Morning Market Update

Euro Uneasiness and China Concerns Cause Sentiment to Burn

The global equity markets are under solid pressure on global economic recovery concerns, exacerbated by the recent mixed signals coming from the US economic front, as well as from a steep downward revision in a piece of Chinese economic data and lingering concerns about the health of the euro-area financial markets. Treasuries are higher amid some flight-to-safety buying on the aforementioned uneasy sentiment, and after a gauge of US home prices rose, and ahead of a reading on US consumer confidence. In equity news, Dow member 3m Co issued an outlook on its 2Q sales, Micron Technology posted revenue growth on a flash memory volume increase, while Barnes & Noble Inc announced a larger-than-expected loss. Overseas, Asia fell across the board and Europe is under steep pressure.

As of 8:52 a.m. ET, the September S&P 500 Index Globex future is 13 points below fair value, the Nasdaq 100 Index is 25 points below fair value, and the DJIA is 105 points below fair value. Crude oil is down $2.00 at $76.25 per barrel, and the Bloomberg gold spot price is down $0.05 at $1,238.90 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.4% at 86.04.

Dow member 3M Co. (MMM $79) announced that the company expects fiscal 2Q sales to be between $6.6-6.75 billion, reflecting an estimated 16-18% growth in organic sales volumes compared to the same period last year. MMM said new products and continued strong demand in emerging economies were factors contributing to the sales growth. Analysts were expecting the company to post 2Q revenue of $6.58 billion.

Micron Technology Inc. (MU $10) announced fiscal 3Q EPS of $0.92, compared to the $0.44 Reuters estimate, but it was unclear if analysts had factored in about $488 million in accounting gains, as well as other expense adjustments that MU said were included in the above EPS figure. Meanwhile, revenues increased about 17% quarter-over-quarter (q/q) to $2.29 billion, above the $2.1 billion that the Street was expecting. The chip company said sales of its NAND flash memory chips—used in MP3 music devices and digital cameras—rose 16% q/q, due to an increase in unit sales volume, partially offset by a decrease in average selling prices.

Barnes & Noble Inc. (BKS $16) reported a fiscal 4Q net loss ex-items of $0.89 per share, a larger shortfall than the $0.80 per share loss that analysts were expecting. Revenues increased 19% y/y to $1.3 billion, roughly inline with the Street’s estimate. BKS issued full-year and fiscal 1Q earnings guidance that missed analysts’ forecasts.

Home prices rise, consumer confidence due out later this morning

Just before the opening bell, the S&P/Case-Shiller Home Price Index was released showing an increase in home prices of 3.8% year-over-year (y/y) in April, above the increase of 3.4% that economists surveyed by Bloomberg had expected. Month-over-month (m/m), home prices were 0.4% higher, compared to forecasts, which called for a decline of 0.1%. Treasuries remained higher following the report, maintaining gains amid some flight-to-safety buying on the uneasiness out of Europe and Asia.

Later this morning, the economic calendar will yield the release of the Conference Board’s Consumer Confidence Index, expected to decline to 62.5 in June, from May’s 63.3.

Europe lower as euro-area fears linger and China revision stokes recovery concerns

Stocks in Europe are posting solid, broad-based, losses in afternoon action on concerns about the impact of tough austerity measures that need to be made by nations across the region on the economic recovery, and the health of the European banking industry. Also, a steep downward revision to a leading economic indicator reading in China is also weighing on sentiment.

The aforementioned uneasy sentiment is overshadowing some relatively favorable economic news, with a report on euro-zone economic confidence unexpectedly improving in June, while a separate business climate indicator came in above economists’ expectations. In other economic news in the region, Sweden’s retail sales rose more than expected, however, UK mortgage approvals were lower than anticipated, France’s consumer confidence deteriorated, while separate reports in Spain showed the nation’s retail sales fell more than forecasted, housing permits deteriorated, and Spanish consumer prices rose more than expected.

Meanwhile in equity news, shares of Chloride Group Plc. (CDGPY $22) are sharply higher after the British maker of equipment to prevent power outages received a takeover offer from Emerson Electric Co. (EMR $45) for about 997 million pounds ($1.5 billion). The bid for Chloride by Emerson is an attempt to trump a previous offer by ABB Ltd. (ABB $18), as it is 15% higher than the ABB’s proposal, which was accepted in early June. ABB said it will consider its options and Chloride said it will talk to Emerson about its offer.

The UK FTSE 100 Index is down 2.1%, France’s CAC-40 Index is 2.7% lower, Germany’s DAX Index is declining 2.1%, Sweden’s OMX Stockholm 30 Index is off 1.7%, and Spain’s IBEX 35 Index is dropping 3.6%.

Asia falls amid stronger yen and China data revision

Stocks in Asia were broadly lower, led by equity markets in China, with the Hong Kong Hang Seng Index falling 2.3%, while the Shanghai Composite Index fell 4.3%—to a 14-month low—with a revision to a reading on the nation’s Leading Economic Indicators (LEI) hampering sentiment. The US Conference Board announced that China’s LEI for April increased 0.3%, compared to a 1.2% increase in March, and revised sharply lower from the previously reported 1.7% increase by the Conference Board, due to a calculation error pertaining to the total floor space started component, which posted a 0.1% negative value rather than a positive 1.3% reading originally reported. Japanese stocks also posted solid declines amid some mixed economic data and a stronger yen versus the dollar and most major currencies, on some flight-to-safety buying as euro-area debt fears linger and on some disappointing data, which has dampened the outlook for the global economic recovery. The strength in the yen hurts the outlook for revenues of companies that rely heavily on sales in the US and other major non-Japanese economies.

On the economic front, Japan’s jobless rate unexpectedly rose to 5.2% in May, from 5.1% in April, and compared to the 5.0% that economists had expected. Moreover, Japanese industrial production unexpectedly fell, declining 0.1% month-over-month (m/m) in May, compared to the flat reading that was anticipated and the 1.3% increase that was seen in April. However, separate reports showed Japan’s job-to-applicant ration improved more than expected and small business confidence improved, while vehicle production rose 30.6% year-over-year in May, but was a slower pace than the 50.8% that was seen in April. Elsewhere, Australia’s S&P/ASX 200 Index declined 0.9%, South Korea’s Kospi Index declined 1.4%, India’s BSE Sensex 30 Index dropped 1.4%, and Taiwan’s Taiex Index fell 1.0%. After today’s closing bell in Asia Taiwan and China signed the bilateral economic cooperation framework agreement (ECFA), which will likely increase trading between the two nations.