Morning Market Update

Greece Debt Concerns Continue to Tax Sentiment

The US equity markets are extending yesterday’s steep losses as the eurozone debt crisis remains in focus, with growing uncertainty regarding Greece’s ability to avoid a sovereign default. However stocks pared losses in early action after some favorable data out of the US, with jobless claims falling more than expected, housing starts and building permits rising to a level that exceeded expectations, and the 1Q current account deficit coming in smaller than forecasted. Treasuries are higher amid the euro-area debt uneasiness, ahead of a report on manufacturing activity in the Mid-Atlantic region. In equity news, Finisar Corp issued a disappointing outlook, while Energy Transfer Equity L.P. reached an agreement to acquire Southern Union Co for about $4.2 billion to create the largest consolidated natural gas pipeline company in the US. Overseas, Asian markets finished lower across the board amid the European debt crisis and concerns about the global economy, while European stocks are solidly lower in afternoon action.

As of 8:49 a.m. ET, the September S&P 500 Index Globex future is 2 points below fair value, the Nasdaq 100 Index is 2 points below fair value, and the DJIA is 20 points below fair value. WTI crude oil is $0.20 lower at $94.61 per barrel, and the Bloomberg gold spot price is down $3.24 at $1,527.74 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.5% at 75.98.

Finisar Corp. (FNSR $18) is under solid pressure after the fiber-optic equipment maker issued fiscal 1Q guidance that missed analysts’ forecasts. FNSR said it expects 1Q EPS ex-items to be in a range of $0.17-0.21, compared to the $0.35 consensus estimate of analysts surveyed by Reuters, and revenues to come in between $215-230 million, below the $249 million that the Street had expected. The outlook was issued along with the company’s fiscal 4Q results, which showed EPS of $0.33, inline with analysts’ projections, and revenues of $237 million, below the $243 million that the Street was looking for.

In M&A news, Energy Transfer Equity L.P. (ETE $42) announced that it has reached a definitive agreement to acquire Southern Union Co. (SUG $28) for $33.00 per share, or about $4.2 billion excluding $3.7 billion in debt. The companies said the deal will create the largest consolidated natural gas pipeline company in the US.

Jobless claims decline, housing starts and permits rise, Philly Fed report on deck

Weekly initial jobless claims fell more than forecasted, dropping by 16,000 to 414,000, versus last week's figure which was upwardly revised by 3,000 to 430,000, and compared to the decline to 420,000 that economists surveyed by Bloomberg had expected. However, the four-week moving average, considered a smoother look at the trend in claims, remained unchanged at 424,750, while continuing claims dropped by 21,000 to 3,675,000, above the forecast of economists, which called for continuing claims to come in at 3,670,000.

Housing starts for May rose 3.5% month-over-month (m/m) from a favorably revised 541,000 annual rate of units in April, to a rate of 560,000 units, and compared to expectations of economists, which called for starts to come in at 545,000. Also, building permits increased 8.7% m/m in May to an annual rate of 612,000, after April’s upward revision to a 563,000 rate. The expectation was for permits to come in at 557,000 units.

Moreover, the 1Q current account deficit came in smaller than expected at $119.3 billion, from a favorably revised $112.2 billion in 4Q, and compared to the increase to $130.0 billion that was anticipated by economists.

Treasuries remain higher in morning action following the data and eurozone debt concerns, with the yield on the 2-year note down 1 bp to 0.37%, the yield on the 10-year note declining 5 bps to 2.92%, and the 30-year bond rate 4 bps lower to 4.16%.

Later this morning, the US economic calendar will yield the release of the Philly Fed Manufacturing Index for June, forecasted to improve to 7.0 from 3.9 in May, with a reading above zero denoting expansion in activity.

Europe falling victim to Greece concerns again

The equity markets in Europe are solidly lower in afternoon action, with banking issues one of the worst performers, as eurozone debt fears are being amplified by uncertainty toward whether the debt-laden peripheral nation of Greece will be able to avoid a default. Although Greece is a relatively small member of the eurozone, exposure to the nation’s debt is substantial for key euro-area economies and the threat of widespread contagion in Europe is depressing sentiment. Greece faces tough austerity measures in order to be eligible to receive eurozone financial aid to help cover maturing debt obligations in the short term, and redirect its fiscal health down a more sustainable long-term path. Intensifying the uneasiness, eurozone finance ministers have failed to agree on the structure of a second Greek bailout plan. As a result, anti-austerity protests have ensued in the streets of Greece and the nation’s Prime Minister Papandreou has vowed to reshuffle his cabinet and seek a vote of confidence, which are exacerbating the uncertainty toward the nation’s future.

The economic calendar is being overshadowed by the focus on Greece, but there are some reports worth mentioning, with eurozone consumer prices coming in a bit cooler than expected in May, while UK retail sales fell much more than projected in May.

The UK FTSE 100 Index is 1.5% lower, France’s CAC-40 Index declining 1.3%, Germany’s DAX Index is falling 1.0%, while Greece’s Athex Composite Index is tumbling 3.1%.

Asia follows US and Europe lower

Stocks in Asia finished solidly lower across the board on the heels of the steep losses registered in the US and Europe yesterday as eurozone debt worries escalated with growing uncertainty toward Greece, while disappointing data in the US dampened the outlook for the global economy. Japan’s Nikkei 225 Index fell 1.7%, while South Korea’s Kospi Index and Australia’s S&P/ASX 200 Index both dropped 1.9%, to lead the broad-based declines in the region. Meanwhile, stocks in China also came under solid pressure, with the Hong Kong Hang Seng Index falling 1.8% and the Shanghai Composite Index sliding 1.5%. Elsewhere, India’s BSE Sensex 30 Index decreased 0.8%, amid the deteriorated economic sentiment and following the announcement from the nation’s central bank that it increased its benchmark interest rate for the tenth time since the beginning of 2010. India’s interest rate was boosted by 25 basis points to 7.50%, matching expectations of economists. In other economic news in the region, Australia’s new motor vehicle sales fell in May, and a separate report showed the nation’s consumer inflation expectation remained at 3.3% in June, while China’s Leading Index improved slightly from March to April.