Morning Market Update

Euro-Area Debt Concerns and China Reports Tax Sentiment

The global equity markets are under some pressure on the heels of mixed trade data and reports of further tightening of policy in China, exacerbated by refocused concerns toward the euro-zone sovereign debt situation. Treasuries have erased early losses and are flat in late-morning action and the US dollar is higher amid the uneasiness, which is overshadowing a larger-than-expected drop in weekly initial jobless claims. Also, separate reports showing the trade deficit narrowed by a larger amount than expected, import prices came in cooler than anticipated, and mortgage applications rose are falling on deaf ears amid the ringing concerns overseas. In equity news, Dow member Boeing Co had to make an emergency landing during a test flight of its much-delayed 787 Dreamliner, Macy’s Inc raised its guidance for the rest of the year, and Polo Ralph Lauren Corp posted much better-than-forecasted profits. Overseas Asia was mixed, with China under pressure on the aforementioned reports, while Japan gained ground on a weaker yen. Elsewhere, Europe has moved solidly lower in late-day action on the festering debt concerns.

At 11:02 a.m. ET, the Dow Jones Industrial Average, the S&P 500 Index, and the Nasdaq Composite are all down 0.4%. Crude oil is up $0.38 at $87.10 per barrel, wholesale gasoline is up $0.02 at $2.21 per gallon, and the Bloomberg gold spot price is down by $3.20 at $1,389.70 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.5% at 78.13.

Dow member Boeing Co. (BA $67 ¹) is under pressure after the company had to make an emergency landing during a test flight of its 787 Dreamliner, after the crew reported smoke in the cabin. The event sparked concerns that the company may have to delay the delivery of the Dreamliner, which the first delivery of has been pushed back several times. The company has not commented on whether its delivery schedule will be impacted by the incident.

Macy’s Inc. (M $25) reported 3Q earnings ex-items of $0.08 per share, compared to the $0.04 that analysts surveyed by Reuters had anticipated, with revenues rising 6.6% year-over-year (y/y) to $5.6 billion, matching the Street’s forecast. Same-store sales—sales at stores open at least a year—rose 3.9% y/y. the company said it has gained confidence and momentum as customers have responded “favorably” to its key strategies, which “bodes well” for its business as it enters the holiday selling season. The company increased its guidance for the second-half of the year, and it boosted its full-year EPS outlook. Shares are nearly unchanged.

Polo Ralph Lauren Corp. (RL $107) posted fiscal 2Q EPS of $2.09, above the $1.71 that analysts anticipated, with revenues growing 11% y/y to $1.5 billion, roughly matching the Street’s forecast. The apparel firm said while it is still operating in the context of “considerable macroeconomic and geopolitical uncertainty,” and it expects to encounter more intense sourcing costs and exchange rate headwinds in the back half of the year, it is encouraged by its current business momentum heading into the holiday season. RL increased its full-year revenue forecast and shares are solidly higher.

Jobless claims fall, trade deficit narrows, and import prices come in cooler than expected

Weekly initial jobless claims fell by 24,000 to 435,000, versus last week's figure which was upwardly revised by 2,000 to 459,000, and versus the consensus estimate of economists surveyed by Bloomberg, which called for claims to decline to 450,000. The four-week moving average, considered a smoother look at the trend in claims, dropped by 10,000 to 446,500, and continuing claims fell by 86,000 to 4,301,000, compared to the 4,305,000 that was anticipated by economists.

Meanwhile, the trade deficit narrowed by a larger amount than expected, declining from an upwardly revised $46.5 billion in August to $44.0 billion in September, versus the estimate of economists calling for the deficit to come in at $45.0 billion.

Elsewhere, the Import Price Index rose 0.9% month-over-month (m/m) for October, compared to the expectation of economists, which called for the index to increase by 1.2%. Year-over-year (y/y), import prices are higher by 3.6%, versus the 3.9% forecast of economists.

In other economic news, the MBA Mortgage Application Index rose 5.8% last week, after the index that can be quite volatile on a week-to-week basis, fell 5.0% in the previous week. The increase came as the Refinance Index gained 6.0%, joining a 5.5% rise in the Purchase Index. The upward move in the overall index came amid an unchanged 4.28% average 30-year mortgage rate, just above the record low of 4.21% on October 8.

Treasuries are nearly unchanged, giving up early losses that followed the aforementioned favorable data on irritated sentiment about the euro-area sovereign debt situation.

Europe lower on data and continued sovereign debt concerns

Stocks in Europe are under solid pressure in late-day action, with materials and financials weaker amid a mixed bag of economic data in China and reports that the Chinese government tightened its requirements for some financial institutions. Also, the equity markets across the pond are being anchored by festering concerns about the sovereign health of some of the peripheral nations in the euro-zone, with the yields of bonds from Ireland, Portugal, Greece all surging to record highs, when compared to the benchmark German bond known as the bund. Interest rates in the debt-ridden nations’ bonds is being exacerbated by the announcement from a UK asset clearing house that it will increase the margin requirement—the minimum amount of capital needed by an investor to hold a security in good standing—on Irish bonds, causing these securities to tumble and yields jump. However, Portugal carried out a debt auction of six and ten-year bonds today, which fetched higher than expected demand, helping mitigate some of the pressure on the nation’s equity markets that came from the recent jump in yields.

Moreover, stocks are being bogged down by a solid decline in shares of Holcim Ltd. (HCMLY $14) after the world’s second-largest cement maker offered a cautious outlook for full-year profits, and a sharp drop in shares of French financial firm Natixis (NTXFY $59), which posted worse-than-forecasted 3Q profits. However, a steep advance in shares of Delhaize Group (DEG $75) is helping limit losses in the region after the grocery store company reported a solid increase in 3Q profits.

Meanwhile, the European economic calendar has plenty of reports for traders to digest, highlighted by the Bank of England releasing its quarterly inflation report, which revealed the 2011 inflation forecast was raised and policymakers are mixed on their economic outlooks. Elsewhere, France’s industrial and manufacturing readings disappointed economists, while its consumer prices were inline with expectations, and Germany’s wholesale prices declined m/m. In other economic reports in the area, Italy’s industrial production came in below expectations.

The UK FTSE 100 Index is down 1.1%, France’s CAC-40 Index is 1.6% lower, Germany’s DAX Index is declining 1.2%, Italy’s FTSE MIB Index is falling 2.2%, Ireland’s Irish Overall Index is dropping 1.7%, Greece’s Athex Composite Index is sliding 2.0%, and Portugal’s PSI 20 Index is decreasing 0.4%.

Asia mixed as China slips

The equity markets in Asia were mixed with stocks in China finding some pressure amid reports that the Chinese government raised the reserve ratio requirements—the amount of cash banks need to keep in reserve—for some banks in the region. The Chinese government has not commented on the reports. The Hong Kong Hang Seng Index declined 0.9% and the Shanghai Composite Index decreased 0.6% amid the concerns of further tightening of the financial sector by the government and as traders digested some mixed economic data in the region. China’s trade surplus jumped from $16.9 billion in September to $27.2 billion in October, exceeding the expectation of economists, which forecasted an increase to $25.0 billion. Chinese exports and imports were 22.9% and 25.3% higher, respectively, but both these figures were below the level that economists had anticipated. Also, a separate report showed a gauge of China’s property prices decelerated by a larger amount than forecasted. Meanwhile, shares in Australia were also lower on the day, with the S&P/ASX 200 Index declining 0.9%, following the late-day drop in metals prices yesterday and after a report showed consumer confidence fell in November, offsetting a larger-than-anticipated increase in home loans in September.

However, automakers and technology issues helped South Korea’s Kospi Index close with a solid 1.1% advance—near a three-year high—along with a report that showed the nation’s unemployment rate moved lower. Additionally, some weakness in the Japanese yen supported export issues in Japan, as the Nikkei 225 Index rose 1.4%, aided by a better-than-expected read on the nation’s consumer confidence. Also, a report from the Financial Times that this week’s G20 meeting of world leaders may lead to an exemption of some Japanese banks from stricter global regulations helped support equities in Japan.