Morning Update

Pressure Persists in Morning Action

After posting two-straight solidly lower sessions, stocks are under pressure again in morning trading as fears over the possibility of a sooner-than-expected tightening of China’s monetary policy and concerns regarding the impact of yesterday’s proposal by President Barack Obama to clamp down on risk-taking in the banking sector are persisting. The aforementioned worries are overshadowing mostly better-than-expected earnings reports from Dow members General Electric, McDonald’s, and American Express, along with a favorable report from the world’s largest internet search engine, Google. Treasuries are lower as there are no major economic reports due out today. Overseas, markets are under pressure amid the aforementioned uneasy sentiment.

As of 8:51 a.m. ET, the March S&P 500 Index Globex future is 4 points below fair value, the Nasdaq 100 Index is 3 points below fair value, and the DJIA is 28 points below fair value. Crude oil is down $0.17 at $75.87 per barrel, and the Bloomberg gold spot price is lower by $1.45 at $1,092.50 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is unchanged at 78.30.

Dow member General Electric (GE $16 1) reported 4Q EPS of $0.28, two cents above the forecast of Wall Street analysts, as revenues were down 10% year-over-year (y/y) to $41.4 billion, but above the $40.0 billion that had been expected by the Street. The company said it saw encouraging signs in its businesses at year-end, with infrastructure orders up $3.7 billion from 3Q to $22.1 billion, and equipment orders up 25% versus the previous quarter.

Google Inc. (GOOG $583) reported 4Q EPS ex-items of $6.79, topping analysts’ estimates, which called for the world’s largest internet search engine to post earnings of $6.50 per share. Revenues rose 17% year-over-year (y/y) to $6.7 billion, which easily beat the $4.9 billion that analysts had expected. GOOG’s sites revenues—revenues of company owned sites, which represented 66% of total revenue—rose 16% y/y, while its network revenues—revenues at GOOG’s partner sites representing 31% of total revenues—jumped 21% versus the same period last year.

McDonald’s (MCD $63) reported 4Q EPS ex-items of $1.03, one penny above the Street’s forecast, as revenues increased 7% y/y to $6.0 billion, roughly inline with analysts’ forecasts. The Dow component said its global same-store sales rose 2.3% y/y, with all segments reporting positive results.

Fellow Dow member American Express (AXP $42) reported 4Q EPS of $0.59, above the $0.57 that analysts had expected, with net revenues coming in flat versus last year at $6.5 billion, but exceeding the $6.1 billion that was expected.

Traders still digesting the short week’s developments on the economic front

Treasuries are lower in morning action as there are no major economic reports on today’s economic docket, as the earnings calendar will continue to be in focus as 4Q profit season rolls on. However, this week’s attention on the global economy has dominated the action in the financial markets, overshadowing some better-than-expected corporate profit reports. There were two major developments that unfolded during the abbreviated trading week that took the lion’s share of attention. China posted a stronger-than-forecasted 10.7% y/y gain in 4Q GDP, which stoked concerns that the global recovery could be stymied if the Chinese central bank were forced to hike interest rates to stave off asset bubbles from forming. Moreover, the Obama Administration announced a new proposal aimed at reducing risk-taking and preventing another financial crisis. The proposal would prohibit banks from conducting proprietary trading operations—trading a firm’s own capital instead of using client assets—and owning and investing in hedge funds and private equity funds. The announcement stoked concerns about the impact on the sector and the financial system as a whole and followed last week’s proposal from the White House to tax large financial institutions in order to recoup losses from the government’s Troubled Asset Relief Program (TARP).

Europe under pressure on global economic uneasiness

Stocks in Europe are lower in afternoon action, led by weakness in materials and financials as the global economic concerns linger on fears Chinese monetary policy tightening may come sooner than expected and as traders digest the ramifications of President Barack Obama’s proposed clamp down on proprietary trading in the banking industry. Britain’s FTSE 100 Index is down 0.9%, France’s CAC-40 Index is off 1.0%, and Germany’s DAX Index is 0.9% lower. There are some economic reports across the pond that traders are digesting, with Eurozone new industrial orders growing more than forecasted by economists surveyed by Bloomberg, France’s business confidence rising more than anticipated, while UK retail sales came in short of expectations. In equity news, shares of Europe’s number-two airline Deutsche Lufthansa (DLAKY $18) are down solidly after its chief financial officer said some analysts’ forecasts for 2010 are “high” because they do not take into account how fares or fuel costs will develop, per Bloomberg. Also, shares of Ericsson (ERIC $10) are higher after its Sony Ericsson joint venture with Sony Corp. (SNE $34) posted a narrower loss compared to last year and the company’s president said although 2010 is expected to be a challenging year, he is confident his company, due to its cost cutting and a move toward more mid and high-end products, has put the company “on the right track,” per the Associated Press.

Asia tumbles on China tightening concerns and as US markets slide for second day

Stocks in Asia were broadly lower following the second session of solid losses in the US equity markets led by concerns in the financial sector on the heels of President Obama’s proposal to stem risk taking in the sector. Additional pressure came from heightened worries about the sustainability of the global recovery after yesterday’s 4Q GDP report out of China, which stoked fears that the Chinese central bank will be forced to tighten its monetary policy earlier than expected. These worries applied the most pressure to commodity issues in the region on concerns about demand for resources if China’s pumps the brakes on the nation’s growth. Stocks in the resource rich nation of Australia came under pressure as a result, with its S&P/ASX 200 Index falling 1.6%. However, Japan paced the decline in the Asia, with the Nikkei 225 Index declining 2.6% as the aforementioned concerns were exacerbated by the solid gain in the Japanese yen versus the dollar and most other major currencies in flight-to-safety buying, which dampened the outlook for revenues of companies that rely heavily on sales in the US and outside Japan. In equity news in Japan, shares of Toyota Motor (TM $90) dropped solidly after the company expanded its recall to include millions more vehicles in the US, in regard to faulty accelerator pedals.

Elsewhere, China’s Shanghai Composite Index fell 1.0%, Hong Kong’s Hang Seng Index declined 0.7%, Taiwan’s Taiex Index dropped 2.5%, South Korea’s Kospi Index shed 2.2%, while India’s BSE Sensex 30 Index was off 1.1%.