Morning Market Update

Global Pressures Punishing Equities in Early Action

The US equity markets are under solid pressure in morning action, as stocks in Asia moved broadly lower and European indices are under solid pressure, following some disappointing manufacturing data out of China and the eurozone, as well as exacerbated European debt concerns. The debt uneasiness in the euro-area comes as Spain’s ruling party suffered a tough defeat in regional elections, and amid a credit rating downgrade of Greece, which was followed by an outlook cut of Italy by some ratings agencies. Treasuries are higher amid the decline in the stock markets as there are no major economic reports set to be released today. Meanwhile, the US equity front is relatively light to heighten the attention on the overseas uneasiness, with Campbell Soup Co posting fiscal 3Q earnings that topped analysts’ forecasts.

As of 8:48 a.m. ET, the June S&P 500 Index Globex future is 14 points below fair value, the Nasdaq 100 Index is 28 points below fair value, and the DJIA is 142 points below fair value. WTI crude oil is $2.98 lower at $97.12 per barrel, and the Bloomberg gold spot price is down $4.30 at $1,507.93 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 1.2% to 76.32.

Campbell Soup Co. (CPB $35) reported fiscal 3Q earnings of $0.57 per share, above the $0.52 consensus estimate of analysts surveyed by Reuters, with revenues increasing 1% year-over-year (y/y) to $1.8 billion, inline with what the Street was looking for. The food company said its baking and snacking sales rose 10% y/y, while its US soup, sauces and beverages unit saw an 8% decline in sales. CPB said it sees full-year results at the high-end of its prior guidance.

Treasuries higher amid European debt concerns, while US economic front in quiet

The US economic calendar is void of any major releases today, allowing the concerns out of Europe to garner the full spotlight, and Treasuries are higher in early action, with the yield on the 2-year note down 1 bp to 0.50%, the yield on the 10-year note 4 bps lower at 3.11%, and the 30-year bond rate declining 2 bps to 4.28%.

The highlight of this week’s economic docket will come later in the week in the form of the second reading of 1Q gross domestic product (GDP), expected to be revised higher to a 2.2% quarter-over-quarter (q/q) annualized rate from the initially reported 1.8% rate of expansion, while still slower than the 3.1% rate experienced in 4Q. Within the upward revision, personal consumption is forecasted to rise 2.8% from the previously reported 2.7%. Inflation readings are expected to be unchanged, with the GDP Price Index coming in at a 1.9% gain, and the core PCE Index, which excludes food and energy, to increase 1.5%.

Other releases on this week’s US economic calendar include: new home sales, durable goods orders, the Richmond Fed Manufacturing Index, the MBA Mortgage Applications Index, weekly initial jobless claims, personal income and spending, the final University of Michigan Consumer Sentiment Index, and pending home sales.

Europe steeply lower as debt concerns escalate and manufacturing data curb sentiment

The equity markets in Europe are solidly lower in afternoon action as some soft manufacturing data out of China is being met by amplified uneasiness concerning the euro-area debt crisis. The debt concerns are coming courtesy of festering worries about a restructuring of Greece’s debt following Friday’s rating downgrade by Fitch Ratings and as the troubled nation is holding meeting to discuss fiscal austerity today. Moreover, the ratings cut on Greece was followed by Standard & Poor’s cutting its credit-outlook on Italy, due to economic growth concerns and “diminished” prospects for a reduction of government debt, per Bloomberg. Elsewhere, stocks in Spain are under solid pressure after the nation’s ruling Socialists party suffered a severe defeat in local and regional elections. 

Making matters worse, an economic report showed eurozone manufacturing activity slowed much more than what economists forecasted, as PMI Manufacturing data out of France and Germany—Europe’s largest economy—showed much slower-than-expected rates of expansion.

The equity front is also contributing to the broad-based declines in the region as shares of Ryanair Holdings Plc. (RYAAY $30) are down solidly after it reported that it will cut capacity due to rising fuel costs, while the airline sector is being pressured by a volcanic eruption in Iceland. Finally, shares of Commerzbank AG (CRZBY $6) are under pressure after the German lender announced a $7.4 billion equity sale.

The UK FTSE 100 Index is down 1.7%, France’s CAC-40 Index and Germany’s DAX Index are falling 2.0%, Spain’s IBEX 35 Index is decreasing 1.4%, Italy’s FTSE MIB Index is dropping 3.2%, and Greece’s Athex Composite Index is 0.8% lower.

Asia broadly lower amid China data and European concerns

Stocks in Asia finished solidly lower to begin the week, as concerns over slowing economic growth in China and the European debt crisis weighed on sentiment in the region. The equity markets in China posted some of the biggest declines, with the Hong Kong Hang Seng Index falling 2.1% and the Shanghai Composite Index dropping 2.9%, following a preliminary report on manufacturing activity that suggested the slowest pace of expansion in ten months. The HSBC Flash China Manufacturing PMI report declined from 51.8 in April to 51.1 in May, the lowest reading since July 2010. Per Reuters, HSBC said manufacturers continued to reduce inventories amidst slowing new business flows. The data exacerbated global economic sentiment and pressured commodity-related issues, contributing to a solid 1.9% decline in Australia’s S&P/ASX 200 Index.

Also, some equity reports amplified the losses in Japan and South Korea. The Nikkei 225 Index fell 1.5% amid the broad-based pessimism and as shares of Tokyo Electric Power Co. (TKECY $5) moved sharply lower after Friday’s report that it posted a $15 billion full-year net loss, due to the fallout from the nuclear crisis centered at a power facility that it operates that was damaged from the March earthquake and tsunami. The Kospi Index moved 2.6% to the downside, exacerbated by a steep decline in shares of Hyundai Motor Co. (HYMLF $187) after South Korea’s largest automaker, per Bloomberg, warned that a strike at a parts supplier may halt production of engines for some models.