Morning Market Update

Modestly Higher Amid a Lack of Data to Inspire

The US equity markets are slightly to the upside in early action as the bulls are lacking major catalysts to spur conviction on the Street, while continuing to grapple with euro-area debt and Chinese tightening concerns. Treasuries are lower again, extending yesterday’s losses that came from the announcement that a preliminary agreement had been reached in Washington to extend the Bush-era tax cuts. The economic calendar is light, with a dip in the MBA Mortgage Application Index being the lone report on today’s US docket. In equity news, Dow member McDonald’s Corp posted an increase in November same-store sales, while fellow Dow component Home Depot Inc increased its 2010 EPS and revenue outlooks. Elsewhere, Texas Instruments Inc narrowed its 4Q guidance and Costco Wholesale Corp posted 1Q EPS and revenues that topped that Street’s expectations. Overseas, Asia was mixed as China found pressure from exacerbated concerns over possible monetary policy tightening, while Europe is diverging as traders are grappling with a mixed bag of economic data.

As of 8:50 a.m. ET, the December S&P 500 Index Globex future is 3 points above fair value, the Nasdaq 100 Index is 9 points above fair value, while the DJIA is 12 points above fair value. Crude oil is $0.31 lower at $88.38 per barrel, and the Bloomberg gold spot price is down $9.83 at $1,392.23 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.1% at 80.08.

Dow member McDonald’s Corp. (MCD $80) announced global November same-store sales—sales at stores open at least thirteen months—grew 4.8% year-over-year (y/y), with sales in the US and Europe both increasing 4.9%, while in Asia/Pacific, Middle East and Africa, sales gained 2.4%.

Fellow Dow member Home Depot Inc. (HD $34) updated its full-year 2010 sales and EPS outlook, reporting that it expects earnings to grow 27% y/y to $1.97 per share, up from its prior forecast of $1.94, and revenues are anticipated to rise 2.3% to $67.5 billion, compared to the company’s previous outlook of $67.4 billion. Analysts surveyed by Reuters expected the world’s largest home improvement retailer to post 2010 EPS of $1.95 and revenues of $67.6 billion. Also, the company said it expects 2011 revenues to grow 2.0-2.5% y/y and EPS to increase 11-13%.

Texas Instruments Inc. (TXN $33) released its scheduled 4Q business update and narrowed its expected ranges for revenue and EPS. The semiconductor and calculator maker said it expects 4Q revenue to come in at $3.43-3.57 billion, compared to the prior range of $3.36-3.64 billion, and EPS is forecasted to come in between $0.61-0.65, versus the previous outlook of $0.59-0.67. Analysts had expected the company to post revenue of $3.50 billion and EPS of $0.63 in 4Q.

Costco Wholesale Corp. (COST $70) reported fiscal 1Q EPS of $0.71, above the $0.69 that analysts were anticipating, with revenues growing 11% y/y to $19.2 billion, versus the $18.8 billion that the Street had forecasted. The retailer said its 1Q same-store sales rose 7% y/y, while excluding inflation in gasoline prices and strengthening foreign currencies, sales rose 5%.

Mortgage applications tick lower as 30-year rate rises and refinances decline

The US economic calendar remains light, with today’s lone report being the MBA Mortgage Application Index, which dipped slightly by 0.9% last week, after the index that can be quite volatile on a week-to-week basis, fell 16.5% in the previous week. The modest decline came as a 1.4% decrease in the Refinance Index was met by a 1.8% gain in the Purchase Index. The downward move in the overall index came amid a 10 basis-point increase in the average 30-year mortgage rate to 4.66%, above the record low of 4.21% on October 8.

Treasuries are under pressure in early action, and yields are extending yesterday’s strong advance on the announcement that the Bush-era tax cuts have been tentatively agreed to be extended, while showing little reaction to the housing data.

Europe mixed on divergent data

The equity markets in Europe are mixed in afternoon action, with traders grappling with some mixed signals from the economic front, as well as exacerbated uneasiness regarding possible policy tightening in China. However, euro-area debt concerns are relatively subdued, with the Irish Parliament voting in favor of the government’s 6 billion euro ($8 billion) austerity budget released yesterday, which including spending cuts and tax increases.

Meanwhile, the economic calendar across the pond sent conflicting signals, with Germany’s trade surplus narrowing more than economists had forecasted as exports unexpectedly fell in October, while German industrial production rose more than expected in October. In other economic news, the Bank of France said its business sentiment gauge unexpectedly improved.

The UK FTSE 100 Index is down 0.1%, France’s CAC-40 Index is advancing 0.3%, Germany’s DAX Index is declining 0.2%, and Ireland’s Irish Overall Index is gaining 1.0%.

Asia mixed as China slides

Stocks in Asia were mixed, with the equity markets in China coming under pressure amid elevated uneasiness that the government will announce new measures to tighten its monetary policy to try to stave off inflation and the formation of asset bubbles in the real estate market. China’s Shanghai Composite Index fell 1.0% and Hong Kong’s Hang Seng Index dropped 1.4%, as the aforementioned policy tightening concerns were exacerbated by the government moving up the release of key economic releases, including inflation data, by two days to December 11, per Bloomberg. However, Japanese stocks bucked the trend in the region, as the Nikkei 225 Index rose 0.9% to near a seven-month high, aided by a solid decline in the Japanese yen versus the US dollar, which helped the outlook for the nation’s exporters, and overshadowed a sharp drop in shares of Sumco Corp. (SUOPY $31) after the silicon wafer maker forecasted a larger-than-anticipated loss. The advance in Japan came even after a report showed Japan’s machine orders fell much more than expected and the nation’s trade surplus unexpectedly contracted.

Elsewhere, South Korea’s Kospi Index gave up early gains and finished 0.4% lower amid new reports of artillery fire in a military exercise by North Korea. Meanwhile, other major markets in the region finished in the red amid the uneasiness regarding China, with Australia’s S&P/ASX 200 Index declining 0.6% and India’s BSE Sensex 30 Index falling 1.2%.