Morning Market Update

Bulls Not Finding Any Charity From Irish Bailout Clarity

The US equity markets remain under solid pressure in late-morning action as some clarity on the euro-zone bailout of Ireland and positive early indications of the US holiday shopping season are failing to support stocks. Treasuries are mixed as the mid-to-long-end of the curve has moved higher amid the uneasiness toward potential contagion in the euro-area, which has the US dollar solidly higher versus the euro to exacerbate the movements in the markets. Meanwhile, traders are awaiting President Obama’s announcement of Federal Government wage freezes to help cut back on the deficit. However, traders may be treading lightly ahead of a full-slate of economic reports this week, headlined by Friday’s US labor report. Equity news is light, with Dow member Wal-Mart Stores Inc announcing that it has offered to acquire a 51% stake in South African retail company Massmart Holdings Ltd for about $2.3 billion, while Dow member Kraft Foods Inc and Starbucks continue to battle over a long-standing grocery agreement. Overseas, Asia was mixed as South Korea found pressure amid continued geopolitical concerns in the region, while Europe is solidly lower as the aforementioned Irish bailout figures are doing little to help stocks, overshadowing a better-than-expected euro-zone economic confidence report.

At 11:03 a.m. ET, the Dow Jones Industrial Average is 1.2% lower, the S&P 500 Index is down 1.0%, while the Nasdaq Composite is declining 1.2%. Crude oil is up $0.70 at $84.46 per barrel, wholesale gasoline is up $0.03 at $2.19 per gallon, and the Bloomberg gold spot price is down by $1.75 at $1,362.00 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.8% at 81.03.

Dow member Wal-Mart Stores Inc. (WMT $54) announced that it has offered to acquire a 51% stake in South African retail company Massmart Holdings Ltd. (MMRTY $40) for 148 South African rands per share in cash or $2.3 billion. WMT said the deal will help it accelerate its growth and expansion in South Africa and the company is convinced that this is an important region with attractive growth characteristics. WMT and MMRTY are lower.

Retailers remain in focus as consumers turn to the internet for their holiday shopping needs on “Cyber Monday,” and the National Retail Federation (NRF) is reporting that $45 billion was spent online and in stores over the Thanksgiving holiday weekend, compared to $41.2 billion last year. Also, the NRF said total retail traffic was up 8.7% year-over-year (y/y), and spending per person increased to $365.34 from $343.31 in 2009. However, ShopperTrak said traffic rose 2.2% y/y and sales were nearly flat, rising 0.3% y/y, per Reuters.

Dow member Kraft Foods Inc. (KFT $30) announced that it initiated an arbitration proceeding to challenge Starbucks Corp’s (SBUX $30) attempt to end a retail grocery coffee business agreement. KFT said the contract remains in effect “indefinitely,” but SBUX said KFT failed to meet its responsibilities of the agreement. Shares of both companies are lower.

Economic calendar light to start the week, but a heavy dose of data awaits

Treasuries have overcome early weakness and are mixed in late-morning action, with the mid-to-long end of the curve gaining ground amid the uneasiness toward the debt situation on Europe and as there are no major US economic releases on today’s calendar, but the docket will be full for the remainder of the week, starting with tomorrow’s S&P/CaseShiller Home Price Index, which lags the sales data by a month, anticipated to show a 1.0% rise y/y in September, while falling 0.4% month-over-month (m/m). Wednesday heats up with the release of the ISM Manufacturing Index, forecasted to decrease to 56.5 in November after unexpectedly increasing to 56.9 in October, while the ISM Non-Manufacturing Index will complete the ISM picture on Friday, and the gauge of service sector activity is anticipated to increase to 54.8 in November after rising more than expected in October to 54.3.

Meanwhile, Wednesday also brings the release of the Federal Reserve Beige Book, wherein Fed staffers summarize anecdotal economic data from all twelve Federal Reserve districts in preparation for the next Federal Open Market Committee (FOMC) meeting scheduled for December 14. The minutes from the last FOMC meeting showed disagreement about the longer-term outlook for employment and inflation, the two mandates of the Fed, as well as the impact and necessity of the new $600 billion asset purchase program.

In addition to the Fed’s assessment of the economy and job implications, the employment components of the ISM surveys, the ADP Employment Change, and initial jobless claims, the final and most comprehensive reading on jobs this week will be Friday’s nonfarm payrolls, expected to grow 145,000 in November after increasing more than expected in October, at 151,000. October’s report was likely the last to be unduly distorted by Census jobs and private sector payrolls are expected to increase 155,000 in November, after expanding by 159,000 in October. The unemployment rate is estimated to remain at 9.6%.

Other releases on this week’s US economic calendar include: the Conference Board’s consumer confidence reading, the Chicago Purchasing Manager Survey of manufacturing and services sectors, MBA Mortgage Applications, final 3Q nonfarm productivity and unit labor costs, construction spending, pending home sales, and factory orders.

Europe under pressure despite more details on Ireland’s bailout

The equity markets in Europe are under pressure in late-day action, extending losses as the price tag for the International Monetary Fund (IMF) and European Union’s (EU) financial rescue of debt-ridden Ireland was unveiled and failed to soothe some concerns of contagion in the euro-area. Ireland will receive an 85 billion euro ($112 billion) loan package, with 10 billion euros going immediately to the nation’s struggling banking sector, and 25 billion euros in reserve if the sector needs more. The remaining 50 billion euros will be used to backstop the Irish government’s public sector. Debt situations in Spain and Portugal are now under heavier scrutiny, which is pressuring sentiment across the pond. Ireland will pay an average of 5.8% on its loans, compared to the 5% Greece had to pay in May, and the country’s ultra-low, competitive, corporate tax rate was left unchanged at 12.5%, per Bloomberg. Separately, European finance ministers announced an agreement to establish a permanent mechanism for dealing with future debt problems of nation’s that are in the sixteen-member euro-zone. The plan, to be in effect in mid-2013, will resemble the current EU bailout program but could shift some of the downside risk to investors such as banks or hedge funds, but may continue to protect private creditors, against the wishes of Germany.

In equity news, BP Plc. (BP $41) announced that it has agreed to sell its 60% stake in Pan American Energy LLC to Argentina’s Bridas Corp—a privately-held company that is partially owned by China’s Cnooc Ltd. (CEO $218)—for about $7.1 billion. The transaction is part of BP’s efforts to raise funds to cover the cost of the Gulf of Mexico oil spill.

In European economic news, UK mortgage approvals fell to an eight-month low in October, per Bloomberg, but were higher than economists had anticipated, while a gauge of euro-zone economic confidence improved more than expected for November. Elsewhere, the European Commission released its twice-yearly economic outlook, in which it said growth in the euro-zone economy will decelerate in 2011 before picking up again in 2012. Moreover, the UK cut its growth forecasts for 2011 and 2012.

The UK FTSE 100 Index is down 1.5%, France’s CAC-40 Index is declining 1.8%, Germany’s DAX Index and Spain’s IBEX 35 Index are off 1.7%, and Portugal’s PSI 20 Index is dropping 1.6%, while Ireland’s Irish Overall Index is gaining 0.4%.

Asia mixed as euro-area debt and Korean tensions remain in focus

Stocks in Asia were mixed, with traders continuing to grapple with geopolitical concerns in Korea, following last week’s skirmish and further clarity of the financial rescue of Ireland. South Korea’s Kospi Index moved 0.3% lower as militaries from the South and the US conducted weekend exercises and China called for emergency talks, according to Reuters. Meanwhile, stocks in China diverged, with the Shanghai Composite Index dipping 0.2%, while the Hong Kong Hang Seng Index advanced 1.3%. Moreover, Japanese equity markets moved higher as the Nikkei 225 Index rose 0.9%, aided by weakness in the Japanese yen versus the US dollar, which hit a two-month low to boost export issues. Elsewhere, Australia’s S&P/ASX 200 Index increased 0.4%, and Taiwan’s Taiex Index gained 0.7%, after the nation’s ruling party won a key local election, which prompted some speculation that the country will extend its pro-China policies that may support investment, per Bloomberg. In economic news in the region, Japan’s retail trade fell much more than economists had expected and the nation’s small business confidence deteriorated.