Morning Market Update

Stocks Slip Despite Irish Bailout

The global equity markets have given up early gains and are under some pressure as the optimism that came from the announcement that Ireland will receive a bailout from the European Union and International Monetary Fund has been replaced by uncertainty on what lies ahead for the euro-zone. Treasuries are mixed as there are no major US economic reports scheduled for today, but there will be some key releases for the rest of the Thanksgiving holiday-shortened week. Equity news is also light, with Tyson Foods Inc posting better-than-expected 4Q profits, while its revenues were softer than anticipated. Overseas, Asia was mixed, while Europe is under pressure.

As of 8:48 a.m. ET, the December S&P 500 Index Globex future is 4 points below fair value, the Nasdaq 100 Index is 6 points below fair value, while the DJIA is 34 points below fair value. Crude oil is $0.05 lower at $81.93 per barrel, and the Bloomberg gold spot price is up $0.98 at $1,353.90 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.1% at 78.61.

Tyson Foods Inc. (TSN $16) reported fiscal 4Q EPS ex-items of $0.64, above the $0.57 consensus estimate of analysts surveyed by Reuters, with revenues increasing 3.1% year-over-year (y/y) to $7.4 billion, but was short of the $7.8 billion that the Street was looking for. The protein company said it produced record sales and earnings despite headwinds, due to its diversified business models and its operational improvements.

Economic calendar weak as we begin the short week

Treasuries are mixed in morning action as there are no major releases on today’s US economic calendar as the holiday-shortened week begins. Tomorrow, the economic data will begin to fly with the release of the second reading of 3Q gross domestic product (GDP), expected to be revised up to 2.4% from a 2.0% quarter-over-quarter (q/q) annualized rate, after expanding by 1.7% in the second quarter. The largest component of GDP, personal consumption, is expected to be revised slightly lower to 2.5% from 2.6% in 3Q, after advancing 2.2% in 2Q. Inflation readings are expected to be generally inline with the initial estimate, with the GDP Price Index rising 2.3%, and the core PCE Index, which excludes food and energy, forecasted to increase 0.8%, well below the Fed’s informal target of 1.5-2.0%.

Tuesday will also bring some housing data, with existing home sales, which reflect closings from contracts entered one to two months earlier, forecasted to fall 1.1% month-over-month (m/m) in October to an annual rate of 4.48 million units after rising 10.0% in September. Meanwhile, tomorrow’s housing report will be complimented by Wednesday’s release of new home sales, expected to grow 2.4% m/m in October to an annual rate of 315,000 after expanding by 6.6% in September.

However, Tuesday’s midday release of the minutes from the November Federal Open Market Committee (FOMC) meeting may bring fewer surprises than recent releases, as uncertainty over whether the Fed would announce a new program of asset purchases, or quantitative easing (QE), was put to rest at the November meeting. The Fed said that in light of “disappointingly slow” economic progress in output and employment, as well as a downward trend in measures of core inflation, the Fed deemed a program of $600 billion in new purchases was necessary to promote a stronger recovery.

Economic data posted somewhat unsustainable upward moves in early 2010 and hit a soft patch in the summer. However, economic data looks to be settling into a new steady-state, and leading indicators suggest reasons for optimism.

Other releases on this week’s US economic calendar include: durable goods orders, the MBA Mortgage Applications Index, personal income and spending, weekly initial jobless claims, and the final University of Michigan Consumer Sentiment Index reading for November. Markets will be closed on Thursday for Thanksgiving, but will be open for a shortened session on Friday.

Europe under pressure despite Ireland rescue agreement

The equity markets in Europe are lower in afternoon action after relinquishing an early advance that came from the weekend announcement that Ireland has agreed to a three-year bailout package by the European Union (EU) and the International Monetary Fund (IMF). The first installment of the financial support could be received by January to help the debt-ridden nation’s struggling banking sector but details of the plan have yet to be disseminated. The total amount has been estimated to potentially exceed 73 billion euros ($100 billion), with the UK contributing about 7 billion pounds ($11.1 billion). However, European financial stocks are under solid pressure to weigh on the overall equity markets amid the uncertainty of what the final bailout package will look like and as concerns of contagion in the euro-area remain. Adding to the uneasiness in the sector, Moody’s Investor Service warned that it would likely downgrade Ireland’s credit rating by several notches as the rescue package for the nation may increase the debt burden it faces and pose a “credit negative,” for the country, per Bloomberg. The Irish banking sector is sharply lower, led by a 20% drop in shares of Bank of Ireland (IRE $3).

In other equity news, shares of Vestas Wind Systems (VWDRY $11) are solidly lower after the wind energy company issued a disappointing outlook. Meanwhile, the European economic calendar is light, as the lone major report will be a read on euro-zone consumer confidence, set to be released later today.

The UK FTSE 100 Index is down 0.9%, France’s CAC-40 Index is 0.7% lower, Germany’s DAX Index is declining 0.2%, and Ireland’s Irish Overall Index is falling 1.2%.

Asia mixed as Irish support meets lingering China concerns

Stocks in Asia were mixed with the news that Ireland will receive a bailout providing some support, while some caution as traders reacted to Friday’s policy tightening measures by the Chinese government kept gains in check and held the equity markets in China below the flatline. China’s Shanghai Composite Index declined 0.2% and Hong Kong’s Hang Seng Index decreased 0.4%, but Japan’s Nikkei 225 Index rose 0.9%. Elsewhere, Australia’s S&P/ASX 200 Index gained 0.3%, South Korea’s Kospi Index increased 0.2%, and India’s BSE Sensex 30 Index rebounded from recent weakness that came from a wireless auctions scandal, advancing 1.9%. Meanwhile, the Asian economic calendar was relatively light with Hong Kong’s hotter-than-anticipated Consumer Price Index for October being the lone major release.