Morning Market Update

Early Gains Fade as Global Concerns Continue to be in Focus

The US equity markets have turned modestly lower in morning action as the Japanese crisis, euro-area debt concerns, and Middle East uncertainty continue to hamper conviction. Japanese stocks moved lower amid reports of radiation leaks and extensions of production halts, while stocks in Europe have pared early gains and are mixed as speculation grows that Portugal may seek a bailout. Meanwhile, Middle East uncertainty remains as airstrikes from a US and European led coalition continue, supporting oil prices. Treasuries are higher amid the aforementioned uneasiness, ahead of a read on US new home sales. In other economic news, mortgage applications rise slightly as purchase and refinancing applications both increased. In equity news, Adobe Systems Inc and Jabil Circuit Inc both topped the Street’s earnings expectations, and General Mills Inc matched forecasts, while Dow member Bank of America reported that the Federal Reserve has objected to its proposed capital distribution increase.

As of 8:50 a.m. ET, the June S&P 500 Index Globex future is 3 points below fair value, the Nasdaq 100 Index is 7 points below fair value, and the DJIA is 20 points below fair value. WTI crude oil is $0.25 higher at $105.22 per barrel, and the Bloomberg gold spot price is up $5.63 at $1,433.28 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.4% at 75.74.

Adobe Systems Inc. (ADBE $33) reported fiscal 1Q EPS ex-items of $0.58, one penny above the consensus estimate of analysts surveyed by Reuters, with revenues increasing 20% year-over-year (y/y) to $1.0 billion, roughly inline with the Street’s forecast. However, the software company issued 2Q guidance that was below analysts’ forecasts as it warned that Japan is its second largest country from a revenue perspective and March is typically its biggest revenue month of the year.

Jabil Circuit Inc. (JBL $19) posted fiscal 2Q earnings ex-items of $0.54 per share, three cents above the Street’s estimate, with revenues rising 30% y/y to $3.9 billion, matching analysts’ forecasts. The contract electronics manufacturing company issued 3Q guidance that exceeded expectations, saying that its employees and facility in Japan were not directly impacted by the natural disaster, however, it may have an impact on the supply of components to its global manufacturing operations, but the extent of this impact is not known at this time.

General Mills Inc. (GIS $37) announced fiscal 3Q profits of $0.56 per share, inline with the Street’s forecast, as revenues grew 2% y/y to $3.7 billion, roughly matching analysts’ expectations. The food maker said its plans call for 4Q to show the highest earnings growth of the year, with increasing contributions from pricing actions it has taken to partially offset “significant commodity cost increases.” GIS reaffirmed its full-year 2011 guidance.

Dow member Bank of America (BAC $14 ¹) announced that following a second round of stress tests conducted by the US Federal Reserve, the Fed has objected to its proposed increase in capital distributions for the second-half of 2011, but the Fed said the company can resubmit a revised comprehensive capital plan. BAC also said it will seek permission for a “modest” dividend increase in the second half of 2011 after submitting a revised capital plan to the Fed.

Mortgage applications rise, new home sales after the opening bell

The MBA Mortgage Application Index increased by 2.7% last week, after the index that can be quite volatile on a week-to-week basis, dipped by 0.7% in the previous week. The increase came as both the Refinance Index and the Purchase Index posted an increase of 2.7%, while the average 30-year mortgage rate increased by 1 basis point (bp) to 4.80%, above the record low of 4.21% on October 8, 2010.

Treasuries are higher in morning action, with the yield on the 2-year note down 1 bp to 0.64%, while the yields on the 10-year note and the 30-year bond are declining 4 bps to 3.29% and 4.40%, respectively.

The housing sector will remain the focus of the economic calendar after the start of today’s trading session with the release of new home sales, forecasted to rise 2.1% month-over-month (m/m) in February to an annual rate of 290,000 units. However, new home sales remain near the all-time low of 274,000 reached in August 2010. New home sales are considered a timelier indicator of conditions in the housing market as they are based on signings instead of closings, such as with existing home sales, which fell more than economists expected on Monday, dropping 9.6% to an annual rate of 4.88 million units. New home sales will likely continue to remain lackluster as a rash of foreclosures—with lenders possibly foreclosing on more homes than any other year since the housing crisis began in 2006—is keeping the supply of existing homes on the market elevated and dampening the outlook for new home purchases. Moreover, home prices are likely to remained subdued as discounting of foreclosed homes compete for sales, especially from all cash buyers, which are on the rise given the still tight credit standards.
 

Finally, US Federal Reserve Chairman Ben Bernanke will speak today at 12:00 p.m. ET to the Independent Community Bankers of America’s National Convention, on the topic of, “Community Banking in a Period of Recovery and Change.” A Q&A session will follow Bernanke’s remarks.

Europe mixed after paring early gains

Stocks in Europe have turned mixed, paring early gains in afternoon action as the attention on the euro-area debt crisis continues ahead of a vote in Portugal later today regarding the troubled nation’s austerity plans proposed by Prime Minister Socrates. Speculation that Portugal will need to seek a bailout from the euro-zone’s European Financial Stability Facility (EFSF) is gaining ground as the opposition Social Democratic have, along with other opposing parties, pledged to vote against the new austerity measures that are being proposed.

Meanwhile, basic materials are positing an advance to help limit the downside move across the pond amid continued uncertainty in the Middle East as airstrikes continue on Libya, which is supporting oil prices, while some favorable outlooks are being disseminated from top executives in the sector, per Reuters. Also, the economic calendar, although light, produced some reports worth mentioning, with euro-zone industrial new orders coming in below economists’ forecasts, while the minutes from the Bank of England’s (BoE) recent policy meeting earlier this month revealed that policymakers remain divided 6-3 between holding its policy steady and increasing interest rates.

The UK FTSE 100 Index is unchanged, France’s CAC-40 Index is 0.1% higher, Germany’s DAX Index is declining 0.3%, and Portugal’s PSI 20 Index falling 1.9%.

Asia mixed as Japanese markets find some late-day pressure

The equity markets in Asia finished mixed as maintenance workers try to restore power to the damaged nuclear facility in Japan, which remains in danger of a meltdown, despite slow progress being made to cool the facility’s reactors. Japanese stocks moved lower, with the Nikkei 225 Index falling 1.7% amid a late-session slide that came amid reports of iodine levels being found in tap water from Tokyo that was deemed unsafe for infants. Also, Japanese industrial production continues to be hampered by the recent natural disaster, with major companies in the region announcing further production halts. Toyota Motor Corp. (TM $83) announced that it will extend its suspension of manufacturing activity and will postpone the launch of its Prius Wagon in the region due to the production halts.

Elsewhere, stocks in South Korea and Hong Kong finished lower, as the Kospi Index and Hang Seng Index both dipped 0.1%. However, some markets in the region managed to gain ground, with Australia’s S&P/ASX 200 Index gaining 0.2%, China’s Shanghai Composite Index rising 1.0%, and India’s BSE Sensex 30 Index advancing 1.2%.