Morning Market Update

Euro-Debt Uneasiness Greets the Street to Start the Week

The US equity markets are lower in early trading as a familiar foe for the bulls continues to stymie sentiment. Greece remains the focus of the eurozone debt crisis, with concerns about a default of the troubled nation being exacerbated by the decision by euro-area finance ministers to delay the payment of nearly $17 billion to Greece as part of the next installment from the eurozone bailout program. The consensus coming from the weekend meeting of eurozone finance chiefs was that Greece needed to show progress in implementing tough austerity measures needed to qualify for funds. Treasuries are mostly higher amid the morning declines in stocks, as there are no major US economic reports scheduled for today, but key reads on housing, the Fed, and manufacturing demand are due out later in the week. In equity news, PNC Financial Services Group Inc announced that it has reached a definitive agreement to acquire the US retail banking business of Royal Bank of Canada for $3.45 billion. Elsewhere overseas, the Asian markets finished mostly lower amid the aforementioned uneasiness in the eurozone.

As of 8:49 a.m. ET, the September S&P 500 Index Globex future is 5 points below fair value, the Nasdaq 100 Index is 6 points below fair value, and the DJIA is 35 points below fair value. WTI crude oil is $1.06 lower at $91.95 per barrel, and the Bloomberg gold spot price is down $3.65 at $1,535.75 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.2% at 75.17.

PNC Financial Services Group Inc. (PNC $58) announced that it has reached a definitive agreement to acquire the US retail banking business of Royal Bank of Canada (RY $56) for $3.45 billion. Under the terms of the agreement, PNC will have the option to deliver to RY up to $1 billion of the consideration in common stock and the transaction is expected to be accretive to earnings by the end of 2013 or sooner depending on the amount, if any, of the $3.45 billion purchase price paid in the form of PNC stock.

Economic calendar quiet before the storm

Treasuries are mostly higher in early action amid the continued euro-area debt concerns and as there are no major US economic reports scheduled for release today, with the yield on the 2-year note down unchanged at 0.38%, while the yields on the 10-year note and the 30-year bond are 3 bps lower to 2.92% and 4.17%, respectively.

However, the economic front for the rest of the week will yield key reads on the struggling housing sector and manufacturing demand, as well as the latest monetary policy announcement from the Federal Reserve.

Tomorrow, existing home sales will kick things off, forecasted to drop 5.0% month-over-month (m/m) to an annual rate of 4.80 million units in May, after unexpectedly falling to 5.05 million units in April. Existing home sales represent the largest portion of the total market and reflect closings from contracts entered one to two months earlier. The rest of the home sales picture for May will come in the form of Thursday’s new home sales report, expected to drop 4.0% m/m to an annual rate of 310,000 units, after April’s unexpected increase to 323,000 units. New home sales are based on contract signings.

Moreover, tomorrow, the Federal Open Market Committee (FOMC) will begin its two-day monetary policy meeting, with no major changes expected to the Fed’s stance and the statement will be released at its new time at 12:30 p.m. EST on Wednesday, followed by the post-statement news conference and Q&A session led by Fed Chair Ben Bernanke beginning at 2:15 p.m. EST.

Other releases scheduled for this week’s US economic calendar include: the MBA Mortgage Applications Index, weekly initial jobless claims, durable goods orders, and the final reading of 1Q GDP.

Europe lower as Greece fails to receive next installment of financial aid

The equity markets in Europe are under pressure in afternoon action, with financials one of the worst performers amid festering default uncertainty toward the troubled nation of Greece. Fostering the uneasy sentiment, eurozone finance ministers concluded a meeting over the weekend, without making a decision on paying Greece a $17 billion emergency loan payment in order to help the debt-laden nation meet its obligations coming due in July. A decision to pay the loan to Greece was expected to be announced, but the group of eurozone finance ministers opted to wait and see if the peripheral eurozone nation is making good on the tough austerity measures that are needed to get its fiscal problems on a sustainable path. Greek Prime Minister Papandreou last week reshuffled his cabinet in an attempt to unify the government in order to make passing his austerity plan, and he faces a key confidence vote late tomorrow. However, Dow Jones Newswires reported that eurozone finance ministers said they have narrowed their differences over how private-sector creditors should participate in helping solve the fiscal crisis in Greece, and they aim to have a final plan in place “by early July.” The next discussion of the Greece debt situation will be later this week in a Brussels summit of European Union leaders. Exacerbating the uneasiness, Moody’s Investors Service warned that it may cut Italy’s sovereign debt rating, due to economic growth challenges and the prospect of higher interest rates in the region, per Reuters.

Once again the euro-area debt crisis is stealing the spotlight across the pond, and the economic calendar is having little impact on today’s trading. However, there are some reports that are worth a mention, with German producer prices coming in cooler than economists expected in May, UK home prices rising in June, and Italian industrial orders falling more than anticipated.

The UK FTSE 100 Index is declining 0.8%, France’s CAC-40 Index is dropping 1.2%, and Germany’s DAX Index is falling 1.0%. Elsewhere, Italy’s FTSE MIB Index is 2.5% lower and Greece’s Athex Composite Index is down 1.0%.

Asia mostly lower as focus remains on eurozone debt crisis

Stocks in Asia finished mostly in the red as traders continued to tread with caution amid the uncertainty about a potential sovereign debt default in Greece after eurozone finance ministers held off on extending emergency funds to troubled euro-area nation. South Korea’s Kospi Index declined 0.6% amid the uneasiness toward the eurozone debt crisis, with technology and energy issues pacing the decline, while Australian equities erased early gains and finished lower, with the S&P/ASX 200 Index declining 0.7%. Crude oil refining issues were one of the heaviest drags on stocks in the region, led by a sharp drop in Caltex Australia Ltd. (CTXAY $27) after the refiner offered a disappointing outlook due to the negative impact of plant outages and rising crude oil prices. Meanwhile, stocks in China found some pressure, with the Shanghai Composite Index falling 0.8% and the Hong Kong Hang Seng Index dropping 0.4%, as property-related stocks were the biggest decliners amid concerns about the possibility of further measures by the government to cool prices. Moreover, India’s BSE Sensex 30 Index fell 2.0% to lead the decline in region amid worries about capital gains taxes as the nation resumed taxation-treaty negotiations with the island nation of Mauritius, per Bloomberg.

However, Japanese stocks finished flat as the aforementioned euro-area debt concerns were offset by strong gains power companies amid reports from the government that utility companies may be able to restart nuclear generators following safety inspections. Also, shares of Mazda Motor Corp. (MZDAY $25) moved nicely higher to help support the equity market after the automaker issued favorable guidance. In economic news, Japan’s trade deficit widened in May, as exports fell more than expected and imports grew by an amount that exceeded projections.