Morning Market Update

Trying to Regain Footing on Slipping Middle East Sentiment

The US equity markets are pointing higher in early action after the major markets posted the largest single-session losses for the year yesterday on growing concerns toward the Middle East as anti-government protests spread to oil producing nation of Libya. The bulls are showing some resilience in the face of the recent surge in crude oil prices and disappointing revenues and guidance from Dow member Hewlett-Packard Co. Treasuries are lower after rising solidly yesterday amid some flight-to-safety buying, ahead of a report on existing home sales, and after mortgage applications rose. In other equity news, home improvement retailer Lowe’s Companies reported better-than-forecasted earnings and revenues. Overseas, Asia was mostly lower amid the fallout from the Middle East uneasiness, while European markets are mixed.

As of 8:50 a.m. ET, the March S&P 500 Index Globex future is 2 points above fair value, the Nasdaq 100 Index is 6 points above fair value, and the DJIA is 15 points above fair value. Crude oil is $0.69 higher at $96.11 per barrel, and the Bloomberg gold spot price is up $4.81 at $1,403.94 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.4% at 77.50.

Dow member Hewlett-Packard Co. (HPQ $48) reported fiscal 1Q EPS ex-items of $1.36, above the $1.29 consensus estimate of analysts surveyed by Reuters, with revenues growing 4% year-over-year (y/y) to $32.3 billion, below the $33.0 billion that the Street had forecasted. The company said its revenue in its personal systems group, which includes its PC business, declined 1% y/y, as a 12% drop in sales to its consumer clients offset an 11% increase in revenues out of its commercial clients unit. HPQ issued 2Q guidance that missed expectations and it lowered its full-year revenue outlook, while increasing its 2011 EPS projection.

Home Improvement retailer Lowe’s Companies Inc. (LOW $26) posted 4Q EPS of $0.21, above the $0.18 expectation of analysts, with revenues increasing 3.1% y/y to $10.5 billion, compared to the $10.4 billion that was anticipated on the Street. The company said same-store sales—sales at stores open at least a year—rose 1.1% y/y. LOW added that while uncertainty in the market remains, the economic recovery is continuing as it issued full-year EPS guidance that exceeded expectations.

Existing home sales headlines economic docket, while mortgage applications rise

Shortly after the opening bell, the economic calendar will yield the release of existing home sales, forecasted to decline 1.1% month-over-month (m/m) in January to an annual rate of 5.22 million units, following December’s 12.3% jump, on an 11.8% increase in single-family sales.

Meanwhile, traders received a bit of other housing news ahead of today’s home sales data, with the MBA Mortgage Application Index increasing by 13.2% last week, after the index that can be quite volatile on a week-to-week basis, decreased 9.5% in the previous week. The gain came as a 17.8% jump in the Refinance Index was accompanied by a 5.1% increase in the Purchase Index. The growth in the overall index came as the average 30-year mortgage rate fell 12 basis points to 5.00%, above the record low of 4.21% on October 8.

Treasuries are mostly lower in morning action following yesterday’s gains amid the exacerbated turmoil in the Middle East, with the yields on the two-year and 10-year notes 2 bps higher at 0.72% and 3.47%, respectively, while the 30-year bond yield is flat at 4.61%.

Europe mixed on data and Middle East uneasiness

Stocks in Europe are mixed in afternoon action as traders grapple with some data in the region and uncertainty regarding the economic impact of the festering Middle East tensions. Financials are gaining modest ground, aided by a solid rise in shares of Natixis (NTXFY $59) after the French investment bank reported earnings that exceeded forecasts and said it plans to resume paying its dividend. However, shares of OMV AG (OMVKY $43) are losing sizeable ground after central Europe’s largest oil company, per Bloomberg, announced that its Libyan “production will come to a standstill for a certain period of time,” per Bloomberg, amid the violent anti-government protests in the region, while also posting 4Q profits that came up short of expectations.

Meanwhile, on the economic front across the pond, euro-zone industrial new orders unexpectedly increased m/m in December and were well above forecasts on a y/y basis. Meanwhile, the Bank of England released its minutes from its most recent policy meeting, which revealed another member joined the ranks calling for a rate hike. In other economic news, consumer prices in France declined more than expected m/m in January and were below expectations compared to the same period last year, while Italy’s Consumer Price Index came in below estimates.

The UK FTSE 100 Index is down 0.5%, France’s CAC-40 Index is rising 0.2%, Germany’s DAX Index is declining 0.3%, and Italy’s FTSE MIB Index is gaining 0.5%.

Middle East uneasiness continued to be felt in Asia

The equity markets in Asia finished mostly lower in the wake of the amplified geopolitical concerns in the Middle East as anti-government protest in the oil-producing nation of Libya escalated, sending oil prices higher. The Japanese Nikkei 225 Index fell 0.8% as the yen gained ground amid some flight-to-safety buying, dampening the outlook for profits of exporters. Meanwhile, losses were limited somewhat by strength in oil & gas issues on the spike in oil prices, which partially offset losses sustained by transportation stocks that rely on the heavy use of fuel. Australia’s S&P/ASX 200 Index declined 0.2% and South Korea’s Kospi Index decreased 0.4%, as traders booked some profits from the recent gains in the region amid the geopolitical uncertainty. However, stocks in China finished mixed, with the Shanghai Composite Index increasing 0.3%, while the Hong Kong Hang Seng Index declined 0.4%. The biggest decliner in the region came out of Taiwan, with the Taiex Index falling 1.7% as a report that showed growth in the nation’s industrial production decelerated to a level that was below economists’ forecasts exacerbated the Middle East uneasiness. In other economic news in the region, Hong Kong’s 4Q GDP expanded at a larger-than-expected rate. Finally, New Zealand’s NZX 50 Index rose 0.4% as the nation tries to recover from the recent 6.3 magnitude earthquake that hit the region.