Morning Market Update

Stocks Decrease as China’s Bank Reserve Policy to Increase

The global equity markets are under some pressure on concerns regarding the global recovery following the announcement that China increased the amount of cash its banks need to set aside in reserve, in an attempt to try to control inflationary pressures. Treasuries are mixed in early trading as there are no major US economic reports scheduled for release today, but traders are digesting a speech by US Federal Reserve Chairman Ben Bernanke in which he defended the Fed’s recent policy actions. In equity news, Dell Inc reported 3Q profits that easily topped analysts’ forecasts. Overseas, Asia finished mixed ahead of the aforementioned announcement out of China, while Europe is under pressure on the Chinese policy actions and amid continued uneasiness toward a potential bailout of Ireland.

As of 8:48 a.m. ET, the December S&P 500 Index Globex future is 1 point below fair value, the Nasdaq 100 Index is 5 points below fair value, while the DJIA is 13 points below fair value. Crude oil is $0.33 lower at $82.09 per barrel, and the Bloomberg gold spot price is down $4.68 at $1,348.40 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.1% at 78.50.

Dell Inc. (DELL $14) reported 3Q EPS ex-items of $0.45, above the $0.32 consensus estimate of analysts surveyed by Reuters, with revenues increasing 19% year-over-year (y/y) to $15.4 billion, but below the Street’s expectation of $15.8 billion. The PC maker said global demand for all commercial products and services and solid supply chain execution led to its strong operating income and growth in revenues, while its enterprise sector continued to be “solid.” The company said it expects to see continued strength from the ongoing “client refresh” among large corporate accounts and strong growth in enterprise products and services. Moreover, the company said 4Q revenue is expected to track in-line to slightly up from 3Q as commercial demand remains stable while consumer demand is more muted. DELL’s 4Q revenue outlook missed analysts’ expectations, but it did raise its full-year earnings outlook.

Economic docket dormant but Fed Chief offers some commentary on the global recovery

Treasuries are mixed in morning action as there are no major releases scheduled for today on the US economic calendar, and as traders are digesting a policy tightening move in China and a speech by Federal Reserve Chairman Ben Bernanke. The Fed Chairman noted in a speech at a European Central Bank conference in Germany that “tensions among nations over economic policies have emerged and intensified, potentially threatening our ability to find global solutions to global problems.” Bernanke pointed out that the “two-speed nature of the global recovery implies that different policy stances are appropriate for different groups of countries,” but overtime it would be desirable to devise an international monetary system that more consistently aligns the interest of individual countries with the interests of the global economy as a whole.

Bernanke defended the Fed’s monetary policy actions, as the recent deployment of $600 billion in further asset purchases has come under some scrutiny in the global markets, by pointing out that insufficiently supportive policies in the advanced economies could undermine the recovery not only in those economies, but for the world as a whole. Also, the Fed Chief seemed to address the growing tensions between China and the US regarding currency market fluctuations, saying, “large, systemically important countries with persistent current account surpluses, the pursuit of export-led growth cannot ultimately succeed if the implications of that strategy for global growth and stability are not taken into account.”

Europe under pressure as China tightens policy

The equity markets in Europe are under pressure in afternoon action, with weakness in materials and oil & gas issues on the decreased outlook for demand for resources as China announced further measures to cool down the economy. However, financials are the worst performers in the region amid uncertainty regarding if Ireland will receive financial support for its troubled banking sector from the near $1 trillion euro-area bailout fund. Also, concerns are shifting to whether a rescue of the debt-ridden nation of Ireland will prevent contagion in the euro-zone and what kind of concessions Ireland will have to make as a result of any sort of bailout. Ireland’s low-tax policies are among the chief concerns, as the nation may need to tweak its policy to help repay any financial support it receives.

Meanwhile, the euro-zone economic calendar is relatively light, with the lone major reports being producer prices in Germany—Europe’s largest economy—increasing more than what economists had expected, and Italian industrial orders declining by a smaller amount than anticipated.

The UK FTSE 100 Index is down 1.2%, France’s CAC-40 Index is 0.7% lower, and Germany’s DAX Index is declining 0.3%, while Ireland’s Irish Overall Index is nearly unchanged.

Asia shows mixed emotions

Stocks in Asia were mixed a traders grappled with the steep advances in the US and Europe on favorable economic data and eased concerns about the European debt crisis, as well as the increased likelihood that China will impose further policy tightening measures to try to curb inflationary pressures. Meanwhile, after the close of trading in Asia, the Chinese government announced that it will increase the reserve ratio requirements—the fifth increase this year—by 50 basis points for the banking industry, resulting in banks having to set aside larger amounts of capital in reserve, aimed at absorbing some of the cash in the system to try to slow inflation and prevent the formation of asset bubbles. Also, Hong Kong introduced additional taxes and raised down payment requirements on residential properties, in an attempt to cool down the speculation in the real estate markets. Before the announcements, the Shanghai Composite Index finished up 0.8%, while the Hong Kong Hang Seng Index declined 0.1%.

Japanese markets eked out a gain, with the Nikkei 225 Index inching 0.1% higher, as exports continued to find support from the recent slide in the Japanese yen versus the US dollar. Elsewhere, Australia’s S&P/ASX 200 Index declined 0.2% and South Korea’s Kospi Index rose 0.7%. The Asian economic calendar was relatively light with a larger-than-expected decline in Japan’s All-Industry Index being the lone major report during trading hours in the region.