Morning Market Update

Posting Modest Negative Tallies Following Yesterday’s Rally

The US equity markets are giving back some of yesterday’s strong advance as oil prices are gaining some ground and traders are grappling with lingering Middle East unrest and resurfacing euro-area debt concerns. Treasuries are higher in early action as stocks slip in morning action and the US economic calendar is relatively light, with a rise in mortgage applications headlining the docket in early trading. Later this morning, wholesale inventories will be released. In equity news, Texas Instruments Inc narrowed its guidance, Honeywell International Inc reported that it expects 1Q results to be at the high end of its forecast, and Staples Inc increased its dividend. However, Boston Beer Co missed the Street’s revenue and earnings forecasts. Overseas, Asia moved mostly higher following yesterday’s rally in the US, while Europe is mixed as euro-area debt concerns are being met by some favorable data.

As of 8:51 a.m. ET, the March S&P 500 Index Globex future is 2 points below fair value, the Nasdaq 100 Index is 5 points below fair value, and the DJIA is at fair value. WTI crude oil is $0.38 higher at $105.40 per barrel, and the Bloomberg gold spot price is up $6.08 at $1,435.03 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.2% at 76.66.

Texas Instruments Inc. (TXN $36) narrowed its 1Q revenue and EPS forecasts, saying revenues are expected to be in a range of $3.34-3.48 billion, compared to the company’s prior outlook of $3.27-3.55 billion. Also, TXN is anticipating 1Q EPS to be in the range of $0.56-0.60, versus previous expectations of between $0.54-0.62. Analysts surveyed by Reuters were expecting the company to post revenues of $3.41billion and EPS of $0.58.

Staples Inc. (SPLS $20) announced that the office products company will increase its quarterly by 11% to $0.10 per share, payable on April 14, 2011, to shareholders of record on March 25, 2011.

Honeywell International Inc. (HON $57) reported that it expects 1Q revenues and EPS to be at the high end of the diversified technology and manufacturing firm’s previous guidance. The company said it continues to see strength in the global economic recovery and is confident in its outlook for 2011 and beyond. HON forecasts that revenues will be approximately $8.7 billion and EPS of about $0.80, compared to the Street’s estimates of $8.6 billion in revenues and EPS of $0.81. The company also reaffirmed its full-year 2011 outlook.

Boston Beer Co. (SAM $94) posted 4Q EPS of $0.87, below the $0.90 that analysts had forecasted, with revenues increasing 8% year-over-year (y/y) to $116 million, also missing the Street’s expectations, which called for the specialty beer maker to post revenues of $119 million.

Mortgage applications rise, wholesale inventories due out after opening bell

The economic calendar remains relatively light, with a read on mortgage activity the lone report on the docket before the opening bell. MBA Mortgage Application Index rose by 15.5% last week, after the index that can be quite volatile on a week-to-week basis, fell 6.5% in the previous week. The increase came as a 17.2% rise in the Refinance Index joined a 12.5% gain in the Purchase Index. The advance in the overall index came even as the average 30-year mortgage rate increased 9 basis points to 4.93%, above the record low of 4.21% on October 8, 2010.

Treasuries are higher, showing little reaction to the employment data, with the yields on the 2-year and 10-year notes 2 bps lower at 0.70% and 3.52%, respectively, and the 30-year bond rate declining 3 bps to 4.64%.

Later this morning, wholesale inventories will be released, forecasted to show a 0.9% increase month-over-month (m/m) in January, after rising 1.0% in December.

Europe mostly higher as euro-area debt concerns are being overshadowed by data

Stocks in Europe are mostly higher in afternoon action, amid the recent pause in the surge in oil prices and following some favorable reports out of the economic and equity fronts. However, resurfacing euro-area debt concerns are keeping conviction hamstrung and gains in check. Shares of Tognum AG (TGNMF $25) are nicely higher after Daimler AG (DDAIY $69) and Rolls-Royce Group Plc. (RYCEY $49) offered to acquire the German maker of diesel engines for 24 euros per share. Elsewhere, shares of European Aeronautic Defence and Space Co.Prudential Plc. (PUK $23) is solidly higher after the insurer posted earnings that exceeded analysts’ forecasts. However, the UK markets are under pressure in today’s session, as a decline in shares of Tullow Oil Plc. (EADSF $27) are gaining ground after the company posted a full-year profit, reinstated its dividend, and provided an upbeat outlook, while the UK’s (TUWOY $12) is weighing on equities after the oil exploration firm reported “slower progress” in dealing with a tax dispute in Uganda and posted full-year profits that missed expectations.
Meanwhile, the European economic calendar is helping improve sentiment as German industrial production expanded more than economists had expected in January. However, euro-area debt crisis concerns are flaring back up after Moody’s Investors Service downgraded the credit ratings of a slew of Greek banks, and the director of European sovereign debt ratings at Standard & Poor’s warned that other countries in the euro-zone could have their sovereign credit ratings cut further, while noting that a Greek debt default is a “possibility,” per Bloomberg. Moreover, Portugal conducted a bond auction today, resulting in the debt-laden nation having to pay a higher yield compared to a prior auction of a similar maturity. But the auction results and ratings agency news do not appear to be having a negative impact on stocks in Greece and Portugal, as their respective markets are managing to gain ground.

The UK FTSE 100 Index is down 0.3%, and France’s CAC 40 Index and Germany’s DAX Index are flat, while Greece’s Athex Composite Index is rising 1.4% and Portugal’s PSI 20 Index is advancing 0.1%.

Asia mostly higher as oil prices take a breather

Most major markets in Asia finished higher following the solid advance in the US as oil prices eased somewhat, giving sentiment a break from the recent surge in energy prices, with transportation issues pacing the gains in the region. Japan’s Nikkei 225 Index rose 0.6%, aided by some weakness in the Japanese yen and a report showing the nation’s machine orders grew more than economists had anticipated. Also, a strong advance in shares of Nintendo Co. Ltd.Toyota Motor Corp. (TM $90) unveiled its long-term business strategy, in which it expects to achieve 1 trillion yen ($12 billion) in operating profit by 2015, and boost sales in emerging markets. (NTDOY $35) supported the gains in Japan after the world’s largest video-game console maker, per Bloomberg, reported favorable sales of its new Pokemon games in its debut. Meanwhile, after the closing bell in Japan,
South Korean stocks also benefitted from the gains out of the transportation sector, as the Kospi Index increased 0.3%, while stocks in China also posted modest gains, with the Shanghai Composite Index rising 0.1% and the Hong Kong Hang Seng Index gaining 0.4%. However, stocks in Australia finished lower, with the S&P/ASX 200 Index declining 0.8%, amid some profit taking in oil-related stocks, and weakness in mining issues amid concerns about the global impact of lingering Middle East unrest and reemerging euro-area debt crisis uneasiness. Also, the Australian economic calendar did little to help sentiment, as a read on consumer confidence deteriorated and a report showed the nation’s home loans fell much more than estimated.