Morning Market Update

Global Coordinated Currency Intervention Supports Sentiment

The US equity markets are nicely higher in early action following the announcement from the G7 that it will intervene in the currency markets to try to cool off the recent surge in the Japanese yen in the aftermath of the natural disaster and nuclear meltdown threat in Japan. The announcement is alleviating some of the concerns toward the Japanese economy, along with relative optimism that power could be restored to the cooling system to a damaged nuclear reactor north of Tokyo. Meanwhile, the markets received a boost from reports that the Libyan Foreign Minister has called a cease-fire, halting all military actions following the United Nation’s vote to implement a no-fly zone over the country. Treasuries are lower as stocks are moving upward, while there are no major US economic reports scheduled for release today. The equity front continues to take a backseat to the aforementioned developments around the globe, but there are some reports worth noting, with Dow member Cisco Systems announcing its first-ever cash dividend, while Nike Inc posted 3Q results that missed expectations. Overseas, Asia markets finished mostly higher on the currency intervention, but further policy tightening in China bogged down the emerging Asian markets. Elsewhere, Europe is trading higher on the increased global sentiment, but uncertainty regarding the region’s second round of banking sector stress tests is limiting gains.

As of 8:51 a.m. ET, the June S&P 500 Index Globex future is 17 points above fair value, the Nasdaq 100 Index is 21points above fair value, and the DJIA is 127 points above fair value. WTI crude oil is $0.71 lower at $100.71 per barrel, and the Bloomberg gold spot price is up $14.18 at $1,417.91 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.2% at 75.81.

Dow member Cisco Systems Inc. (CSCO $17) reported that its Board of Directors has approved the company’s first-ever cash dividend to shareholders. CSCO will pay a quarterly dividend of $0.06 per share, paid on April 20, 2011, to all shareholders of record as of the close of business on March 31, 2011, with future dividends subject to Board approval.

Nike Inc. (NKE $85) reported fiscal 3Q EPS of $1.08, below the $1.12 consensus estimate of analysts surveyed by Reuters, with revenues increasing 7% year-over-year (y/y) to $5.1 billion, also below expectations, as the athletic apparel and footwear maker was forecasted to post $5.2 billion in revenues. However, the company said futures orders for its footwear and apparel, scheduled for delivery from March through July totaled $7.9 billion, 11% higher than orders reported for the same period last year, led by double-digit increases in North America, Greater China, and Emerging Markets.

Economic front quiet after week of mixed data

Treasuries are lower in morning action as the equity markets are gaining ground and with the US economic calendar void of any major reports scheduled to be released today. The yield on the two-year note is up 1 bp to 0.59%, the yield on the 10-year note is 4 bps higher to 3.30%, and the 30-year bond yield is gaining 3 bps to 4.47%. Bond yields moved lower on the week amid some flight-to-safety buying following last week’s massive earthquake and tsunami in Japan and resulting nuclear threat at a damaged facility north of Tokyo. However, the move in yields was not in a straight line as traders digested some mixed reports from the economic front, headlined by the Federal Reserve modestly upgrading its economic assessment at the one-day Federal Open Market Committee (FOMC) monetary policy meeting, saying it is on “firmer footing,” while expanding its commentary on inflation.

However, increasing inflation concerns were supported by hotter-than-forecasted figures from the Import Price Index, the Producer Price Index (PPI), and the Consumer Price Index (CPI). Finally, data from the housing front continued to be lackluster, with housing starts tumbling, while building permits unexpectedly fell.

Europe modestly higher following G7 currency intervention

Stocks in Europe are posting modest gains in afternoon action on soothing concerns toward the Japanese economy, which is battling damage from last week’s massive earthquake and the resulting threat of a nuclear facility meltdown. The eased concerns toward the world’s third largest economy came after the Group of Seven (G7) global industrialized nations announced that it will step into the currency markets to try to stem the record high surge in the Japanese yen, which is amplifying the Japanese economic adversity. However, gains were pared by the announcement that China tightened its policy toward its banking sector, while financials are lagging behind as European regulators continue to grapple with defining the curriculum for its second-round of stress tests it is planning to conduct on the euro-zone’s banking sector. Meanwhile, increased uneasiness in the Middle East and North Africa may be keeping the advance across the pond limited after the United Nations voted to impose a no-fly zone over Libya, but increased uneasiness that military action could follow is being soothed by Libya’s call for a cease fire.

The European economic front continues to be light and overshadowed by the focus on Japan and the Middle East. However, there were some reports that deserve a mention, with UK consumer confidence unexpectedly deteriorating, while y/y producer prices in Germany came in hotter than forecasted.

The UK FTSE 100 Index is 0.5% higher, France’s CAC-40 Index is gaining 0.9%, and Germany’s DAX Index is rising 0.6%.

Asia higher as G7 intervenes to try to cool off the yen

The equity markets in Asia were mostly higher, with Japan’s Nikkei 225 Index rising 2.7% to lead the way after the G7 intervened in the currency markets for the first time in over a decade to try to thwart the surge in the Japanese yen. The yen has reached a record high versus the US dollar on Wednesday evening on continued expectations that funds in response to the tragedy in Japan could be repatriated to the nation and converted into yen. The rally in the yen was exacerbating concerns toward the Japanese economy in the aftermath of the earthquake and subsequent nuclear meltdown threat. The G7 said in a statement, “As we long have stated, excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability.” The yen is trading solidly lower versus the major currencies as Japan began selling the Asian currency, followed by European central banks and the Bank of Canada, while it is unknown what actions have been taken by the US Federal Reserve.

Elsewhere, South Korea’s Kospi Index rose 1.1% and Australia’s S&P/ASX 200 Index gained 1.6% following the intervention. However, India’s BSE Sensex 30 Index fell 1.5% and stocks in China posted modest gains, with the Hong Kong Hang Seng Index increasing 0.1% and the Shanghai Composite Index rising 0.3%. Inflation concerns stymied sentiment in these emerging markets on the heels of the interest rate hike in India yesterday and ongoing asset bubble concerns in China, which prompted the Chinese government to increase the reserve requirement for its banking sector today. China announced that it will raise the required amount of capital that its banks must keep out of the financial system by 50 basis points, with the rate that the nation’s largest institutions must keep in reserve rising to 20%.