Morning Market Update

Debt Concerns Continue to Pull on the Bulls’ Reins

Ahead of some key 2Q earnings reports due out this week, the US equity markets are lower in early action, as traders continue to rein in their risk appetites with global debt concerns remaining as the main course on the market’s menu. Treasuries are moving higher amid the declines in stocks, despite the approaching US debt ceiling deadline, ahead of a report on homebuilder sentiment, which will kick off a housing-focused economic calendar. In equity news, Hasbro Inc reported mixed 2Q results, while Halliburton Co bested analysts’ expectations. Overseas, Asian markets were mostly lower in light action as Japanese markets were closed, while financials are leading Europe lower with Friday’s banking sector stress test results doing little to soothe concerns about the eurozone debt crisis.

As of 8:48 a.m. ET, the September S&P 500 Index Globex future is 6 points below fair value, the Nasdaq 100 Index is 11 points below fair value, and the DJIA is 50 points below fair value. WTI crude oil is $1.19 lower at $96.05 per barrel, and the Bloomberg gold spot price is up $4.05 at $1,597.65 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.6% at 75.57.

Hasbro Inc. (HAS $41) reported 2Q profits ex-items of $0.33 per share, below the $0.39 consensus estimate of analysts surveyed by Reuters, but revenues rose 23% year-over-year (y/y) to $909 million, above the $855 million that the Street had forecasted. The toy and game maker said its revenues benefitted from “strong gains” in its Transformers brand, as well as continued double-digit growth in its international segment.

Halliburton Co. (HAL $53) reported 2Q EPS ex-items of $0.81, exceeding the $0.74 that the Street had forecasted, with revenues increasing 35% y/y to $5.9 billion, topping the $5.7 billion that analysts had anticipated. The oilfield services company said its results were driven by “strong growth” in North American revenue and profitability, driven by improved pricing and equipment utilization in the US, while its international profits recovered modestly.

Housing market in focus this week

Treasuries are higher in early action amid the declines in the equity markets and as there are no major US economic reports due out before the opening bell, with the yield on the 2-year note down 2 bps to 0.35%, the yield on the 10-year note 7 bps lower at 2.88%, and the 30-year bond rate declining 2 bps to 4.24%.

This week, the US economic front will bring a plethora of data regarding the housing sector, beginning with today’s mid-morning release of the NAHB Housing Market Index, and the gauge of homebuilder sentiment is expected to improve modestly from 13 in June to 14 for July. Any reading below 50 indicates that more respondents feel conditions are poor.

Meanwhile, more robust reports on the health of the housing market will come with tomorrow’s release of housing starts and building permits, with starts expected to rise 2.7% month-over-month (m/m) in June to an annual rate of 575,000 units, while permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, are forecasted to fall 2.0% m/m to 597,000 units. Also, along with the weekly MBA Mortgage Applications Index, Wednesday brings existing home sales, forecasted to rise 2.9% m/m to an annual rate of 4.95 million units in June.

Other releases scheduled this week include: weekly initial jobless claims, the Conference Board’s Index of Leading Indicators, and the Philadelphia Fed’s Business Activity Index.

Financials leading Europe to the downside

Stocks in Europe are under pressure in afternoon action, led by solid losses in the financial sector, as concerns about contagion of the eurozone debt crisis to key countries Italy and Spain continue to pressure sentiment. Friday’s late-day release of the European Banking Authority’s (EBA) results of its second round of stress tests of the banking sector, which showed 8 institutions failed out of 91, is doing little to ease concerns about the sovereign debt crisis. The tests, once again, were met by criticism that the scenarios used were not stringent enough to give a clear picture of the capital strength of the banking sector, which continues to face the possibility of a default by Greece and the aforementioned growing contagion concerns. Meanwhile, the US debt ceiling issue is exacerbating the uneasiness as the August 2 deadline is approaching and lawmakers appear to be far from reaching an agreement.

In equity news, Philips Electronics (PHG $25) is lower after the company posted a 2Q loss on weak consumer demand and offered a lackluster outlook, while announcing a plan to cut 500 million euros in costs and a 2 billion euro share repurchase plan. Finally, in light economic news, a read on UK home prices for July declined.

The UK FTSE 100 Index is declining 1.0%, France’s CAC-40 Index is falling 1.4%, Germany’s DAX Index is decreasing 1.1%, Italy’s FTSE MIB Index is dropping 2.0%, and Spain’s IBEX 35 Index is 0.9% lower.

Asian stocks mostly lower as debt concerns weigh

The equity markets in Asia finished mostly lower as the debt issues in the US and Europe continued to hamper sentiment, but volume was lighter than usual, with the Japanese markets closed for a holiday. South Korea’s Kospi Index declined 0.7% to lead the downward move, with chipmakers finding some pressure on continued concerns about the impact on orders amid the slowing global economy and the aforementioned debt concerns. Elsewhere, Chinese stocks moved modestly to the downside, with the Hong Kong Hang Seng Index declining 0.3% and the Shanghai Composite Index dipping 0.1%, on some weakness in energy-related shares. Meanwhile, New Zealand’s NZX 50 Index dropped 0.6%, amid interest rate hike concerns after a report showed consumer prices rose more than expected in 2Q. However, Australia’s S&P/ASX 200 Index finished flat in choppy trading.