Morning Market Update

Modest Pressure on Comments of More Fed Stimulus Measures

The equity markets are modestly lower as stocks are being hamstrung by Federal Reserve Chairman Ben Bernanke suggesting economic growth rates may be insufficient to combat the nation’s unemployment problems without further stimulus efforts. Treasuries are higher amid the uneasiness, and as there are no major economic reports scheduled for today and the calendar will be light for the week. In equity news, Dow member Pfizer Inc, as well as Kellogg Co both announced their current CEO’s will be retiring, while Dollar General Corp’s same-store sales results are overshadowing its better-than-expected 3Q earnings report. Overseas, Asia finished mixed, while markets in Europe are diverging as euro-area debt concerns continue to command attention.

At 11:03 a.m. ET, the Dow Jones Industrial Average and the Nasdaq Composite are down 0.1%, while the S&P 500 Index is off 0.2%. Crude oil is down $0.09 at $89.10 per barrel, wholesale gasoline is $0.01 lower at $2.34 per gallon, and the Bloomberg gold spot price is up by $2.90 at $1,416.98 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.8% at 79.80.

Dow member Pfizer Inc. (PFE $17) announced that its President and Chief Executive Officer Jeffrey Kindler has retired unexpectedly and will be replaced by Ian Read, who is currently the company’s head of global biopharmaceutical operations. Kindler noted that the combination of meeting requirements of the company’s stakeholders and the 24/7 nature of his responsibilities, has made this period “extremely demanding on me personally,” and he is excited to be able to “recharge my batteries.” Also, Kellogg Co. (K $50) reported that its President and CEO David Mackay told its Board of Directors that he plans to retire and John Bryant, the company’s current Chief Operating Officer, will succeed Mackay, effective January 2, 2011. Mackay said he recently became eligible for retirement and made a commitment to spend more time with his family. PFE is trading higher, while K is nearly unchanged.

Dollar General Corp. (DG $31) reported 3Q EPS ex-items of $0.39, four cents above the consensus estimate of analysts surveyed by Reuters, with revenues growing 10.1% year-over-year (y/y) to $3.2 billion, roughly inline with the Street’s forecasts. The discount retailer raised its full-year guidance. However, shares are under solid pressure as the company’s 4.2% y/y increase in same-store sales—sales at store open at least a year—came in below analysts’ expectations.

With US economic calendar light, Europe, China, and Washington to receive the spotlight

Treasuries remain higher in late-morning action with today’s economic data scarce and as traders digest comments over the weekend by Federal Reserve Chairman Ben Bernanke. The Fed Chief told CBS’ TV show “60 Minutes” that the US economy is growing at a rate barely enough to keep the unemployment rate stable and that the central bank could extend its asset purchase program, known as quantitative easing, if more stimulus is needed.

Also, there are no major US reports scheduled on this week’s economic calendar, leaving the door open for the market’s focus to zero in on the situation in Europe and China. Ireland’s legislature will vote on the 2011 budget on Tuesday and the Bank of England meets on Wednesday and Thursday, while China’s top leaders meet to discuss economic policies for 2011. However, the political front in the US has the potential to garner some attention as 2010 lives out its last days, with traders searching for some US tax-policy clarity, which could come before the New Year. The Wall Street Journal reported that White House officials and congressional Republicans are closing in on a deal that would extend current income-tax rates for all Americans as well as a benefits program for the long-term unemployed.

Our Schwab experts point out that Congress and the Obama administration must come to an agreement on tax policy going forward, so consumers and businesses can plan for the future. We believe that most (if not all) of the Bush tax cuts will be extended, but it needs to happen by year-end to avoid a massive hit to paychecks come 2011. We believe cooler heads will prevail, but risks to that belief are certainly heightened.

Releases on this week’s US economic calendar include: the MBA Mortgage Applications Index, initial jobless claims, wholesale inventories, the trade balance, and the preliminary University of Michigan Consumer Sentiment Index reading for December.

Europe mixed as officials meet to discuss euro-area crisis fix

The equity markets in Europe have overcome early modest losses and are mixed in late-day action as traders are grappling with whether additional measures will be needed to combat the euro-zone debt crisis. European policy makers are conducting a scheduled meeting in Brussels today, with a main topic of discussion being the size of the euro-area’s near $1 trillion bailout program. Some members of the euro-zone have pushed for increases in the size of the region’s rescue plan, while Germany has been adamant about not expanding the fund. Also, the European markets are shrugging off a downgrade by Moody’s Investor Service of Hungary’s credit rating to just above junk status.

Meanwhile, the European economic calendar is offering little data for traders to digest, with the lone release worth mentioning being a gauge of euro-zone investor confidence, which deteriorated more than economists had expected for December.

The UK FTSE 100 Index is 0.7% higher, France’s CAC-40 Index and Germany’s DAX Index are advancing 0.3%, while Spain’s IBEX 35 Index is dropping 0.5% and Hungary’s Budapest Stock Exchange Index is falling 1.4%.

Asia mixed amid lack of market catalysts

On the heels of Friday’s disappointing US labor report and the lack of any major economic data, stocks in Asia finished mixed, with modest moves by the major indices to begin the week. Japan’s Nikkei 225 Index and Australia’s S&P/ASX 200 Index both dipped 0.1%, while South Korea’s Kospi Index declined 0.2%. Meanwhile, the equity markets in China diverged, with the Hong Kong Hang Seng Index falling 0.4%, while the Shanghai Composite Index rose 0.5%. However, Taiwan’s Taiex Index posted the region’s most meaningful move, increasing 0.9% on the heels of some favorable analyst recommendations of Taiwanese equities. Elsewhere, there was an M&A story worth a mention, with Australia’s  Riversdale Mining Ltd. (RFLMF $14) surging after it confirmed it was in talks to be acquired Rio Tinto (RIO $70) for about A$3.55 billion ($3.5 billion). RIO has not commented on the news.