Morning Market Update

European Debt Concerns Linger Through the Weekend

After falling solidly on Friday, the weakness in the US equity markets continues in the new week, courtesy of another sharp sell-off in Europe amid the festering eurozone debt crisis and the uncertainty toward Greece. Treasuries are mixed in early action amid the ongoing European uneasiness as there are no major economic reports due out today. In equity news, Broadcom Corp announced that it has reached an agreement to acquire NetLogic Microsystems Inc. for about $3.7 billion, and McGraw-Hill Companies announced that its Board of Directors has approved its plan to split into two separate public companies. Elsewhere overseas, Asian markets came under pressure.

As of 8:51 a.m. ET, the December S&P 500 Index Globex future is 14 points below fair value, the Nasdaq 100 Index is 27 points below fair value, and the DJIA is 132 points below fair value. WTI crude oil is $0.88 lower at $86.36 per barrel, and the Bloomberg gold spot price is down $15.10 at $1,840.48 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.1% to 77.13.

Semiconductor firm Broadcom Corp. (BRCM $33) announced that it has reached an agreement to acquire NetLogic Microsystems Inc. (NETL $32) for $50.00 per share or about $3.7 billion, net of cash assumed. BRCM said the acquisition meaningfully extends its infrastructure portfolio and it expects the deal to be accretive to adjusted EPS by about $0.10 in 2012.

In other corporate finance news, McGraw-Hill Companies (MHP $39) announced that its Board of Directors has approved its plan to split into two separate public companies: McGraw-Hill Markets, primarily focused on capital and commodities markets, and McGraw-Hill Education, focused on education services and digital learning.

Treasuries mixed as eurozone concerns remain and US data is light

Treasuries are mixed in morning action as there are no major US economic releases due out today and the eurozone debt crisis continues to hamper sentiment, with the yield on the 2-year note up 2 bps to 0.19%, while the yields on the 10-year note and the 30-year bond are declining 1 bps to 1.91% and 3.24%, respectively.

The US economic calendar will be more active later in the week, beginning with Wednesday’s advance retail sales, forecasted to rise 0.2% month-over-month (m/m) in August, after gaining 0.5% in July, while sales ex-autos are expected to increase 0.2% and sales ex-autos and gas are estimated to grow 0.3%. Meanwhile, inflation readings will be monitored due to the impact on spending and corporate profits, starting with Wednesday’s Producer Price Index (PPI), expected to show prices at the wholesale level fell 0.1% m/m in August after gaining 0.2% in July, while the core rate, which excludes food and energy, is anticipated to slow to a 0.2% rate. The release precedes Thursday’s Consumer Price Index (CPI) report, forecasted to show a 0.2% m/m increase after rising 0.5% in July, while ex-food and energy it is expected to remain at a 0.2% rate. Thursday also brings the industrial production report, expected to increase 0.1% m/m in August after gaining a surprising 0.9% in July, while capacity utilization is forecasted to remain at 77.5%.

Other releases on this week’s US economic calendar include: the NFIB Small Business Optimism Index, import prices, MBA Mortgage Applications, business inventories, initial jobless claims, and the preliminary University of Michigan Consumer Sentiment Index reading for September.

Europe falling again amid Greek default uncertainty

European stocks are under heavy pressure in afternoon action, led by financials as concerns about a potential default of Greece continue to hamper sentiment, along with waning confidence that eurozone policymakers have a handle on containing the sovereign debt contagion in the region. Greek Prime Minister Papandreou said over the weekend that the nation will meet its austerity targets in order to qualify for the next installment of aid from the euro-area bailout package, after announcing a new property tax measure to help it meet its goals. Meanwhile, reports that if Greece does not get its next infusion in eurozone financial aid, it could run out of cash within weeks is exacerbating sentiment. Meanwhile, French banks are some of the biggest losers on the day as the flare-up in Greek default concerns is fostering some uneasiness about the exposure the sector has to the troubled nation’s debt and if that could result in credit rating downgrades for the group. Moreover, UK banks are under some pressure after the region’s Independent Commission of Banking recommended measures insulate retail banking business in the sector from investment banking operations.

The UK FTSE 100 Index is down 2.3%, France’s CAC-40 Index is dropping 4.7%, Germany’s DAX Index is falling 3.6%, and Greece’s Athex Composite Index is decreasing 3.7%.

Asia falls on European uneasiness

The equity markets in Asia finished solidly lower as traders reined in their appetites for equities amid the ongoing skittish sentiment toward the eurozone debt crisis, which led to sharp losses in the US and Europe on Friday. Japan’s Nikkei 225 Index finished down 2.3%, Australia’s S&P/ASX 200 Index fell 3.7%, and Hong Kong’s Hang Seng Index tumbled 4.2%. However, volume was lighter than usual with markets in mainland China and South Korea closed for holidays, possibly amplifying the downward moves in the region. Finally, India’s BSE Sensex 30 Index dropped 2.2% amid the broad pressure on the equity markets, and after a report showed the nation’s industrial production rose 3.3% year-over-year in July, well below the 8.8% increase seen in June, and the 6.2% gain that economists had forecasted. This was the slowest pace of growth in industrial production for India in almost two years.