Morning Market Update

Stocks Find Support From European Optimism

The US equity markets are solidly higher in late-morning action with optimism continuing to grow regarding coordinated action by eurozone leaders to fight the festering debt crisis, following a weekend pledge by France and Germany. Meanwhile, the bond markets are closed in observance of the Columbus Day holiday and the US economic calendar is void of any major releases today. Gold and crude oil prices are higher, while the US dollar is under heavy pressure amid a rally in the euro. In equity news, Superior Energy Services Inc announced that it has agreed to acquire Complete Production Services Inc for about $2.7 billion, while Netflix Inc announced that it will drop its plan to have its DVD and streaming businesses on separate websites, and Scotts Miracle-Gro Co reduced its full-year earnings outlook. Overseas, Asian Stocks finished mixed as Japanese markets were closed for a holiday, while European equities are moving mostly to the upside. 

At 10:53 a.m. ET, the Dow Jones Industrial Average is up 2.4%, the S&P 500 Index is gaining 2.8%, and the Nasdaq Composite is advancing 3.0%. WTI crude oil is rising $2.76 at $85.74 per barrel, wholesale gasoline is up $0.06 at $2.71 per gallon, and the Bloomberg gold spot price is gaining $27.03 to $1,664.88 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 1.5% at 77.55.

Oilfield services company Superior Energy Services Inc. (SPN $23) announced that it has agreed to acquire Complete Production Services Inc. (CPX $28) for cash and stock, worth about $32.90 per share, or $2.7 billion. Under the terms of the deal, CPX shareholders will receive 0.945 common shares of SPN and cash of $7.00 for each share they own. SPN said the deal will be accretive to its EPS and cash flow in 2012. SPN is down sharply, while CPX is trading up over 35%.

Elsewhere, Scotts Miracle-Gro Co. (SMG $45) reduced its full-year earnings guidance as sales at the lawn and garden product maker are expected to decline 2% year-over-year (y/y). SMG said the sales shortfall, which was due to an unexpected y/y decline in consumer purchases in the US during September, coupled with associated gross margin pressure, will likely result in adjusted earnings in a range of $2.70-2.75 per share. Analysts surveyed by Reuters expected the company to post EPS of $2.98. SMG added that while it was counting on another strong fall lawn care season, the weather issues that plagued it throughout fiscal 2011 remained problematic during 4Q. SMG is under solid pressure.

Meanwhile, Netflix Inc. (NFLX $124) is solidly higher after the company reported that it is dropping its plan to split its movie-streaming and DVD-by-mail businesses into separate websites. NFLX announced in September that its DVD business will operate at Qwikster.com, but now will remain available at netflix.com. The company said, “There is a difference between moving quickly—which Netflix has done very well for years—and moving too fast, which is what we did in this case.”

Bond markets and economic docket quiet for Columbus Day holiday

The US bond markets are closed in observance of Columbus Day and Treasuries ended last week with the yield on the 2-year note at 0.29%, the 10-year note at 2.08%, and the 30-year bond at 3.02%.

Also, the US economic calendar will be void of any major releases today and will be less active this week, with Friday’s advance retail sales being one of the key reports due out, forecasted to rise 0.7% month-over-month (m/m) in September, after a flat performance in August, while sales ex-autos and ex-autos and gas are both expected to increase 0.3%. Same-store sales results for September from the nation’s retailers reported last week were generally better than expected, while the retail sales report includes spending at supermarkets and gas stations. The other major US report this week will be Wednesday’s midday release of the minutes from the September Federal Open Market Committee (FOMC) meeting. The Fed noted “significant” downside risks to the economy at the last meeting, and began “Operation Twist,” wherein it will reduce its holdings of shorter-term securities and buy longer-term securities.

Other US releases this week include: the NFIB Small Business Optimism Index, MBA mortgage applications, the trade balance, weekly initial jobless claims, import prices, business inventories and the preliminary University of Michigan Consumer Sentiment Index reading for October.

Europe gaining ground on French and German crisis pledge

The equity markets in Europe are mostly higher in late-day action on improved sentiment regarding a coordinated plan to combat the region’s debt crisis. Optimism is being fostered by the pledge over the weekend from France and Germany to deliver a plan to help recapitalize liquidity-strapped banks, provide a solution for Greece’s debt crisis, and accelerate economic coordination in the eurozone by the G20 summit of world leaders in early November, per Reuters. Meanwhile, sentiment is being supported by Franco-Belgian bank Dexia (DXBGY $1) agreeing to a rescue plan approved by the governments of Belgium, France, and Luxembourg.

Elsewhere, there was a plethora of economic data for traders to digest, with German exports rising much more than economists had forecasted in August, resulting in an unexpected increase in the nation’s trade surplus. Also, French industrial production surprisingly increased in August, while Italian industrial production rose sharply for the month, easily exceeding estimates. Finally, a read on UK employment sentiment deteriorated for September, while eurozone investor confidence fell more than forecasted for October.

The UK FTSE 100 Index is gaining 2.0%, France’s CAC-40 Index is rising 2.1%, Germany’s DAX Index is advancing 3.4%, Italy’s FTSE MIB Index is trading 2.8% higher, and Switzerland’s Swiss Market Index is increasing 1.3%, while Greece’s Athex Composite Index is declining 0.6%.

Asia mixed amid European optimism and China policy concerns

Stocks in Asia finished mixed in light volume, with markets in Japan closed for a holiday, while growing hope that European leaders are nearing a plan to help provide capital support to the region’s banks was met with some uneasiness regarding Chinese monetary policy. South Korea’s Kospi Index rose 0.4% and Australia’s S&P/ASX 200 Index gained 0.9%. However, Chinese stocks lagged behind, with the Hong Kong Hang Seng Index finishing flat and the Shanghai Composite Index returning from a week-long holiday and falling 0.6%. Concerns about China’s tight monetary policy hamstrung sentiment as an advisor to the nation’s central bank noted that the country should stick to a prudent monetary policy to fight inflationary threats, which will help the small business environment, per Bloomberg. Also, property-related issues came under some pressure after a media report over the weekend suggested China’s home prices will face gradual pressure due to decelerating sales activity and rising inventories.