Morning Market Update

Modest Pressure to Begin the Day

The US equity markets are slightly below the flatline in early trading as President Obama’s $447 billion job plan is being met with ambivalence amid skepticism that Capitol Hill can come to an agreement, while the overseas markets came under pressure despite some favorable Chinese inflation data. Also, the US equity front in doing little to lift sentiment as Texas Instruments Inc lowered its outlook and Dow member McDonald’s Corp reported mixed global August sales results. Treasuries are mostly lower ahead of a report on wholesale inventories. In other equity news, Dow member Johnson & Johnson, along with Bayer AG announced that an advisory committee of the US Food and Drug Administration (FDA) recommended approval of their new anticoagulant treatment for the prevention of stroke. Overseas, Asian equity markets finished mostly lower despite a cooling of China’s consumer and producer prices, while festering debt concerns and economic uneasiness is pressuring Europe.

As of 8:51 a.m. ET, the December S&P 500 Index Globex future is 2 points below fair value, the Nasdaq 100 Index is 1 point below fair value, and the DJIA is 8 points below fair value. WTI crude oil is $1.03 lower at $88.02 per barrel, and the Bloomberg gold spot price is down $26.37at $1,843.83 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.3% to 76.51.

Texas Instruments Inc. (TXN $26) offered its scheduled fiscal 3Q guidance, narrowing and lowering its expected ranges for revenue and EPS. TXN said it currently forecasts revenue between $3.23-3.37 billion, versus its prior range of $3.40-3.70 billion, while its earnings are expected to come in between $0.56-0.60 per share, compared to its previous outlook of $0.55-0.65 per share. The semiconductor company said the updated guidance is due to “broadly lower demand across a wide range of products, markets and customers.”

Dow member Johnson & Johnson (JNJ $65) and Bayer AG (BAYRY $54) announced that an advisory committee of the US Food and Drug Administration (FDA) recommended approval of their new anticoagulant treatment for the prevention of stroke. JNJ said, “We are pleased with the committee’s recommendation and look forward to working with the FDA to help make this important therapy available in the US.”

Fellow Dow member McDonald’s Corp. (MCD $89) reported global August same-store sales—sales at stores open at least thirteen months—grew 3.5% year-over-year (y/y), with US sales gaining 3.9% and European sales rising 2.7%. However, sales in its Asia/Pacific, Middle East and Africa segment were down 0.3%.

Obama’s job plan gets scrutinized, while wholesale inventories data looms on the horizon

Treasuries are lower in morning action as there are no major economic releases due out before the opening bell, with the yield on the 2-year note unchanged at 0.19%, while the yield on the 10-year note is 3 bps higher at 2.01%, and the 30-year bond rate is advancing 4 bps to 3.35%.

However, after the opening bell, the US economic calendar will yield the release of wholesale inventories, expected to rise 0.7% month-over-month (m/m) in July, after gaining 0.6% in June.

Meanwhile, traders are digesting last night’s $447 billion jobs plan from President Barack Obama, which consists of tax cuts and new government spending. However, the plan is being met with some skepticism amid a lack of confidence that cohesion on Capitol Hill can be found to pass the proposed package in the wake of this summer’s debt ceiling debate.

Europe under pressure as financials see weakness

The equity markets in Europe are lower in afternoon action, with financials under some pressure on festering debt contagion concerns. Also, some economic growth uneasiness is hampering sentiment after US President Obama’s job plan failed to spark optimism and as the European Central Bank (ECB) and the US Federal Reserve did not signal further monetary policy accommodation in separate speeches yesterday. Meanwhile, traders are treading cautiously ahead of the weekend’s meeting of the finance chiefs of the world’s economic leaders that make up the G7. The UK banking sector is also supplying pressure on financials as the UK’s Independent Commission of Banking is expected to announce banking sector reforms on Monday. Moreover, technology issues are weighing on the equity markets across the pond, following the lackluster guidance from the US-based semiconductor company Texas Instruments. Elsewhere, shares of Porsche (POAHY $6) are sharply lower to contribute to the losses in Europe after Volkswagen (VLKAY $28) announced that it will delay its merger with the luxury carmaker, due to legal issues.

In economic news in the region, Germany’s consumer prices were revised higher, French industrial and manufacturing production rose much more than expected, UK producer prices were mixed, and Italy’s 2Q GDP was left unrevised at a 0.3% quarter-over-quarter rate of expansion.

The UK FTSE 100 Index is declining 0.5%, France’s CAC-40 Index is declining 1.1%, Germany’s DAX Index is dropping 0.4%, and Italy’s FTSE MIB Index is falling 1.0%, while Greece’s Athex Composite Index is rising 1.1%.

Asia comes under pressure despite favorable Chinese inflation data

Stocks in Asia finished mostly lower as the ECB and the US Fed held off on signaling any further monetary policy stimulus efforts yesterday and as President Obama’s job plan was met with little excitement. Meanwhile, reports showing China’s inflation cooled in August failed to boost sentiment. China’s consumer prices decelerated from a 6.5% y/y rise in July, to a 6.2% gain, matching expectations, while Chinese producer prices rose 7.3% compared to last year, versus the 7.5% increase seen in July, and the 7.2% that was estimated. In other economic news out China, the nation’s industrial production, fixed asset investment, and retail sales for August all rose roughly inline with expectations, but were slightly lower from July’s results. China’s Shanghai Composite Index dipped 0.1% and Hong Kong’s Hang Seng Index declined 0.2% despite the data, which was welcome news on the inflation front and showed the government’s aggressive monetary policy tightening efforts may not be impacting economic growth as much as some had expected.

Elsewhere, Japan’s Nikkei 225 Index declined 0.6%, following an unfavorable revision to the nation’s 2Q GDP, which was adjusted to a 2.1% annualized contraction, compared to the 1.3% decline in output that was previously reported, but it matched economists’ expectations. A decrease in capital spending was the main contribution to the downward revision. Rounding out the day in Asia, South Korea’s Kospi Index fell 1.8% ahead of a national holiday, while Australia’s S&P/ASX 200 Index managed to eke 0.2% higher, led by strength in the banking sector.