Morning Market Update

Early Losses as We Celebrate the Bravery of Our Veterans

The US equity markets are under some pressure in early action, with the Treasury markets closed in observance of Veterans Day, which also has the economic calendar void of any major releases. Traders are digesting some hotter-than-expected inflation data in China, which may lead to further tightening, as well as lingering concerns toward the sovereign debt situation in Europe. Meanwhile, a disappointing revenue outlook from Dow member Cisco Systems Inc is adding to the pressure in morning action. In other equity news, Dow member Wal-Mart Stores Inc announced free holiday shipping for some items during the holiday season, and Viacom Inc posted better-than-forecasted profits. Overseas, Asia was mostly higher, with Chinese markets shrugging off the implications of the aforementioned inflation data to lead the way, while European markets are under some pressure on the euro-area debt concerns and the disappointing outlook from Cisco Systems Inc in the US.

As of 8:51 a.m. ET, the December S&P 500 Index Globex future is 9 points below fair value, the Nasdaq 100 Index is 30 points below fair value, while the DJIA is 72 points below fair value. Crude oil is flat at $87.81 per barrel, and the Bloomberg gold spot price is up $4.75 at $1,408.65 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.3% at 77.92.

Dow member Cisco Systems Inc. (CSCO $24) is solidly lower after the internet networking firm’s CEO offered some cautious commentary, which overshadowed the company’s better-than-forecasted fiscal 1Q results. CSCO’s Chief Executive John Chambers said, “We are obviously not projecting growth as fast as we would like over the next several quarters,” on a conference call with analysts after issuing smaller-than-expected revenue guidance for 2Q and the full-year. The company called the economic environment “challenging,” and it said it has seen capital spending moderate in some areas of its business, with orders from cable operators and state governments down 35% and 25% y/y, respectively. CSCO reported 1Q earnings ex-items of $0.42 per share, two cents above the consensus estimate of analysts surveyed by Reuters, with revenues increasing 19% year-over-year (y/y) to $10.75 billion, roughly inline with the Street’s expectations.

Meanwhile, fellow Dow member Wal-Mart Stores Inc. (WMT $55) announced that it will offer free shipping on nearly 60,000 holiday items, with no minimum purchase requirement or subscription fees. The offer will run through December 20.

Viacom Inc. (VIA $43) reported 3Q EPS ex-items of $0.75, compared to the $0.70 that analysts were expecting, with revenues at the media firm increasing 5% y/y to $3.3 billion, inline with what the Street was anticipating.

Economic docket and Treasury markets take the day off

The Treasury markets are closed today in observance of the Veterans Day holiday and the economic calendar is void of any major releases. Yesterday, the Treasury markets showed some volatility as traders grappled with a disappointing 30-year Treasury auction, the Fed providing details of the first installment of its QE2, in which it will purchase $105 billion in Treasuries this month, and an unscheduled proposal release by President Obama’s bipartisan deficit commission, detailing plans to cut the ballooning US deficit by $3.8 trillion to 2.2% of GDP by 2015. The US dollar also showed volatility to the data and the currency markets have come into focus as of late in light of the additional stimulus efforts by the Fed and festering euro-area debt concerns.

Meanwhile, the G-20 meetings are ongoing in Seoul, South Korea, with currency issues at the forefront. Despite concerns about an undervalued Chinese currency, the yuan, also known as the renminbi, China has been able to deflect criticism to the US’s quantitative easing program, which has been weakening the dollar. Brazil has called for a reduction in the dollar’s role in international trade, and China said the U.S. isn't living up to its responsibility as an issuer of a global reserve currency and obligation to stabilize capital markets by pursuing QE2. Divergent economic recoveries have resulted in recent policies moving in different directions.

Euro-area debt concerns persist to bog down stocks

Stocks in Europe are modestly lower in afternoon action with financials leading the decline as sentiment continues to be uneasy regarding the sovereign health of some of the peripheral nation in the euro-zone, particularly Ireland. Also, technology issues are among the worst performers to pressure the equity markets on the heels of Cisco Systems’ disappointing outlook. Moreover, telecom issues are helping pace the downward direction across the pond as shares of Spanish telecom firm Telefonica SA (TEF $76) are under solid pressure after Europe’s second-largest phone company, per Bloomberg, reported 3Q earnings that missed analysts’ forecasts. However, some of the losses in the region are being limited by a solid advance in shares of Siemens AG (SI $115) after Europe’s largest engineering firm announced a steep increase in its full-year dividend and provide an upbeat outlook for growth in 2011.

Meanwhile, the economic calendar is relatively light with Spain’s 3Q GDP coming in flat, as expected by economists.

The FTSE 100 Index is down 0.2%, France’s CAC-40 Index is 0.5% lower, Germany’s DAX Index is declining 0.1%, Spain’s IBEX 35 Index is down 1.3%, and Ireland’s Irish Overall Index is dropping 1.5%.

Asia mostly higher as China gains despite mixed data

Stocks in Asia finished mostly higher as traders digested a plethora of key economic data for October out of China and higher commodity prices buoyed the materials sector. The equity markets in China moved higher to lead the advance in the region, with the Hong Kong Hang Seng Index rising 0.8% and the Shanghai Composite Index advancing 1.0%, despite reports that showed the nation’s prices at the consumer and producer level, as well as new yuan loan growth, all came in higher than anticipated, which could force further tightening of policy by the Chinese government. Also, the markets showed some resilience in the face of separate reports that showed China’s retail sales and industrial production came in below expectations, but both figures still showed solid double-digit growth.

Meanwhile, Japanese stocks also gained ground, as the Nikkei 225 Index rose 0.3% despite the disappointing outlook from US tech giant Cisco Systems, with the recent weakness in the yen helping support export issues, helping offset a larger-than-forecasted drop in the nation’s machine orders for September. Elsewhere, Australian markets were aided by the strength in the resources sector and following an upbeat reading of employment in the region. The S&P/ASX 200 Index increased 0.6% after the employment change in Australia rose more than expected in October, but a separate report showed the unemployment rate unexpectedly rose. However, South Korea’s Kospi Index fell 2.7%, led by technology issues and financials shares, exacerbated by a late-day drop that Reuters said was attributed to heavy selling amid options expiration in the nation.