Morning Market Update

Early Gains Wane Following Lackluster Job Report

The US equity markets have given up a majority of an early advance and are nearly unchanged in morning action, following a smaller-than-expected increase in the ADP Employment Change Report for June, which unnerved investors ahead of Friday’s labor report. Stocks seemed poised for a slight rebound from yesterday’s sharp decline on disappointing US consumer confidence data, a steep downward revision to a leading indicator reading of China, and festering financial market concerns in the euro-area. The early advance came as euro-area financial market concerns were somewhat soothed by smaller-than-expected demand for borrowing from the European Central Bank by European banks. Treasuries pared early losses on the jobs report, which offset a rise in mortgage applications, ahead of a report on business activity in the Midwest. In equity news, General Mills posted an inline 4Q EPS report, while Monsanto Co missed the Street’s revenue forecast. Overseas, Asia was mostly lower, while European stocks are gaining slight ground.

As of 8:54 a.m. ET, the September S&P 500 Index Globex future is 1 point below fair value, the Nasdaq 100 Index is 1 point above fair value, and the DJIA is 2 points above fair value. Crude oil is up $0.16 at $76.10 per barrel, and the Bloomberg gold spot price is down $1.45 at $1,239.20 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.3% at 85.88.

General Mills Inc. (GIS $37) reported fiscal 4Q EPS ex-items of $0.41, inline with the Reuters estimate, as revenues declined 2% year-over-year (y/y) to $3.6 billion, just above the $3.5 billion that the Street was anticipating. Sales in the cereal maker’s US unit fell 2% y/y as price and product mix reduced the rate of net sales. GIS issued full-year EPS guidance that came in short of analysts’ forecasts.

Monsanto Co. (MON $47) announced fiscal 3Q EPS ex-items of $0.81, two cents above the consensus estimate of analysts, while revenues declined 6% y/y to $2.96 billion, short of the $3.16 billion that the Street was looking for. The agriculture firm said price decreases for its Roundup and other herbicides affected its results, despite volume growth in these products.

ADP gauge of private sector jobs show tepid growth

The ADP Employment Change Report showed private sector payrolls rose by 13,000 jobs in June, compared to the forecast of economists surveyed by Bloomberg, which called for a 60,000 increase, while May’s 55,000 job increase was upwardly revised to 57,000. The release comes ahead of Friday’s broader nonfarm payrolls report, where economists expect a decrease of 115,000 in June, after increasing 431,000 in May, but most of the increase was attributed to government Census hiring. Excluding government hiring, private sector payrolls are expected to increase 110,000, after expanding by 41,000 in May. Treasuries are mixed after paring losses following the disappointing jobs report.

In other economic news, the US MBA Mortgage Application Index increased 8.8% last week, after the index that can be quite volatile on a week-to-week basis, fell 5.9% in the previous week. The increase came as the Refinance Index jumped 12.6%, offsetting a 3.3% decline in the Purchase Index. The gain in the overall index and the solid increase in refinancing came amid an 8 basis-point drop in the average 30-year mortgage rate to 4.67%, near the record low of 4.61% that was reached at the end of March 2009.

Later today, the economic calendar will yield the release of the Chicago Purchasing Managers Index, expected to decline slightly from 59.7 in May, to 59.0 in June.

Europe modeslty higher as European Central Bank loans come in less than expected

Stocks in Europe are slightly higher in afternoon action, following yesterday’s steep losses, with financials finding some support from smaller-than-expected borrowing from euro-area banks, which is helping soothe financial market concerns in the region. With banks needing to repay 442 billion euros ($542 billion) as an European Central Bank twelve-month lending facility matures, the ECB said requests to borrow from its recently extended three-month lending program totaled 131.9 billion euros ($161.9 billion), which was a smaller amount than some expected. Healthcare stocks are also helping pace the advance across the pond as shares of AstraZeneca Plc. (AZN $49) are solidly higher after a patent for its cholesterol drug Crestor was upheld by a US court. However, gains across the pond have been pared on the US jobs data. In other equity news in the region, Telefonica SA (TEF $55) increased its bid for Portugal Telecom SGPS SA’s (PT $10) stake in Vivo Participacoes SA (VIV $26)—a joint venture co-owned by TEF and PT—by 10% to 7.15 billion euros ($8.78 billion), just hours before PT holds a shareholder vote on the deal.

There is a plethora of economic data for traders to digest, with Germany’s unemployment change declining by a smaller-than-expected amount in June, UK total business investment increasing by a larger amount than forecasted, a year-over-year euro-zone CPI estimate coming in below expectations, and Ireland’s 1Q GDP expanding on a quarter-over-quarter (q/q) basis, bringing its year-over-year (y/y) contraction to a much lower amount compared to 4Q. Elsewhere, UK consumer confidence deteriorated by a smaller amount than anticipated but a separate report showed UK house prices rose less than expected, while Italian producer prices rose more than forecasted but its consumer prices came in below expectations.

The UK FTSE 100 Index is 0.1% higher, France’s CAC-40 Index is down 0.2%, Germany’s DAX Index is advancing 0.1%, Italy’s FTSE MIB Index is flat, and Ireland’s Irish Overall Index is increasing 0.4%, while Spain’s IBEX 35 Index is rebounding, rising 0.5%.

Global weakness continues in Asia

Stocks in Asia were mostly lower in the wake of the steep declines in the global equity markets yesterday that came courtesy of the disappointing read on US consumer confidence, as well as from the downward revision to a reading of Chinese leading indicators and festering financial market uneasiness in Europe. Japan’s Nikkei 225 Index fell about 2.0%, with export issues finding pressure on strength in the yen compared to the US dollar and other major currencies amid some flight-to-safety buying, dampening the outlook for revenues of companies that do meaningful business outside of Japan. In Japanese economic news, the nation’s housing starts unexpectedly declined year-over-year (y/y) in May, while construction orders rebounded from April’s 25% drop, to increase 9.2% y/y in May. Meanwhile, stocks in China continued to decline, with the Hong Kong Hang Seng Index decreasing 0.6% and the Shanghai Composite Index fell 1.2%. in Chinese equity news, shares of Foxconn International (FXCNY $14) were down solidly after the contract mobile handset maker forecasted a wider first half net loss.

South Korea reported a slew of economic reports that painted a mixed picture, with the nation’s Leading Index showing a slower pace of growth, and a business survey of manufacturing business activity came in flat while a separate service sector business activity survey deteriorated. Additionally, South Korea’s industrial production gained more than economists had forecasted in May, and the Kospi Index declined 0.6%. In other economic news, Thailand’s trade balance swung to a surplus, manufacturing production rose at a slower rate than anticipated, while a business sentiment index improved. Thailand’s SET Index dipped 0.2%. Elsewhere, Australia’s S&P/ASX 200 Index declined 1.0%, and Taiwan’s Taiex Index fell 1.3%, while India’s BSE Sensex 30 Index rose about 1.0%.