Morning Market Update

Economic and Debt Concerns Weigh on Stocks

The US equity markets are solidly lower in early action, following yesterday’s late-session drop as the US Federal Reserve concluded its monetary policy meeting by downgrading its economic growth outlook for this year and next. Meanwhile, economic concerns continue in morning trading as manufacturing reports in Europe and China showed decelerations in activity, while US weekly initial jobless claims rose to a level that exceeded economists’ forecasts. Treasuries are strongly to the upside amid the global economic pessimism, ahead of a report on US new home sales. Meanwhile, crude oil is under heavy pressure amid the economic uneasiness. In equity news, Dow member Pfizer Inc and Bristol-Myers Squibb Co announced favorable results of a late-stage trial of their blood-thinning treatment, while Bed Bath & Beyond Inc and Lennar Corp both posted earnings that exceeded analysts’ expectations. However, ConAgra Foods Inc missed the Street’s profit projections and warned of higher input costs. Overseas, Asian equity markets finished mostly lower amid the dampened economic sentiment, which is also pressuring European stocks, along with festering euro-area debt concerns.

As of 8:53 a.m. ET, the September S&P 500 Index Globex future is 18 points below fair value, the Nasdaq 100 Index is 26 points below fair value, and the DJIA is 138 points below fair value. WTI crude oil is $3.96 lower at $91.45 per barrel, and the Bloomberg gold spot price is down $25.65 at $1,523.30 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 1.0% at 75.65.

Dow member Pfizer Inc. (PFE $20) and Bristol-Myers Squibb Co. (BMY $28) are nicely higher after their blood thinning drug Eliquis reached efficacy goals of a late-stage trial compared to a current treatment used by patients with irregular heartbeat. Dow Jones Newswires said analysts forecast that the drug, if approved, could eventually generate annual sales of more than $1 billion.

ConAgra Foods Inc. (CAG $25) reported fiscal 4Q EPS ex-items of $0.47, below the $0.48 consensus estimate of analysts surveyed by Reuters, with revenues increasing 5.3% year-over-year (y/y) to $3.2 billion, matching what the Street had projected. The food company said the overall marketplace and economic conditions “remain challenging” as its consumer foods unit incurred 9% cost inflation this quarter, and high input costs and difficult economic conditions are expected to continue to create challenges in fiscal 2012.

Bed Bath & Beyond Inc. (BBBY $54) announced fiscal 1Q earnings of $0.72 per share, exceeding the $0.63 that analysts had anticipated, on a 9.7% y/y increase in revenues to $2.1 billion, which was roughly inline with the Street’s expectations. The home furnishing retailer said same-store sales—sales at stores open at least a year—increased by 7.0% y/y. The company said it expects 2Q EPS to be in a range of $0.77-0.82, compared to the $0.82 that analysts had estimated.

Lennar Corp. (LEN $18) said its 2Q EPS were $0.07, three pennies above the Street’s forecasts, with revenues declining 6% y/y to $765 million, but north of the $647 million that analysts were expecting the homebuilder to report. New orders were flat compared to the same period a year ago, while order backlog decreased 1% y/y.

Weekly jobless claims rise, new home sales due out later this morning

Weekly initial jobless claims rose to a higher than expected level, increasing by 9,000 to 429,000, versus last week's figure which was upwardly revised by 6,000 to 420,000, and compared to the 415,000 level that economists surveyed by Bloomberg had expected. Also, the four-week moving average, considered a smoother look at the trend in claims, remained unchanged at last week’s upwardly revised mark of 426,250, while continuing claims dipped by 1,000 to 3,697,000, above the forecast of economists, which called for continuing claims to come in at 3,670,000.

Treasuries are higher in morning action, extending gains following the employment data, with the yield on the 2-year note down 3 bps to 0.34%, the yield on the 10-year note declining 8 bps to 2.90%, and the 30-year bond rate 6 bps lower at 4.16%.

Meanwhile, after the opening bell, we will get the release of new home sales, expected to show a 4.0% month-over-month (m/m) decrease in May to an annual rate of 310,000 units, after rising 7.3% to an annual rate of 323,000 units the prior month). New home sales are watched closely as they are a more timely indicator of conditions in the housing market than existing home sales as they are measured when a contract is signed rather than when the sale is closed, but have suffered from the discounts offered by the foreclosure market.

Europe under pressure on economic and debt uneasiness

The equity markets in Europe are solidly lower across the board, led by financials and materials issues amid resurfacing global economic concerns and the festering uneasiness regarding the fiscal-fate of debt laden Greece. The economic pessimism comes from multiple fronts, with yesterday’s downward revisions to the US Federal Reserve’s economic growth forecasts getting the ball rolling, while a lackluster preliminary reading of Chinese manufacturing activity and the US jobless claims report exacerbated sentiment. Moreover, data in Europe added to the uneasiness, with the eurozone Manufacturing PMI Index decelerating more than expected in June, led by larger-than-expected slowdowns in France and Germany—Europe’s largest economy.

Meanwhile, euro-area debt concerns continue to stymie sentiment, with European leaders set to begin a two-day meeting to discuss the future of Greece, which faces the daunting task of implementing tough austerity measures to gain further access to the eurozone bailout package that could help the troubled peripheral nation avoid a sovereign debt default. Also, European Central Bank (ECB) President Jean-Claude Trichet fostered some of the renewed worries about Europe’s debt crisis late-yesterday, as he warned that risk signals for financial stability in the eurozone are flashing “red,” per Bloomberg. In equity news, shares of Bayer AG (BAYRY $83) are solidly lower to add to the pressure on stocks across the pond, following the aforementioned favorable trial results of a potentially competing blood-thinning drug from Pfizer and Bristol-Myers Squibb Co.

The UK FTSE 100 Index is down 1.4%, France’s CAC-40 Index is declining 1.9%, Germany’s DAX Index is falling 1.6%, and Greece’s Athex Composite Index is dropping 2.0%.

Asia mixed following Fed’s downward revision of economic outlook

Most stocks in Asia finished lower on the heels of yesterday’s late-day slide in the US equity markets after the US Federal Reserve revised its economic forecasts downward, while offering no indication of new measures to stimulate the economy. Japan’s Nikkei 225 Index declined 0.3% amid dampened sentiment regarding the global economy, but a solid gain in shares of Nissan Motor Co. (NSANY $21) helped limit losses, after the automaker offered a favorable outlook on its sales. Meanwhile, Australian stocks were one of the worst performers in the region, with the S&P/ASX 200 Index declining 0.7% as the impact of the Fed’s economic assessment was exacerbated by a preliminary report on Chinese manufacturing activity for June, which showed expansion nearly stalled, falling from 51.6 in May to 50.1, with a reading above 50 denoting expansion.

However, stocks in mainland China moved solidly higher despite the report, as the Shanghai Composite Index rose 1.5%, led by strength in energy and materials stocks, as well as property issues, on a report of a government plan to support alternative energy production and affordable housing, per Bloomberg. Elsewhere in China, Hong Kong’s Hang Seng Index declined 0.5%. Moreover, South Korea’s Kospi Index decreased 0.4%, but losses were kept in check by a sharp rise in shares of Korea Express after Samsung SDS said it may jointly bid for the logistics company with POSCO (PKX $102). Rounding out the day in Asia, India’s BSE Sensex 30 Index rose 1.0%.