB). Both the BoE and the ECB left their respective benchmark interest rates unchanged, as expected, at 0.50% and 1.50%, respectively, while the BoE unexpectedly announced a 75 billion pound increase in its asset purchase program to 275 billion. Now traders are shifting their attention to the customary press conference by ECB President Jean-Claude Trichet following its announcement for any signs that the central bank is moving to ease monetary policy after tightening twice this year to help lend support to the eurozone, which is being stymied by the festering debt crisis and slowing economic growth. This was the last monetary policy meeting for Trichet, as his eight-year term as the head of the ECB will end on October 31.

In other economic news, German factory orders unexpectedly fell month-over-month (m/m) in August, along with UK home prices in September, while Switzerland’s consumer prices came in hotter than anticipated for September.

The UK FTSE 100 Index is gaining 2.0%, France’s CAC-40 Index is rising 2.2%, Germany’s DAX Index is advancing 1.4%, and Switzerland’s Swiss Market Index is increasing 1.7%.

Asia moves higher following strong gains in US and Europe

Stocks in Asia finished broadly higher on the heels of the solid advance in the equity markets in the US and Europe, while China’s Shanghai Composite Index and India’s BSE Sensex 30 Index were closed for holidays. Optimism that Europe is mulling over measures to support the region’s banking sector to help combat the eurozone debt crisis and favorable data on employment and the services sector in the US underpinned sentiment. Strength in resource-related stocks, technology and banking issues paced the advance in the region. Japan’s Nikkei 225 Index gained 1.7%, Australia’s S&P/ASX 200 Index rose 3.7%, and South Korea’s Kospi Index increased 2.6%, while Hong Kong’s Hang Seng Index led the way, jumping 5.7% after returning from yesterday’s holiday. The strong advance in Hong Kong came despite a report that showed its PMI Index decelerated from 47.8 in August to 45.9 for September, with a reading below 50 denoting contraction in business activity.