Morning Market Update

Rally Pauses as Street Mulls Recent Momentum’s Causes

The equity markets in the US are under some pressure in morning action as traders are contemplating the impact of last week’s midterm elections, stronger-than-forecasted US labor report, and the additional $600 billion in assets purchases by the Federal Reserve. Treasuries are nearly unchanged amid the lack of major economic releases. Equity news is also light, with Dow member McDonald’s Corp reporting better-than-forecasted global same-store sales results for October. Overseas, Asia was mostly higher, while Europe is under modest pressure in afternoon action amid a mixed bag of data.

As of 8:45 a.m. ET, the December S&P 500 Index Globex future is 4 points below fair value, the Nasdaq 100 Index is 5 points below fair value, while the DJIA is 35 points below fair value. Crude oil is down $0.21at $86.64 per barrel, and the Bloomberg gold spot price is down $2.35 at $1,391.30 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.6% at 77.04.

Dow member McDonald’s Corp. (MCD $79) announced global October same-store sales—sales at stores open at least thirteen months—rose 6.5% year-over-year (y/y), above the 5.4% that analysts were anticipating, per CNBC. Sales in the US were up 5.6%, led by its core products, and sales in Europe rose 5.8%, with France, the UK and Russia posting strong performances, while its Asia/Pacific, Middle East and Africa unit delivered a 5.3% increase in sales, fueled by growth in Japan, China, and Australia.

Economic docket relatively light amid holiday-shortened week for the Treasury markets

Treasuries are nearly unchanged in morning trading as the there are no major economic releases scheduled for today and the calendar will be relatively light for the week. Please note that the bond markets will be closed on Thursday, in observance of Veterans Day, and weekly initial jobless claims will be released on Wednesday—a day earlier than normal—along with the Import Price Index, trade balance, and MBA mortgage applications. Other reports that will round out the light economic week include: wholesale inventories and the NFIB Small Business Optimism Index tomorrow, and the preliminary University of Michigan’s Consumer Sentiment Index on Friday.

The equity markets ramped up near the highs for the year, aided by expectations that the US Federal Reserve will deploy further stimulus measures and the Republicans will gain control of the House in the midterm elections, both of which came to fruition last week. Traders are looking to see if the momentum for stocks can continue now that we have gained some clarity on some of the major economic uncertainties that had dominated sentiment.

Europe under modest pressure on mixed data

Stocks in Europe are under slight pressure in afternoon action as traders continue to digest the upbeat events in the US last week, while grappling with some mixed data across the pond. News out of Germany—Europe’s largest economy—is dominating the headlines, with shares of Commerzbank AG (CRZBY $9) under solid pressure after it reported 3Q profits that missed expectations, while a report showed the nation’s exports rose 3.0% month-over-month (m/m), twice what economists had expected for September, and its trade surplus expanded by a larger amount than forecasted. However, a separate report showed German industrial production unexpectedly fell m/m in September, which is taking some of the luster off of the favorable trade data. Elsewhere, the equity markets in the area are being hamstrung by lingering concerns over the sovereign health of Ireland as the government grapples with putting together an acceptable austerity plan to cut spending. However, stocks in Greece are solidly higher after Prime Minister Papandreou won an initial local election, per Reuters. In other economic news, euro-zone investor confidence rose more than expected for November, and Switzerland’s unemployment data matched expectations.

The UK FTSE 100 Index is down 0.4%, France’s CAC-40 Index is 0.1% lower, Germany’s DAX Index is declining 0.2%, and Ireland’s Irish Overall Index is decreasing 0.1%, while Greece’s Athex Composite Index is advancing 2.1% and Switzerland’s Swiss Market Index is gaining 0.2%.

Asia mostly higher following upbeat US jobs data

The equity markets in Asia were mostly higher, with export issues boosting Japan’s Nikkei 225 Index, which rose 1.1% on the heels of the better-than-forecasted US labor report on Friday. Stocks in China also moved higher to help pace the upward move in Asia, with the Shanghai Composite Index rising 1.0%, while Hong Kong’s Hang Seng Index increased 0.4%. However, financials found some pressure to limit the advance in the region, on lingering concerns about euro-area sovereign debt concerns and as shares of Resona Holdings Inc. (RSNHF $10) fell solidly after the Japanese bank confirmed media reports last week that it plans to raise up to $7.4 billion in capital, per Reuters, to help it payback government bailout funds. Meanwhile, stocks in Australia and Taiwan did not contribute to the gains in the region, with the S&P/ASX 200 Index and Taiex Index declining 0.5% and 0.2%, respectively. Equity markets in Australia were pressured by a solid decline in shares of Qantas Airways (QUBSF $3) after the company extended its deadline to ground its Airbus A380 fleet, per Reuters, as it found potential issues with three engines on two aircraft after one of its planes had to make an emergency landing last week. The economic calendar was relatively light with Japan’s Leading Index deteriorating more than expected in September and Taiwan’s trade surplus expanding more than expected in October.