Morning Update

Profit Taking Weighs on Equities

Stocks are lower in morning action, following yesterday’s rally on steep gains in commodity prices such as gold and crude oil, which came amid optimism regarding the global economic recovery as the G20 group of world finance leaders vowed to keep stimulus efforts intact until recovery is assured. Traders may be taking the time to book some profits in the equity markets, which have seen the S&P 500 Index post six-consecutive sessions in the green and advances of 2% in two of the past three trading days. Treasuries are higher amid the weakness in the equity markets and as there are no major economic releases scheduled for today. In equity news, Electronic Arts matched the Street’s profit projection, and Oracle announced that it received a Statement of Objections letter from the European Commission regarding its $7 billion proposal to acquire Sun Microsystems. Overseas, Asia was higher, while Europe has moved into negative territory in afternoon action.

As of 8:50 a.m. ET, the December S&P 500 Index Globex future is 3 points below fair value, the DJIA is 25 points below fair value, and the Nasdaq 100 Index is 2 points below fair value. Crude oil is higher by $0.19 at $79.62 per barrel, and the Bloomberg gold spot price is down $0.50 at $1,103.30 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.1% at 75.13.

Electronic Arts (ERTS $20) reported that it swung from a $0.06 per share loss in the same period a year ago to earnings ex-items of $0.06 per share for fiscal 2Q, inline with the expectation of Wall Street analysts. Revenues at the video game publisher rose 2% versus last year to $1.1 billion, which also matched the Street’s expectations as sales were driven by launches of sports game franchises “FIFA 10” and “Madden NFL 10,” along with the release of “The Beatles: Rock Band.” Additionally, the company announced a significant cut in its operating expenses, and that it will acquire computer game maker Playfish Limited for about $275 million in cash and $25 million in equity retention arrangements. ERTS issued full-year guidance that is roughly inline with the Street’s forecast and said it expects to be profitable in both 3Q and 4Q.

Oracle (ORCL $22) announced that it has received a Statement of Objections from the European Commission pertaining to its $7 billion proposed acquisition of Sun Microsystems (JAVA $8). ORCL said the Commission noted that JAVA’s MySQL database product combined with ORCL’s product line-up could hamper competition in the database market. ORCL said it plans to vigorously oppose the Commission’s Statement of Objections as the evidence against the Commission’s position is overwhelming.

Bonds finding some support as equities give back some gains

Treasuries are moving higher in morning action as there are no major economic reports scheduled for release today and as the equity markets are under some pressure following yesterday’s steep gains in the US markets. Yesterday’s advance came as commodity prices surged, led by gains in crude oil and a record high in gold prices, which sit above $1,100 per ounce, boosted by the weekend pledge of G20 world finance leaders to keep stimulus efforts deployed until economic recovery is assured.

Europe lower as banking shares are in focus and German economic sentiment disappoints

Stocks in Europe are under pressure in afternoon action after relinquishing an early advance following a larger deterioration in a key gauge if economic sentiment in Germany—Europe’s largest economy. The German ZEW Survey of economic sentiment fell from 56.0 in October to 51.1 in November, versus the consensus of economists surveyed by Bloomberg, which called for the measure to dip to 55.0. Meanwhile, financials are dominating the headlines and the news is mixed, with shares of HSBC (HBC $58) moving higher after Europe’s largest bank said 3Q profits were “significantly” higher than a year ago and loan losses declined, while shares of Barclays (BCS $23) are declining after reporting 3Q net income fell over 50% and after saying its nine-month impairment charges were “significantly above” the same period a year ago. Moreover, Lloyds Banking Group (LYG $6) announced that it will cut about 5,000 jobs, but shares are nearly unchanged in afternoon trading. Outside of equity news in the financial arena, Vodafone (VOD $23) is under pressure as the world’s largest mobile-phone service provider matched analysts’ profit expectations and said it will accelerate cost cutting efforts.

Asia spends day in the green

Stocks in Asia were mostly higher, led for a second-straight session by Australia’s S&P/ASX 200 Index, which gained 1.3% on yesterday’s solid gains in commodity prices that led the rally in the US. Financial shares in Japan helped the Nikkei 225 Index rise 0.6% after the nation’s financial services minister said the government may not punish domestic banks if their tier-1 capital ratio—a key measure of capital adequacy—falls below the 4% level required for banks in Japan on a temporary basis. Meanwhile, South Korea’s Kospi Index gained 0.4% after coming well off the best levels of the day on reports that North and South Korean navies exchanged gunfire. Taiwan’s Taiex Index rose 0.8% to contribute to today’s advance in Asia, after an economic report showed the pace of the decline in the nation’s exports improved, falling 4.7% on a year-over-year basis in October, versus the 7.2% drop that had been forecasted by economists surveyed by Bloomberg and after declining 12.7% the previous month. Elsewhere, Hong Kong’s Hang Seng Index rose 0.3%, while China’s Shanghai Composite Index eked out a 0.1% gain.