Morning Market Update

Eurozone Debt Concerns Continue to Tax Sentiment

After posting five-straight winning sessions last week, the US equity markets are under pressure in early trading as eurozone debt uneasiness is back again to stymie sentiment. The gains streak for the equity markets is in jeopardy as Germany’s ruling party lost another regional election and Greece is expected to talk later today with eurozone leaders to discuss its progress on its austerity plans that are needed to qualify for the next wave of bailout aid. Treasuries are higher amid the pressure on the equity markets and as there are no major US economic reports expected before the opening bell. A read on US homebuilder sentiment is due out later this morning. Meanwhile, several reports on the housing sector are set for later in the week, while the two-day monetary policy meeting by the US Federal Reserve is set to begin tomorrow. In equity news, Lennar Corp reported better-than-expected 3Q EPS, while Netflix Inc and Tyco International Ltd both announced that they are separating their companies. Overseas, Asian stocks were broadly lower amid the exacerbated eurozone debt concerns, which are pressuring European equity markets.

As of 8:45 a.m. ET, the December S&P 500 Index Globex future is 18 points below fair value, the Nasdaq 100 Index is 29 points below fair value, and the DJIA is 141 points below fair value. WTI crude oil is $0.97 lower at $86.99 per barrel, and the Bloomberg gold spot price is up $5.75 at $1,817.13 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.8% to 77.18.

Lennar Corp. (LEN $14) reported fiscal 3Q earnings of $0.11 per share, one penny above the consensus estimate of analysts surveyed by Reuters, with revenues dipping 1% year-over-year (y/y) to $820 million, versus the $821 million that the Street had forecasted. The homebuilder said new orders increased 11% y/y, while deliveries declined 3% y/y. LEN said economic conditions were “very challenging,” but it has seen demand for home purchases “slowly return to the marketplace,” driven by low home prices and all-time low interest rates. However, the company said demand was limited by “tight and tightening lending standards, high unemployment and low overall consumer confidence.”

Netflix Inc. (NFLX $155) announced that it will separate its movie-streaming business and its DVD-by-mail unit. The DVD-by-mail business will be known as Qwikster, which will be a wholly owned subsidiary of NFLX.

Elsewhere on the corporate restructuring front, Tyco International Ltd. (TYC $44) announced that it plans to separate the company into three independent, publicly-traded companies. The three companies will consist of: the ADT North American residential security business, flow control products and services, and commercial fire and security business. TYC said it and the Board of Directors concluded that creating three independent companies is the next logical step for the company.

Treasuries higher amid pressure on stocks and ahead of data

Treasuries are higher in morning action amid the weakness in stocks and as there are no major economic releases due out before the opening bell, with the yield on the 2-year note down 3 bps to 0.16%, the yield on the 10-year note 11 bps lower at 1.97%, and the 30-year bond rate decreasing 12 bps to 3.24%.

However, after the opening bell, the US economic calendar will yield the release of the NAHB Housing Market Index, with the gauge of homebuilder sentiment forecasted to remain at 15 in September. A reading below 50 means more homebuilders fell conditions are poor.

Today’s data is the first of several reports on the housing market, with Tuesday bringing housing starts, expected to fall 2.3% month-over-month (m/m) in August to an annual rate of 590,000 units, along with building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, forecasted to decline 1.8% m/m, also to a rate of 590,000 units. Lastly, Wednesday brings existing home sales, forecasted to rise 1.7% m/m to an annual rate of 4.75 million units in August. Other releases scheduled this week include: the MBA Mortgage Applications Index, weekly initial jobless claims, and the Conference Board’s Index of Leading Indicators.

However, the focus of the week will be on the conclusion of the Federal Open Market Committee’s (FOMC) monetary policy meeting on Wednesday, which was changed to a two-day meeting after placing a mid-2013 timeframe for the exceptionally low level of the fed funds rate at the August meeting, which resulted in three dissenters to the decision. Amid the weak economic data, traders will be looking for any signs the Fed feels a stepped up response is necessary or would be effective to stem a further slowing of the economy. In particular, some in the market believe the next step for the Fed may be a “twist” of their balance sheet maturity, in reference to reducing its share of short-term securities and increasing its longer-term holdings. The effect of this action would be somewhat similar to QE, as it would reduce the supply of longer-term securities in the market and potentially lower longer-term rates, with the hope of pushing investors toward higher-risk securities elsewhere.

Europe solidly to the downside as debt concerns fester

Stocks in Europe are under solid pressure in afternoon action, with financials showing some weakness amid continued concerns about a potential Greek default and as the weekend meeting between EU finance ministers came and went without fostering optimism that policymakers are on the same page in battling the region’s debt crisis. Meanwhile, another defeat in a regional election of German Chancellor Angela Merkel’s ruling party is exacerbating sentiment that Europe’s largest economy is committed to providing aid to the troubled European nations to keep the eurozone intact. Also, Greece is expected to hold a meeting with EU and IMF officials later today to discuss the nation’s progress in meeting its austerity plan to qualify for the next installment of bailout aid, which could come in October. Greece has said it only has cash to cover its obligations for a couple more weeks, which is causing some uneasiness regarding a potential default of the troubled nation’s debt.

In light economic news in the region, eurozone construction output rose 1.4% m/m in July, after falling a favorably revised 1.3% in June, while UK home prices rebounded by 0.7% m/m in September, after dropping 2.1% in August.

The UK FTSE 100 Index is decreasing 1.9%, France’s CAC-40 Index and Germany’s DAX Index are declining 2.9%, Switzerland’s Swiss Market Index is trading 1.4% lower, and Greece’s Athex Composite Index is dropping 2.7%.

Asia lower amid continued European debt uneasiness

The equity markets in Asia finished with solid, broad-based losses, as eurozone debt concerns remained a drag on sentiment, as the weekend meeting between EU finance ministers failed to instill confidence that policymakers in the region have a handle on solving the sovereign debt crisis. Also, traders treaded with some caution ahead of this week’s monetary policy meeting by the US Federal Reserve. Meanwhile, volume in Asia was lighter than usual, with the markets in Japan closed for a holiday and there were no major economic releases today. South Korea’s Kospi Index fell 1.0% and Australia’s S&P/ASX 200 Index dropped 1.6%. Finally, China’s Shanghai Composite Index declined 1.8% and the Hong Kong Hang Seng Index dropped 2.8%.