U.S. Market Update

Dow -10 S&P -2.3 NASDAQ +2

US equity indices have been volatile in early trading as traders balanced some mixed economic figures against some worrisome master trust data from the banks. August retail sales rose by the largest amount in more than three years, completely reversing July's very modest decline, spurred by gains that went beyond just the expected increases of auto sales due to Cash for Clunkers. August PPI data showed wholesale prices rose 1.7%, more than double the 0.8% rise economists expected (PPI was -0.9% in July). Both months were heavily affected by energy prices. The Empire State Manufacturing data was also sharply higher than consensus. Leading private-sector economists dueled over the shape of the emerging recovery earlier this morning. Goldman Sachs' Chief Economist Jim O'Neill said the global recovery is "beyond a V shape," and insisted the recovery will positively surprise markets. Later Morgan Stanley's Asia Chief Economist Stephen Roach said the weak consumer recovery in the US guarantees there will not be a V-shaped recovery. Front-month NYMEX crude is up very slightly over levels from the last two days, trading around $69.50, after OPEC's September report left the cartel's 2009-10 demand outlook unchanged from last month. Treasury prices remain a bit lower as the PPI data offered little in the way of support. The long bond yields sit just below 4.25% after the NY Fed purchased just over $2B in longer dated maturities.

The Wall Street Journal is reporting that the Treasury may sell its stake in Citigroup beginning as early as October. According to the piece, the Treasury would take six to eight months to sell off its 34% stake. The Treasury has declined to comment on the piece, and shares of Citi are down 5% in the early going. The leading credit card issuers have been disclosing their August Master Trust data this morning, with notable increases in net charge offs reported by JP Morgan (10.07% v 9.02% m/m), Bank of America (14.54% v 13.82% m/m) and Discover (9.16% v 8.43% m/m). Charge offs declined at Capital One.

Electronics retailer Best Buy missed bottom line estimates slightly while beating top-line targets by a hair. The company also raises its FY10 guidance range on improving customer traffic. BBY fell more than 4% before recovering somewhat. Supermarket name Kroger missed top- and bottom-line estimates and trimmed its FY09 oulook, citing changes in customer behavior and the overall economic environment. Shares of KR are down a 8%, while competitor SWY is down 4%. Multiple analysts have raised their ratings on Las Vegas Sands thanks to better earnings strength at the firm's Macau operations. Shares of LVS were up as much as 6% this morning, along with Macau rival MGM, while WYNN was up 3%. Shares of all three have lost some of this ground.

Leading US steelmaker Nucor offered dire guidance for its Q3, saying it expects a sizable loss in the quarter that would be three or four times the expected amount. The company said it sees little improvement in real demand and warned uncertainty in the US economy remains high, and said the unexpected loss stems from high-cost inputs. Illinois Tool Works raised its Q3 guidance range while also warning it has seen a significant decrease in operating revenues over last three months. Monsanto reiterated its FY10 guidance given just last week.

In currencies, the greenback maintained a constructive tone during the NY morning after US retail sales beat expectations, and despite the firmer PPI data. Note that the regional Empire State headline was also sharply higher than the consensus. Such data readings typically raises the risk appetite sentiment but dealers noting that a 1.4560 option expiration has acted like a magnet for the price action. USD did try to move lower post data, but the 1.4630 area was reported as attractive to some quasi-official names offering euros, which capped the upside momentum for the time being.

Sterling was soft in the NY morning on follow-through selling from earlier comments by the BoE's King on the deposit rate outlook. GBP/USD moved below the 1.6450 level while EUR/GBP tested 0.8870. USD/ JPY was firmer in the NY morning but met some decent offers above the 91.50 level. The price action appeared to a bit hectic around that level, with some short-term prop players "scrambling" to cover prior JPY longs. Canada's Murray outlined various factors that were supporting its economic recovery. He did note that the economy was supported by confidence, but added that the strong CAD was a headwind. USD/CAD was hovering around the 1.08 area, with CAD firmer by 30 pips from its opening level in Asia.

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