US & Europe United Against China in Fair Trade Quarrel

Today's Coffee

A busy business day offers a slew of market moving datapoints. The US market seems to be benefiting somewhat from a favorable service sector report, showing a better pace of economic expansion in the critical segment of the US economy. The Asia-Europe Summit and an unexpected expansionary action by the BOJ also offered significant support to global trading today. The combination of these factors has the Dow up 1.7% today. Find all the day's market moving factors analyzed below.

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US & Europe United Against China in Fair Trade Quarrel

Europe came out strong on the side of the US with regard to China's currency manipulation, despite a recently offered Chinese incentive to look the other way. That unified position boosts the probability of China choosing fairness over trade war in response to American complaints. ISM's Non-Manufacturing Index eased concerns about slippage in American economic growth, and the two factors combined to give support to trading.

International Wire

The Bank of Japan (BOJ) issued its latest monetary policy decision today, cutting its key rate for the first time in about two years. The BOJ move took its key lending rate to effectively zero percent. The BOJ also announced a $418 billion quantitative easing program to spur economic growth. The move gave strength to gold (Dec. Delivery up 1.75% to $1,340 per ounce), oil (WTI Crude Nearest Delivery +1.4% to $82.60), but the dollar weakened as attention turns to the US Fed to make similar moves.

The Asia-Europe Summit is underway in Brussels, with niceties exchanged between EU and Chinese leadership initially. ECB Chief Jean-Claude Trichet perhaps had the most controversial statement, simply talking along the lines of US Treasury Secretary Geithner in saying that China had not evolved its currency as expected. In fact, EU representatives did not take the bait offered by China when it said it would buy Greek debt; instead they kept to the critical position against the Chinese unfair currency status. Somewhere in Athens, George Papandreou popped an aspirin.

The European positioning is critical to US interests, because we are much more persuasive aligned then we would be alone. China moved to alter the anticipated European response, by addressing the Europeans' most pressing needs. The Chinese Premier showed up in Greece over the weekend, and after visiting the Parthenon, offered to buy Greek debt. It was quite a bribe. We have to wonder how China feels about those Greek bonds now, given the European stance on the yuan today.

The highly anticipated meeting between China's Premier Wen Jiabao and Japanese Prime Minister Naoto Kan at the Asia-Europe Summit concluded with Japan announcing its maritime spat with China had concluded (geopolitical factor effectively defused). Sometimes all it takes is a face to face meeting to fix things that seem otherwise complicated.

Economic Reports

The International Council of Shopping Centers (ICSC) published its latest Weekly Same-Store Sales data Tuesday morning. For the period ended October 2, same-store sales fell 0.8% against the prior week's activity, which was up 0.4% against the week before. On a year-over-year basis, sales continued to soften against normalizing comparables from the prior year, rising just 2.4% in this latest check (+3.6% week before).

Now that we have cleared the Labor Day holiday and the back-to-school impact, we are receiving clearer reads on consumer spending activity through this report, but the news was not good (as predicted here). Redbook reported year-over-year sales rose 2.7% for the same period. The ICSC blamed harsh weather on the drop, but we expect time and data will prove otherwise.

ISM Non-Manufacturing Index

The Institute for Supply Management (ISM) posted its Non-Manufacturing Index this morning. The September reading of the index showed improvement, to a mark of 53.2, from 51.5 in August. Economists had forecast the service sector barometer might reach just 52.0. The reading continues to mark economic expansion, above the 50.0 water mark.

The service sector dominates 90% of US economic activity, and so the measure is important and driving stocks today. However, the market is enthused because the index did not deteriorate further; the mark still stands precariously close to economic contraction territory.

There was some other good news within the report though that likewise supports the day's trading direction. While current business activity moderated, or grew at a slower pace, new order activity gained pace.

DC Doings

In DC doings, a Senate subcommittee is holding a joint hearing to determine how the president might use an expedited recession authority.

Corporate Wire

In corporate news, Walgreens (NYSE: WAG) posted better than expected September sales and its shares are up 3.3% as a result today. Talbots (NYSE: TLB) noted a third quarter sales decline, and its shares are likewise lower today, down 11.5%. British Airways PLC (LSE: BAY.LN) noted its sharpest traffic gain in two years this September, and its first increase since February; BA's shares are up 6.5% as a result. US Airways (NYSE: LCC) shares are up about a percentage point after it noted an increase in September traffic and revenue, and announced expectations to turn a profit this year. American Express (NYSE: AXP) shares are down another 3% today, after losing 6.5% yesterday, as it determined to fight a US antitrust complaint rather than settle like its peers MasterCard (NYSE: MA) and Visa (NYSE: V). Google's (Nasdaq: GOOG) Android is the top smart phone choice of consumers over the past month, according to Nielson, with RIM's (Nasdaq: RIMM) and Apple's (Nasdaq: AAPL) well-known rival products tying for second.

Look for Intel's (Nasdaq: INTC) CEO to discuss innovation before the Council on Foreign Relations in New York. Metals USA's (Nasdaq: MUSA) IPO lockup period concludes Tuesday. In New York City, the India Investment Forum will host India's finance minister and executives from 40 high-growth and significant Indian firms.

Remember "Rogue Trader" Jerome Kerviel, of Societe' Generale? His trial has concluded, and the poor fellow seems to have been attributed all blame for his actions and ordered to pay his former employer an impossible amount of money in retribution, $4.9 billion euros to be exact. Oh and he will also spend three years in prison. And what is Societe Generale's punishment for its role? After all, it was responsible for the selection of employees and the supervision of them, and also for the design and implementation of a system of trading that might not allow for such aggregious trading activity and losses. What is Societe Generale's penalty? It's a tarnished brand.

The day's earnings schedule includes reports from Diamond Foods (Nasdaq: DMND), Rocky Mountain Chocolate Factory (Nasdaq: RMCF), Team Inc. (Nasdaq: TISI), Wolverine World Wide (NYSE: WWW) and Yum! Brands (NYSE: YUM). Cedar Fair LP (NYSE: FUN) has a conference call scheduled to discuss its long-term strategy and financial goals. Iron Mountain (NYSE: IRM) and ONEOK Partners (NYSE: OKE) have investor days scheduled.

The Jefferies & Co. (NYSE: JEF) Global SpecPharma & European Healthcare Conference offers presentations by ARIAD Pharmaceuticals (Nasdaq: ARIA), Covidien (NYSE: COV), Impax Laboratories (Nasdaq: IPXL), Merck (NYSE: MRK) and Watson Pharmaceuticals (NYSE: WPI).

The William Blair & Company Emerging Growth Stock Conference brings news from Aruba Networks (Nasdaq: ARUN), Aspen Technology (Nasdaq: AZPN), Delcath Systems (Nasdaq: DCTH), Encore Capital Group (Nasdaq: ECPG), Lawson Products (Nasdaq: LAWS), NetLogic Microsystems (Nasdaq: NETL), Kenexa (Nasdaq: KNXA), Brookdale Senior Living (NYSE: BKD), BioMimetic Therapeutics (Nasdaq: BMTI), Cambium Learning (Nasdaq: ABCD), Town Sports International (Nasdaq: CLUB), Accretive Health (NYSE: AH), CDC Software (Nasdaq: CDCS), Lancaster Colony (Nasdaq: LANC), Envestnet (NYSE: ENV), ACI Worldwide (Nasdaq: ACIW), Blue Coat Systems (Nasdaq: BCSI), Merge (Nasdaq: MRGE), Houston Wire & Cable (Nasdaq: HWCC), Monotype Imaging (Nasdaq: TYPE), Sharps Compliance (Nasdaq: SMED), Fred’s (Nasdaq: FRED), SuccessFactors (Nasdaq: SFSF), Harbin Electric (Nasdaq: HRBN), NewStar Financial (Nasdaq: NEWS), SXC Health Solutions (Nasdaq: SXCI), Virtusa (Nasdaq: VRTU), NetLogic Microsystems (Nasdaq: NETL), Cardtronics (Nasdaq: CATM), Catalyst Health Solutions (Nasdaq: CHSI), Exponent (Nasdaq: EXPO), Transcend Services (Nasdaq: TRCR), Aspen Technology (Nasdaq: AZPN), EXACT Sciences (Nasdaq: EXAS), Mercury Computer (Nasdaq: MRCY), WebMD (Nasdaq: WBMD), and Parexel (Nasdaq: PRXL).

SuperGen (Nasdaq: SUPG), Sucampo Pharmaceuticals (Nasdaq: SCMP), Adventrx (AMEX: ANX) present at the Biotechnology Industry Organization Annual BIO Investor Forum.

Superior Energy Services (NYSE: SPN), McDermott International (NYSE: MDR), Noble Energy (NYSE: NBL), Brigham Exploration (Nasdaq: BEXP), EOG Resources (NYSE: EOG), Pioneer Natural Resources (NYSE: PXD), Hercules Offshore (Nasdaq: HERO), Oceaneering International (NYSE: OII), Warren Resources (Nasdaq: WRES), Key Energy (NYSE: KEG), Gulf Island Fabrication (Nasdaq: GIFI), Parker Drilling (NYSE: PKD) and Rosetta Resources (Nasdaq: ROSE) present at the Johnson Rice & Company Energy Conference.



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