Morning Market Update

Below the Flatline Even as Inflation Remains Benign

The US equity markets are lower in early action on the heels of yesterday’s economic assessment by the Federal Reserve, which noted that the pace of economic activity has been insufficient to bring down unemployment. Stocks did not find any relief from reports showing consumer prices remained subdued, while manufacturing activity in New York moved back into expansion territory. Treasuries are higher amid the weakness in stocks, but did pare gains following the economic data, which also included a decline in mortgage applications. Later this morning, industrial production and capacity utilization will be released, along with a report on homebuilder sentiment. US equity news is light, with Joy Global Inc posting better-than-expected 4Q results on a jump in bookings at the mining equipment firm. Overseas, Asia was mostly lower, while Moody’s Investors Services’ warning about Spain’s credit rating is pressuring European equities.

As of 8:49 a.m. ET, the March S&P 500 Index Globex future is 3 points below fair value, the Nasdaq 100 Index is 3 points below fair value, while the DJIA is 23 points below fair value. Crude oil is $1.06 lower at $87.22 per barrel, and the Bloomberg gold spot price is down $9.60 at $1,386.65 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.3% at 79.70.

Joy Global Inc. (JOYG $80) reported fiscal 4Q EPS of $1.39, above the $1.16 consensus estimate of analysts surveyed by Reuters, with revenues increasing 9% year-over-year (y/y) to $1.0 billion, exceeding the $923 million that the Street was expecting. The mining equipment manufacturer said 4Q bookings jumped 48% y/y, supporting its view that its mining customers will continue to increase their capital expenditure plans in response to strong industry fundamentals. JOYG issued full-year 2011 guidance that topped analysts’ forecasts.

Consumer prices subdued, NY manufacturing activity improves, mortgage apps decline

The Consumer Price Index showed prices at the consumer level were up 0.1% month-over-month (m/m) in November, below the forecasted gain of 0.2% by economists surveyed by Bloomberg, and the 0.2% increase seen in October. Meanwhile, the core rate, which strips out food and energy, was 0.1% higher m/m in November, matching estimates, after being unchanged in October. On a year-over-year basis, consumer prices were up 1.1% in November, down from 1.2% in October, and the core CPI was 0.8% higher y/y, after rising 0.6% in October.

Elsewhere, the Empire Manufacturing Index, a measure of manufacturing in the New York region, rose in December to a level of 10.57, compared to the estimates of economists, which expected an increase to 5.00, from the previous month’s level of -11.14. The index moved back into expansion territory by posting a reading above zero, the demarcation point between contraction and expansion. The report is the first major piece of data looking at manufacturing conditions in December, and tomorrow, the Philly Fed Manufacturing Index will be released, expected to decrease from 22.5 in November to 15.0 in the current month, providing further insight into the health of the sector.

Treasuries remain higher, but did pare gains following the inflation and regional manufacturing data.

In other economic news, the MBA Mortgage Application Index declined by 2.3% last week, after the index that can be quite volatile on a week-to-week basis, dipped 0.9% in the previous week. The decrease came as a 5.0% drop in the Purchase Index was accompanied by a 0.7% decrease in the Refinance Index. The downward move in the overall index came amid a 18 basis-point increase in the average 30-year mortgage rate to 4.84%, above the record low of 4.21% on October 8.

Later this morning, we will get further data from the economic front through the releases of industrial production and capacity utilization, as well as the NAHB Housing Market Index. Industrial production is expected to increase 0.3% m/m and capacity utilization is forecasted to improve from 74.8% to 75.0%, while the NAHB Housing Market Index is anticipated to remain at 16, with any reading below 50 indicating more respondents feel conditions are poor.

Europe lower on Moody’s Investors Services’ warning about Spain

Stocks in Europe are under pressure in afternoon action, led by a solid decline in financials as euro-area debt concerns are stymieing sentiment after Moody’s Investors Service placed Spain on review for a possible downgrade. The ratings agency said, “Spain’s substantial funding requirements, not only for the sovereign but also for the regional governments and the banks, make the country susceptible to further episodes of funding stress,” per Bloomberg. However, healthcare issues are solidly higher to help limit losses, as shares of Novartis AG (NVS $56) are nicely in the green after it won a battle with minority shareholders of US-based eye-care company Alcon Inc. (ACL $162), allowing NVS to acquire the remaining stake it does not already own of ACL. NVS had to sweeten its original offer to gain full control of ACL, and the acquisition of the remaining stake will cost NVS about $12.9 billion.

Meanwhile, the economic front is offering little help in alleviating pressure on stocks across the pond, with a report showing UK jobless claims fell by a smaller amount than economists expected, and euro-zone employment coming in flat for 3Q. Elsewhere, Spain’s consumer prices rose roughly inline with expectations.

The UK FTSE 100 Index is 0.3% lower, France’s CAC-40 Index is down 0.7%, and Germany’s DAX Index is declining 0.6%, while Spain’s IBEX 35 Index is falling 1.7%.

Asia mostly lower as Japan’s recent momentum stalls on data

The equity markets in Asia were mostly lower with the Japanese Nikkei 225 Index declining 0.1%, taking a breather from its recent ascent to a seven-month high, as a quarterly reading of confidence among the nation’s largest manufacturers deteriorated for the first time in seven quarters. The Japanese Tankan Large Manufacturers Index declined from 8 in 3Q to 5 in 4Q, but exceeded economists’ 3 forecast, with a reading above zero indicating optimists outpaced pessimists. Also, the Tankan survey of large manufacturers’ outlook unexpectedly fell, declining from -1 in 3Q to -2 in 4Q, as forecasts for the Japanese yen came in the strongest since records began in 1996, per Bloomberg. In other economic news, the Conference Board’s Leading Index for China increased 0.9% m/m in October, but lingering concerns that stronger-than-anticipated economic data will force the Chinese government to tighten monetary policy further to cool off the economy pressured shares. The Shanghai Composite Index declined 0.5% and the Hong Kong Hang Seng Index fell 2.0%.

Elsewhere, Australia’s S&P/ASX 200 Index finished unchanged as a steep drop in shares of surf wear retailer Billabong International (BLLAY $17) thwarted an advance, after the company cut its profit forecasts. Rounding out the day, South Korea’s Kospi Index rose 0.4%, and India’s BSE Sensex 30 Index fell 0.8%.