Morning Market Update

Markets See Red Ahead of Report from the Fed

After stocks continued to notch gains on the heels of some favorable economic data, which has the Dow approaching the 11,000 mark, the major equity markets are under pressure in morning action as traders are taking the opportunity to book some profits from the recent rally. Also, traders may be trading with some caution ahead of the afternoon release of the Federal Reserve’s minutes from its last monetary policy meeting, which is likely to be picked apart for any clues to when the Fed could further deploy measures to tighten policy. Treasuries are higher in early trading ahead of the report. In equity news, Massey Energy Co. is lower after the mining company confirmed twenty-five fatalities after a tragic explosion, while Bally Technologies is under pressure as it lowered its full-year EPS forecast. Overseas, Asia and European markets are mixed.

As of 8:45 a.m. ET, the June S&P 500 Index Globex future is 4 points below fair value, the Nasdaq 100 Index is 9 points below fair value, and the DJIA is 35 points below fair value. Crude oil is down $0.12 at $86.50 per barrel, and the Bloomberg gold spot price is down $4.75 at $1,127.15 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.6% to 81.62.

Massey Energy Co. (MEE $55) confirmed twenty-five fatalities at its Upper Big Branch Mine in West Virginia, as a result of a “tragic explosion.” The company also said four miners are still missing at this time and rescue efforts are currently suspended due to conditions underground. MEE added that rescue efforts will resume as soon as conditions allow.

Shares of Bally Technologies (BYI $42) are lower after the gaming technology firm lowered its full-year EPS outlook from $2.30-2.55 to a new range of $2.15-2.25. BYI said the revised guidance reflects slower-than-expected deployment of capital by customers thus far in calendar 2010, the interruption of gaming in Alabama, and lower-than-anticipated “win per unit in gaming operations” in 3Q.

A look inside the Fed’s monetary policy meeting slated for the afternoon

Treasuries are higher in morning action as there are no major economic reports due out in the first-half of today’s trading session. However, traders will be closely monitoring the Federal Reserve’s afternoon release of the minutes from the March Federal Open Market Committee (FOMC) meeting.

Other areas that will likely garner some attention will be about the timing of paying interest on excess reserves, and moves to drain reserves by using either term deposits or reverse repurchase agreements, as well as the stance on asset sales.

Europe mixed as it returns from holiday

Stocks in Europe are mixed in afternoon action as the major markets in the Western region of the continent are returning to action after being off for the last four days due to Easter. However, early gains that came from its initial reaction to the solid increase in US nonfarm payrolls on Friday and yesterday’s larger-than-expected improvement in the US ISM Non-Manufacturing Index have been pared. Also, markets are relinquishing early gains that followed a report that showed an unexpected 2.5 reading of euro-zone investor confidence for April, versus the forecast of a -5.2 by economists surveyed by Bloomberg, along with a bigger-than-expected improvement of the UK Construction PMI, which provided some early support to sentiment across the pond. In other economic news, Spain’s unemployment rose by a larger amount than was forecasted for March, but well below the February reading, while Switzerland’s consumer prices increased by an amount that matched expectations.

In political news, British Prime Minister Gordon Brown announced that on May 6th the nation will hold its Parliamentary election, and Queen Elizabeth accepted dissolution of Parliament, kicking off what will likely be a highly competitive month-long campaign. Uncertainty and uneasiness has ramped up recently regarding what polls are showing an increasing possibility that a “hung Parliament” could result—where no party holds a majority control—making policy making more difficult. Gordon Brown’s Labour Party has been in control for 13 years and the opposition Conservatives hold a slight lead in opinion polls.

Britain’s FTSE 100 Index is up 0.2%, France’s CAC-40 Index is 0.1% lower, Germany’s DAX Index is declining 0.3%, Spain’s IBEX 35 Index is sliding 0.2%, and Switzerland’s Swiss Market Index is 0.2% in the red.

Asia mixed a Japanese markets slip

Stocks in Asia were mixed with equities in Japan coming under some pressure as traders took the opportunity to book some profits from the recent run up, which has the nation’s major indexes sitting near 18-month highs. The Nikkei 225 and the broader Topix Indexes finished 0.5% lower as export stocks in Japan were bogged down by a stronger yen versus the dollar and other major currencies, which dampened the outlook for revenues at companies that rely on sales in the US and outside Japan. The decline in the Asian nation came despite larger-than-expected improvement in the Japanese Leading Index for February, and as the Bank of Japan began its monetary policy meeting, where it is expected to keep its benchmark lending rate unchanged at 0.1%. Elsewhere, Australian stocks returned from a holiday and moved nicely higher, with the S&P/ASX 200 Index rising 0.9% on the upbeat reaction to the job increase and service sector reading in the US. The nation’s equity markets gained ground even as the Reserve Bank of Australia increased its benchmark interest rate by 25 basis points to 4.25%, matching expectations, making it the fifth rate hike in six meetings. The RBA said in its statement accompanying the decision that it judges that with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average, and the decision is a further step in that process.

Some M&A activity also helped stocks in Australia, as Peabody Energy Corp. (BTU $46) increased its bid to acquire Australian mining firm MacArthur Coal (MACDF $14) to A$14 per share, or about A$3.6 billion ($3.3 billion) after MACDF rejected its prior offer of A$13 per share. In other equity news, Samsung Electronics (SSNLF $656) finished nearly unchanged after the Asian electronics bellwether issued a preliminary reading of 1Q results, which showed profits that roughly matched analysts’ forecasts, while sales were just shy of expectations, per Bloomberg.

South Korea’s Kospi Index was 0.1% higher, while China’s Shanghai Composite Index and India’s BSE Sensex 30 Index both finished flat. Meanwhile, markets in Hong Kong remained closed, while Taiwan’s Taiex Index rose 0.8%, after reports showed consumer prices increased by a smaller amount than forecasted and producer prices rose by an amount that exceeded expectations.