Morning Market Update

Global Data and Japan Nuclear Crisis Pressure Equities

The US equity markets are under pressure as the bulls are facing a plethora of pessimism amid some disappointing global economic data, uneasiness amid the start of 1Q earnings season, and exacerbated nuclear concerns in Japan. Treasuries are higher amid the decline in stocks and following reports that showed US import prices rose more than expected, the trade deficit failed to narrow by an amount that economists anticipated, and small business confidence unexpectedly deteriorated. Headlining the equity news, Dow member Alcoa Inc unofficially kicked off 1Q earnings season with slightly stronger-than-forecasted earnings, but its revenues were just below forecasts. In other equity news, Dow member Chevron Corp said its 1Q earnings are expected to be higher than in 4Q, and fellow Dow component Procter & Gamble Co increased its quarterly dividend by 9%. Overseas, Asia posted broad-based losses after the severity of Japan’s nuclear crisis was upgraded, while European stocks are under pressure as a larger-than-expected drop in German investor confidence is exacerbating sentiment across the pond.

As of 8:48 a.m. ET, the June S&P 500 Index Globex future is 9 points below fair value, the Nasdaq 100 Index is 15 points below fair value, and the DJIA is 64 points below fair value. WTI crude oil is $0.49 lower at $109.43 per barrel, and the Bloomberg gold spot price is up $3.60 at $1,466.75 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.3% at 74.81.

Dow member Alcoa Inc. (AA $18) reported 1Q EPS ex-items of $0.28, one penny above the consensus estimate of analysts surveyed by Reuters, but despite a 22% year-over-year (y/y) increase, the company’s revenues of $5.96 billion were a bit short of the $6.04 billion that the Street had expected. The aluminum maker said its results were driven by higher realized prices for alumina and aluminum and growing demand for its products in major end markets, offset somewhat by a weaker US dollar, along with higher energy and materials costs. AA also reaffirmed its 2011 global aluminum demand growth projection of 12%.

Meanwhile, Chevron Corp. (CVX $108) announced that 1Q earnings are expected to be higher than in 4Q, with upstream—exploration and production—results projected to improve quarter-over-quarter (q/q), benefitting from higher crude oil prices. Also, the Dow component said downstream—refining—earnings during 1Q are expected to be slightly lower, reflecting reduced asset sales gains, largely offset by higher US margins. CVX will report 1Q results on April 29.

Elsewhere, fellow Dow member Procter & Gamble Co. (PG $62) reported that its Board of Directors approved a 9% increase in its quarterly dividend to $0.525 per share. The dividend will be payable to shareholders of record at the close of business on April 29, 2011.

Import prices rise, trade deficit wider than expected, small business confidence falls

The Import Price Index rose 2.7% month-over-month (m/m) for March, compared to the expectation of economists surveyed by Bloomberg, which called for the index to increase by 2.1%. Year-over-year, import prices are higher by 9.7%, versus the 8.6% forecast of economists.

Moreover, the trade deficit narrowed by a smaller amount than anticipated, declining from an unfavorably revised $47.0 billion in January to $45.8 billion in February, versus the estimate of economists, which called for the deficit to narrow to $44.0 billion.

In other economic news, the NFIB Small Business Optimism Index unexpectedly deteriorated, declining from 94.5 in February to 91.9 in March, compared to the expectation of economists, which called for the index to improve to 95.0. The decrease came as the number of firms reporting expectations of higher sales declined, along with plans to hire, while those expecting a better economy fell into negative territory. The deterioration in the above components offset increases in expectations of higher selling prices, inventories, and capital spending.

Treasuries are higher in morning action following the data and as the equity markets are under some pressure, with the yield on the 2-year note down 5 bps to 0.77%, the yield on the 10-year note 8 bps lower to 3.51%, and the 30-year bond yield decreasing 6 bps to 4.60%.

Europe finding pressure from multiple sources

Stocks in Europe are under pressure in afternoon action, led by weakness in basic materials and technology issues. Concerns about the nuclear crisis in Japan, disappointing revenue from Dow member Alcoa in the US, and yesterday’s slide in commodities are supplying the headwinds for the markets, exacerbated by some unfavorable reports from the economic calendar across the pond. Consumer prices in Germany—Europe’s largest economy—was unexpectedly revised higher for March, while the German ZEW Survey of Economic Sentiment fell more than forecasted. The index of German investor confidence dropped from 14.1 in March to 7.6 in April, compared to the decline to 11.3 that economists forecasted, illustrating growing uneasiness toward higher inflation, last week’s interest rate hike by the European Central Bank (ECB), and the festering euro-area debt crisis. In other economic news, the ZEW Survey of Economic Sentiment in the euro-zone also fell solidly in April, more than offsetting favorable UK data, which showed a slight improvement in a reading of home prices, cooler-than-forecasted consumer prices, and a narrowing of the nation’s trade deficit.

The UK FTSE 100 Index is down 1.0%, France’s CAC-40 Index is declining 1.1%, and Germany’s DAX Index is decreasing 1.0%.

Asia falls amid nuclear concern in Japan and weakness in commodities

The equity markets in Asia finished broadly lower as commodity issues fell victim to some profit taking on the heels of yesterday’s solid decline in oil prices, while nuclear concerns in Japan also weighed on stocks. Japan’s Nikkei 225 Index fell 1.7% following an upgrade to the severity rating of the nation’s nuclear crisis to a level matching the 1986 Chernobyl disaster, while Japan’s Economic and Fiscal Policy Minister Yosano warned that the economic impact of the March 11 earthquake and tsunami may be bigger than initially expected. Elsewhere, the weakness in commodity issues pressured the markets in Australia, as the S&P/ASX 200 Index dropped 1.5%. Meanwhile, stocks in China faired relatively the best, with the Shanghai Composite Index dipping 0.1%, but the Hong Kong Hang Seng Index fell 1.3%. Finally, South Korea’s Kospi Index dropped 1.6% amid the broad-based sell-off, after showing little reaction to the Bank of Korea leaving its benchmark interest rate unchanged at 3.00%.