Morning Market Update

Negative Session Under Way Following Labor Day

The US equity markets are under pressure in early action as traders return from the holiday weekend following last week’s solid advance that came on a string of favorable global economic data, culminating with Friday’s labor report which showed better-than-expected growth in private-sector jobs. Relatively light economic and equity news may be prompting some profit-taking, and Treasuries are gaining ground after last week’s jump in yields. In equity news, Oracle Corp announced that former Dow member Hewlett-Packard Co Chairman and CEO Mark Hurd has joined that company as its President and has been named to its Board of Directors. Overseas, Asia finished mixed in a subdued session despite monetary policy announcements from the Bank of Japan and the Reserve Bank of Australia, while banking sector concerns and disappointing German factory orders data are pressuring Europe.

As of 8:48 a.m. ET, the September S&P 500 Index Globex future is 7 points below fair value, the Nasdaq 100 Index is 9 points below fair value, while the DJIA is 53 points below fair value. Crude oil is down $1.33 at $73.27 per barrel, and the Bloomberg gold spot price is up $8.50 at $1,258.55 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.7% at 82.63.

Oracle Corp. (ORCL $23) is higher after it announced that Mark Hurd has joined that company as its President and has been named to ORCL’s Board of Directors. Hurd resigned last month from Dow member Hewlett-Packard Co. (HPQ $40) following an investigation of the facts and circumstances surrounding a claim of sexual harassment against Hurd and HPQ by a former contractor to the company. However, HPQ added that the investigation determined there was no violation of HPQ's sexual harassment policy, but did find violations of HPQ's Standards of Business Conduct. ORCL’s CEO Larry Ellison said, Hurd did a “brilliant job” at HPQ and, “There is no executive in the IT world with more relevant experience than Mark.”

Economic calendar light in an abbreviated week

Treasuries are higher as stocks are slumping in morning trading and as there are no major reports slated for release on today’s economic calendar. In fact, the economic docket will be relatively light amid the holiday-shortened week, with the headlining report being tomorrow’s afternoon release of the Federal Reserve’s Beige Book. The report is a summary of anecdotal information gathered from all twelve Federal Reserve Districts across the US depicting current economic conditions and is one of the tools used by Federal Open Market Committee (FOMC) members in forming monetary policy. The last report at the end of July noted that economic activity continued to increase, but some Districts reported the level of economic activity generally held steady, and a number of them noted that increases were modest, while two said the pace of activity had slowed recently.

Last week’s release of the minutes from their policy meeting on August 10 showed that while participants viewed the recovery as progressing at a slower-than-expected pace, the Fed continued to believe growth would continue and gather strength in 2011. However, FOMC members saw both employment and inflation as likely to fall short of levels consistent with the dual mandate for longer than anticipated, and some saw increased downside risks. Moreover, several members emphasized that the Committee would need to consider steps it could take to provide further stimulus if the economic outlook were to “weaken appreciably further.” The focus on the release tomorrow will likely surround data depicting the health of the employment and housing sectors as these have been noted as the biggest risks to the downside and the possibility of a double-dip recession.

Other reports due out this week include: MBA mortgage applications, weekly initial jobless claims, consumer credit, the trade balance, and wholesale inventories.

Europe finds pressure with mining and financials leading the way

Stocks in Europe, which gained modest ground yesterday as the US markets were closed, are under pressure in afternoon action led by weakness in financials and basic materials. Concerns about the health of the banking sector on uncertainty regarding the validity of the European stress tests is resurfacing and pressuring the sector across the pond. Meanwhile, mining firms are also weaker on uneasiness that the Australian mining tax will come to fruition on the heels of the announcement that the Australian Labor party received support from independent lawmakers, which secured a second term for Prime Minister Gillard. Moreover, basic materials and mining stocks are finding pressure from a disappointing report on factory orders in Germany—Europe’s largest economy. German factory orders unexpectedly fell, dropping by 2.2% month-over-month (m/m) in July after an upwardly revised 3.6% gain in June and compared to the 0.5% increase that economists had expected. In other economic news, UK retail sales rose 2.8% year-over-year (y/y) in August, after rising 2.6% in July, and Switzerland’s unemployment rate remained unchanged at 3.6% in August, matching expectations. In equity news, shares of Barcalys Plc. (BCS $20) are lower after the UK bank announced that Robert Diamond will succeed John Varley as the company’s new CEO.

The UK FTSE 100 Index is down 0.8%, France’s CAC-40 Index is 1.3% lower, Germany’s DAX Index is declining 0.7%, and Switzerland’s Swiss Market Index is decreasing 1.0%.

Asia mixed as US offers little direction

After posting gains yesterday on the better-than-expected jobs data in the US on Friday, stocks in Asia were mixed in lackluster action as the US markets’ closure on Monday offered no influence on equities in the region. Japan’s Nikkei 225 Index declined 0.8%, the biggest move among the major Asian markets with export issues leading the way as the yen continued to strengthen versus the dollar and dampen the outlook for profits of Japanese companies that rely on sales in the US. The yen is higher versus the greenback after the Bank of Japan kept its benchmark interest rate unchanged at 0.1%, as expected, and offered no extraordinary measures to help stem the advance in the Asian currency. The BoJ noted that Japan’s economy shows further signs of a moderate recovery, but “against the backdrop of increased uncertainty about the future, especially for the US economy, and associated instability in the foreign exchange and stock markets, attention should be paid to downside risks to Japan’s economy.” Last week, the BoJ held an emergency monetary policy meeting, in which it introduced a new 10-trillion yen ($118 billion) funds-supplying operation to “encourage a decline in market interest rates and further enhance easy monetary conditions.”

In other central bank news, the Reserve Bank of Australia kept its key lending rate unchanged at 4.5% for the fourth month in a row, as anticipated, saying that the global economy grew faster than trend over the year to mid 2010, but will probably ease back to about trend pace over the coming year. The RBA said growth in China is moderating to a more sustainable rate, European output has improved significantly so far this year, but prospects for next year are probably for slower growth given planned fiscal contraction, and US growth was solid in the first half of 2010, but the pace of expansion in the second half of the year is looking weaker. Australia’s S&P/ASX 200 Index dipped 0.1% after the announcement and following a separate announcement that Australian Prime Minister Julia Gillard secured a second term in office after her minority Labor Party received support of independent lawmakers. Mining firms came under pressure as the Labor Party vowed to press ahead with a new mining tax and work toward a scheme that would force major polluters to pay for their carbon emissions.

Rounding out the day, stocks in China were modestly higher, with the Hong Kong Hang Seng Index increasing 0.2% and the Shanghai Composite Index rising 0.1%. Meanwhile, Taiwan’s Taiex Index dipped 0.1%, and South Korea’s Kospi Index declined 0.3%, while India’s BSE Sensex 30 Index increased 0.5%.