Morning Market Update

Stocks in the Red as Week Nears its End

The US equity markets are under pressure in morning action after posting the first positive session of June yesterday, as traders are digesting a smaller-than-expected increase in China’s trade surplus, and an unexpected increase in US import prices. Treasuries are higher in early trading. Meanwhile, equity news is light, as National Semiconductor Corp posted 4Q earnings that missed the Street’s forecasts, but its revenues came in higher than estimated. Overseas, Asia finished mixed following the Chinese trade data and as South Korea’s central bank surprisingly increased its benchmark interest rate, while European equity markets are diverging following a plethora of economic data.

As of 8:49 a.m. ET, the September S&P 500 Index Globex future is 6 points below fair value, the Nasdaq 100 Index is 10 points below fair value, and the DJIA is 39 points below fair value. WTI crude oil is $1.12 lower at $100.81 per barrel, and the Bloomberg gold spot price is down $13.84 at $1,530.14 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.2% at 74.35.

National Semiconductor Corp. (NSM $25) announced fiscal 4Q EPS of $0.26, one penny shy of the consensus estimate of analysts surveyed by Reuters, with revenues declining 6% year-over-year (y/y) to $374 million, but above the $365 million that the Street was anticipating. The chip maker said increased sales to the industrial power market and improvements in the automotive and communications infrastructure areas more than offset flat sales in its wireless handset business and Japan sales that were lower due to the March earthquake and tsunami.

Import prices unexpectedly rise to end the week

The Import Price Index rose 0.2% month-over-month (m/m) for May, compared to the expectation of economists surveyed by Bloomberg, which called for the index to decrease by 0.7%. The increase follows the 2.1% increase seen in April, which was revised from an initially reported 2.2%. Year-over-year, import prices are higher by 12.5%, versus the 11.2% forecast of economists, and the upwardly revised 11.4% gain that was posted in April.

Treasuries are higher following the data, with the yield on the 2-year note down 1 bp at 0.41%, the yield on the 10-year note 3 bps lower at 2.97%, and the 30-year bond yield losing 2 bps at 4.19%.

Europe mixed following plethora of data

The equity markets are mixed in afternoon action as traders are digesting a slew of economic data, while the euro-area debt crisis continues to garner attention. Financials came well off of the worst levels of the day to help limit the downside pressure on the equity markets following the announcement that the German parliament voted in favor of providing Greece with new bailout funds. Also, economic sentiment found some support after the German Bundesbank raised its economic growth forecast for Europe’s largest economy. However, other economic reports showed French industrial production unexpectedly fell in April, along with production in the UK, which also reported that manufacturing activity dropped by a much larger amount than expected in April. Elsewhere, inflation readings across the pond were relatively tame, with UK producer prices coming in below expectations, while German consumer and producer prices were flat for May. Finally, Italy’s 1Q GDP was left unrevised at a 0.1% quarter-over-quarter (q/q) rate of expansion.

The UK FTSE 100 Index is down 0.1%, France’s CAC-40 Index is down 0.6%, and Greece’s Athex Composite Index is declining 0.3%, while Germany’s DAX Index is gaining 0.1%.

Asia mixed as South Korea surprisingly raised rates and China’s exports slow

Stocks in Asia finished mixed, with Japanese stocks receiving some support from the gains posted in the US, as the Nikkei 225 Index advanced 0.5%. However, after the closing bell, Toyota Motor Corp. (TM $82) said it expects full-year profits to fall more than 30% y/y, missing the forecasts of analysts, due to the impact of the March earthquake and tsunami. Meanwhile, South Korea’s Kospi Index fell 1.2% after the nation’s central bank increased its benchmark interest rate by 25 basis points to 3.25%, the third increase this year, surprising economists, who forecasted the rate to remain at 3.00%. The Bank of Korea said despite the temporary sluggishness of domestic demand, the economy has maintained its underlying upward tread on the “sustained high growth of exports,” and it expects inflationary pressures to continue in the coming months.

Elsewhere, stocks in China finished mixed as the Shanghai Composite Index eked out a 0.1% gain, despite a report that showed the country’s trade surplus widened by a smaller-than-forecasted amount in May, as exports rose at a rate that was below economists’ forecasts, while imports increased at a more rapid pace than was anticipated. Traders grappled with what implications the data may have on further monetary policy tightening in China, while contemplating whether the strong imports suggest the economy continues to expand solidly. Next week’s full slate of Chinese economic data, including releases on inflation, loan growth, industrial production, and retail sales, may carry more weight among economists. Taiwan’s Taiex Index fell 1.8% after the Chinese trade report. But Hong Kong shares finished lower, as the Hang Seng Index declined 0.8%, led by weakness in real estate issues as the government tightened requirements for home-buyers, demanding larger down payments and increasing barriers for foreign investors, aimed at cooling home prices.