Morning Market Update

Modest Pressure as Global Markets Mull Central Bank Measures

The global equity markets are under pressure, with US stocks lower in morning action, as traders grapple with the implications of possible future stimulus efforts from the US Federal Reserve and other global central banks on the overall economic recovery. Treasuries are higher amid the uncertain economic backdrop, showing little reaction to slight decline in US MBA Mortgage Applications. In equity news, Dow member Microsoft Corp raised its dividend and General Mills Inc modestly topped the Street’s EPS expectations, while a disappointing reaction to Adobe Systems Inc’s 4Q outlook is overshadowing its better-than-forecasted 3Q earnings report. Overseas, Asia was mixed in light action with several major markets closed for holidays, while Europe is under pressure after a disappointing read on euro-zone industrial new orders and as the BoE discussed further stimulus efforts.

As of 8:52 a.m. ET, the December S&P 500 Index Globex future is 3 points below fair value, the Nasdaq 100 Index is 11 points below fair value, while the DJIA is 22 points below fair value. Crude oil is up $0.73 at $75.70 per barrel, and the Bloomberg gold spot price is up $7.28 at $1,294.43 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.6% at 79.91.

Dow member Microsoft Corp. (MSFT $25) announced that it will increase its quarterly dividend by 23% to $0.16 per share, payable on December 9, 2010, to shareholders of record on November 18, 2010. MSFT also announced that that it has authorized up to $6 billion in incremental commercial paper and longer-term debt.

Adobe Systems Inc. (ADBE $33) reported 3Q EPS ex-items of $0.54, above the $0.49 Reuters estimate, with revenues growing 42% year-over-year (y/y) to $990.3 million, above the $984.9 million that the Street was looking for. The software firm said it had “strong performance” in each of its major businesses and it remains bullish about its long-term role in enabling the transformation of content and applications across industries. ADBE issued 4Q guidance that was roughly inline with analysts’ forecasts, but shares are down solidly, suggesting that the Street was looking for stronger guidance.

General Mills Inc. (GIS $36) posted fiscal 1Q EPS of $0.64, one penny above the Street’s forecast, with revenues increasing 1% y/y to $3.5 billion, which was below the $3.6 billion that analysts were anticipating. The cereal company said consumer demand for its established brands “remains strong” and it is pleased to see continued growth in volume and net sales across its worldwide businesses. GIS reaffirmed its full-year EPS outlook.

Mortgage applications decline despite a near record low in 30-year rates

The lone report on today’s US economic calendar is the MBA Mortgage Application Index, which declined 1.4% last week, after the index that can be quite volatile on a week-to-week basis, fell 8.9% in the previous week. The decrease came as the Refinance Index dipped 0.9%, while the 3.3% drop in the Purchase Index accounted for the bulk of the decline. The decrease in the overall index came despite a 3 basis-point decrease in the average 30-year mortgage rate to 4.44%, just above the record low of 4.43% reached on August 27.

Treasuries are higher following the housing report, and yields are extending declines that came yesterday when the Federal Reserve concluded its one-day monetary policy meeting, expectedly keeping the fed funds rate unchanged and saying it will also maintain its existing policy of reinvesting principal payments from its securities holdings. The Fed noted that information since the last meeting in August indicates that the pace of recovery in output and employment has slowed in recent months. However, the Fed slightly tweaked their view on inflation, saying “measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability.” Some are taking this change as a sign that the Fed opened the door for more quantitative easing, where the Fed buys assets and expands its balance sheet to get more cash into the system. Also, the Fed’s statement said, “The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.”

Europe under pressure on disappointing data and BoE minutes

Stocks in Europe are under some pressure in afternoon action, led by financials as traders are grappling with yesterday’s US Federal Reserve monetary policy announcement, in which it appeared to some to open the door for more stimulus efforts, as well as a look at the discussions held at Bank of England’s most recent monetary policy meeting. The minutes from the BoE’s meeting earlier this month showed members voted 8-1 in favor of keeping its benchmark interest rate unchanged at a record low of 0.5%, while making no change to its asset purchase target. However, the report showed that some BoE members discussed adding more stimulus efforts, as it said some members increased the probability that further action would become necessary to stimulate the economy and keep inflation on track to hit its medium-term target. Meanwhile, Portugal conducted a successful debt auction, which may be limiting losses across the pond.

In other economic news, euro-zone industrial new orders dropped more than expected month-over-month (m/m) in July, falling 2.4% compared to the 1.4% decline that economists had expected, after rising a slightly downwardly revised 2.4% in June. The y/y rate of industrial new orders was 11.2% higher, below the 16.2% that was forecasted. A read on euro-zone consumer confidence is due out later today.

The UK FTSE 100 Index is down 0.3%, France’s CAC-40 is 0.9% lower, Germany’s DAX Index is declining 0.8%, and Portugal’s PSI 20 Index is decreasing 0.7%.

Asia markets diverge in light session

Stocks in Asia were mixed in lighter-than-usual volume, with markets in South Korea, Taiwan, and Mainland China closed for holidays, following the US Fed’s announcement, which some took as a sign of increased possibility of more stimulus being deployed by the US central bank. The US dollar fell broadly after the announcement, including a downward move versus the Japanese yen, which pressured export issues in Japan and the Nikkei 225 Index dropped 0.4%. However, shares of Panasonic Corp. (PC $13) moved higher to limit losses in Japan after media reports suggested the company will not sell new shares in order to finance previously announced acquisitions, but the company did not confirm the report. Meanwhile, Australia’s S&P/ASX 200 Index increased 0.2% after a report showed the nation’s consumer confidence rose in July. Elsewhere, India’s BSE Sensex 30 Index declined 0.3%, while the Hang Seng Index increased 0.2% after the Hong Kong Monetary Authority said yesterday that the city’s economy will grow at a moderate pace through the end of this year, per Bloomberg.