Morning Market Update

Bulls Pleased as Euro-Debt Fears Ease

The US equity markets are higher in early action as Portugal’s denial of reports that its will ask for financial aid from the European Union is soothing some debt fears in the region to help lift sentiment. Also, Dow member Alcoa Inc’s better-than-expected 4Q earnings to commence earnings season is providing some aid to stocks in early action. Treasuries are mostly lower on the upbeat mood on the Street, which is offsetting an unexpected deterioration in small business confidence, while a report on wholesale inventories will be released shortly after the opening bell. In other equity news, Dow member Intel Corp and NVIDIA Corp reached a patent agreement, in which Intel will pay $1.5 billion to the graphics chip maker, and upscale retailer Tiffany & Co offered some upbeat guidance after it posted strong holiday sales. Overseas, Asia was mixed, while European markets are broadly higher on the eased concerns toward Portugal.

As of 8:46 a.m. ET, the March S&P 500 Index Globex future is 6 points above fair value, the Nasdaq 100 Index is 11 points above fair value, while the DJIA is 61 points above fair value. Crude oil is $1.01 higher at $90.26 per barrel, and the Bloomberg gold spot price is up $9.83 at $1,385.50 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is unchanged at 80.87.

Dow member Alcoa Inc. (AA $16) unofficially kicked off 4Q earnings season, reporting $0.21 per share in profits excluding items, two cents above the consensus estimate of analysts surveyed by Reuters, with revenues increasing 4% year-over-year (y/y) to $5.7 billion, roughly inline with the Street’s forecast. The aluminum producer said its earnings were driven by higher pricing, continued strengthening in most end markets and improved productivity, offset somewhat by a weaker US dollar and higher energy and raw material costs. The company added that in 2011, it sees aluminum growing another 12% on top of last year’s 13% improvement and it is “well positioned to outpace the recovery in the markets we serve.”

Fellow Dow member Intel Corp. (INTC $21) and graphics chip maker NVIDIA Corp. (NVDA $21) reached a cross-licensing agreement, in which INTC will pay an aggregate of $1.5 billion in licensing fees to NVDA in five annual installments in exchange for the continued access to NVDA’s full range of patents. Also, both companies agreed to drop all outstanding legal disputes between them.

Meanwhile high-end retailer Tiffany & Co. (TIF $61) raised its full-year outlook after its worldwide sales in the two-month holiday period ended December 31, 2010 rose 11% y/y and same-store sales—sales at stores open at least a year—rose 8% y/y. Sales in the Asia-Pacific region jumped 23% and Europe posted a 13% gain, while sales in the Americas region increased 9%. “Healthy sales” were seen across most categories, with particular strength in its fine jewelry collections. TIF now expects revenues for the full-year of almost $3.1 billion—a 14% y/y increase—and earnings between $2.83-2.88, versus the previous forecast of revenues to rise 12%, and EPS of $2.72-2.77. Analysts forecasted the company to report revenues of $3.1 billion and EPS of $2.79 for the year.

Small business optimism unexpectedly wanes, wholesale inventories after opening bell

The NFIB Small Business Optimism Index deteriorated from 93.2 in November—the highest level since December 2007—to 92.6 in December, compared to the expectation of economists surveyed by Bloomberg, which called for the index to improve to 94.5. The decrease came as the number of firms reporting expectations of a better economy deteriorated, while those expecting to increase inventories and are anticipating higher selling prices also moved lower. However, firms planning to hire over the next three months increased and the outlook for increased capital spending gained ground.

Treasuries are mostly lower in morning action following the small business sentiment data, with the yield on the two-year note flat at 0.57%, while the yields on the 10-year note and the 30-year bond are up 2 bps to 3.31% and 4.49%, respectively.

Just after the opening bell, wholesale inventories will be released, and economists are expecting a 1.0% increase month-over-month (m/m) in November, after rising 1.9% in October.

Europe higher as Portugal bailout concerns ease

The equity markets are broadly higher in afternoon action, with materials receiving some support from Dow member Alcoa Inc’s better-than-expected earnings report, while the region’s debt concerns are being eased by Portugal’s Prime Minister Socrates saying that the nation will not ask for a bailout from the European Union. The comments precede Portugal’s debt auction of five and ten-year bonds tomorrow, which will be closely watched to gauge demand of the nation’s debt, helping determine if the nation will be able to handle its capital needs in the open market. However, the costs many peripheral euro-zone nations have had to pay to attract demand have grown uncomfortably higher—to rates that are much higher than economic growth, resulting in growing debt burdens.

Meanwhile, industrial issues are contributing to the advance across the pond as a solid gain in shares of Siemens AG (SI $116) is supporting the sector after the company provided favorable guidance on strength in demand for health-care, industrial, and energy equipment. Elsewhere, the economic calendar is relatively light in Europe, with separate reports showing UK retail sales were mixed in December, while a read of French business sentiment improved in December.

The UK FTSE 100 Index is 1.2% higher, France’s CAC-40 Index is gaining 1.0%, Germany’s DAX Index is advancing 0.8%, and Portugal’s PSI 20 Index is jumping 2.0%.

Asia mixed on data, euro-debt concerns, and positive start to earnings season in US

The equity markets in Asia finished mixed as traders grappled with some positive economic data in the region and the favorable start to earnings season in the US, while lingering euro-area debt concerns kept sentiment in check. Japanese markets returned from a holiday to finish modestly lower, with the Nikkei 225 Index declining 0.3% as concerns about the euro-area debt crisis overshadowed a report that showed the nation’s Leading Index rose more than economists had expected. However, export issues helped limit the decline as the yen weakened against the euro after the Japanese government announced plans to buy euro-zone bonds to help the region combat its festering debt issues. Meanwhile, stocks in China gained ground, with the Hong Kong Hang Seng Index rising 1.0% and the Shanghai Composite Index increased 0.4%, aided by a report showing the nation’s new yuan loans exceeded expectations, coming in at 480.7 billion yuan in December, compared to the 360.0 billion yuan that was anticipated and versus the 564.0 billion that was seen in November. Elsewhere, Australia’s S&P/ASX 200 Index finished flat as optimism in the resource sector from the upbeat report from Alcoa was offset by lingering uneasiness as the nation deals with the impact of the massive flooding the region. Rounding out the day, South Korea’s Kospi Index increased 0.4% and Taiwan’s Taiex Index rose a solid 1.3%.