Morning Market Update

Stocks Remain Lower Even as Japan Rebounds

Despite a solid rebound in Japanese equity markets following the two-day tumble to more than a two-year low, US equity markets are under some pressure as euro-area debt concerns and festering uneasiness in the Middle East and North Africa are back in focus. Moreover, a much larger-than-expected increase in headline wholesale inflation and a sharp drop in housing starts are adding to the declines in early action. Treasuries are modestly higher as stocks slide and following the data, which included a decline in mortgage applications and a smaller-than-forecasted improvement in the US current account deficit. In equity news, Rambus Inc announced a licensing extension with Toshiba Corp and NVIDIA Corp reported the resignation of its CFO. Overseas, other markets in Asia moved higher amid the steep gains in Japan, while Europe is mostly lower following a downgrade of Portugal’s debt rating by Moody’s.

As of 8:48 a.m. ET, the June S&P 500 Index Globex future is 3 points below fair value, the Nasdaq 100 Index is 12 points below fair value, and the DJIA is 7 points below fair value. WTI crude oil is $1.52 higher at $98.70 per barrel, and the Bloomberg gold spot price is up $6.40 at $1,402.10 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.1% at 76.41.

Technology licensing company Rambus Inc. (RMBS $19) announced that it has renewed a patent license agreement with Toshiba Corp. (TOSYY $28). The agreement is for five years covering Toshiba’s products with DRAM memory controllers—used in PCs, video game consoles, and laptops—which RMBS will receive royalty payments based on the shipment of these memory controllers.

In related industry news, chip maker NVIDIA Corp. (NVDA $18) reported that its Chief Financial Officer (CFO) David White has resigned from the company for “personal reasons.” White will remain an employee of the company through May 31, 2011, and Karen Burns will serve as interim CFO.

Wholesale prices jump on headline level, housing starts and building permits fall

The Producer Price Index showed prices at the wholesale level rose 1.6% month-over-month (m/m) in February, after increasing an unrevised 0.8% in January, well above the forecast of economists surveyed by Bloomberg, calling for a 0.7% increase. However, the core rate, which excludes food and energy, increased inline with forecasts, gaining 0.2% m/m. On a year-over-year (y/y) basis, headline producer prices were 5.6% higher, versus the 4.7% increase that was projected, and the core rate was up 1.8%, matching expectations.

Meanwhile, housing starts for February came in well below expectations, falling 22.5% m/m from a favorably revised 618,000 annual rate of units in January, to a rate of 479,000 units, and compared to expectations of economists, which called for starts to come in at 566,000. Also, building permits dropped, falling 8.2% m/m in February to an annual rate of 517,000, after January’s slight upward revision to a 563,000 rate. The expectation was for permits to increase to 570,000 units.

In other housing news, the MBA Mortgage Application Index fell by 0.7% last week, after the index that can be quite volatile on a week-to-week basis, increased 15.5% in the previous week. The decline came as a 0.9% increase in the Refinance Index was more than offset by a 4.0% decrease in the Purchase Index. The drop in the overall index came despite the average 30-year mortgage rate dropping 14 basis points to 4.79%, above the record low of 4.21% on October 8, 2010.

Moreover, the 4Q current account deficit declined to $113.3 billion, from a favorably revised $125.5 billion in 3Q, and compared to the decrease to $110.0 billion that was anticipated by economists.

Treasuries are modestly higher in morning action following the data, with the yield on the two-year note down 2 bps to 0.58%, the yield on the 10-year note 3 bps lower at 3.28%, and the 30-year bond yield declining 1 bp to 4.44%. Treasuries gained some ground yesterday as the focus on the disaster in Japan fostered some flight-to-safety buying, even as the Federal Reserve modestly upgraded its economic assessment and expanded its commentary on inflation.

Europe mixed as Asia rebounds but Moody’s cuts Portugal’s debt rating

Stocks in Europe are mixed in afternoon action, as traders are buying equities in sectors that were hit the hardest from the tragedy in Japan, with gains in utilities and industrials helping limit losses across the pond. However, financials are the worst performing sector as some attention is shifting back to the euro-area debt crisis in the region, courtesy of Moody’s Investors Service downgrading Portugal’s sovereign debt rating by two notches to A3, while keeping its outlook on the peripheral euro-zone nation negative. Moody’s cited the impact of high borrowing costs and the difficulty of meeting tough fiscal targets that is facing the debt-laden nation, per Reuters.

Meanwhile, escalating tensions in the Middle East and North Africa are keeping the markets in check as anti-government protestors and security forces in Bahrain are clashing. Meanwhile, there were some mixed economic data to decipher in Europe, with y/y core euro-zone consumer prices rising at a slightly smaller rate than economists forecasted, while headline consumer prices, which include food and energy, increased to 2.4% in February from 2.3% in January. Elsewhere, UK jobless claims unexpectedly fell, and Italian consumer prices rose inline with expectations.

The UK FTSE 100 Index is down 0.5%, France’s CAC-40 Index is 0.4% lower, and Italy’s FTSE MIB Index is declining 0.7%, while Portugal’s PSI 20 Index is advancing 0.2%, and Germany’s DAX Index is rising 0.4%.

Japan leads Asian rebound

The equity markets in Asia rebounded from recent selling in the face of the devastation in Japan from Friday’s massive earthquake and tsunami, which resulted in the elevated threat of a nuclear meltdown at a damaged nuclear facility north of Tokyo. Japan’s Nikkei 225 Index jumped 5.7% after a two-day tumble to the lowest level since April 2009. Yesterday’s slight upgrade of the current US economic situation by the Federal Reserve after the conclusion of its monetary policy meeting also helped foster some optimism but uneasiness remains as the nuclear facility in Fukushima was hit by another fire, which could keep volatility elevated in the markets.

In Japanese equity news, Toyota Motor Corp. (TM $81) announced that it will keep all of its main assembly plants in Japan closed through March 22, as a result of the earthquake and nuclear threat in the nation, but the automaker said it will restart production of spare parts tomorrow at 7 plants in central Japan, per Reuters.

The rebound in Japan helped other markets in Asia, with South Korea’s Kospi Index rising 1.8% amid some bargain hunting in the technology and transportation sectors, while recently beat down mining issues helped push Australia’s S&P/ASX 200 Index 0.7% higher. Meanwhile, stocks in China also gained some ground, with the Shanghai Composite Index rising 1.2%. However, the Hong Kong Hang Seng Index increased a modest 0.1%, after shares of China Mobile Ltd. (CHL $47) posted a solid decline to limit gains in the region, as the company’s inline profit report was met with analyst concerns about slowing growth on increasing competition in the telecommunications industry, per Reuters.

Finally, there were some economic reports that deserve a mention even as the attention continues to be focused on the disaster in Japan, with China’s Leading Index increasing, the unemployment rate in South Korea unexpectedly rising, manufacturing activity in Japan declining in 1Q, and the Australian Leading Index deteriorating.