Morning Market Update

Pressure Continues

US stocks remain under pressure amid resurfacing global economic worries and continued uneasiness toward the eurozone debt crisis and a potential default by Greece on its debt obligations. Treasuries are moving modestly higher as there are no major economic reports due out today, with the yields on the mid-to-long end of the curve extending their recent drop. Meanwhile, a pledge by the G-20 group of finance ministers and central bankers of the world’s largest economies to support the global economic and financial markets is doing little to restore confidence. In equity news, Dow member Hewlett-Packard Co appointed Meg Whitman as President and CEO, replacing Leo Apotheker, while Nike Inc posted stronger-than-expected 1Q results. Overseas, Asian equities came under pressure amid the growing concerns about the global economy and eurozone debt issues, which are also pressuring European stocks.

As of 8:51 a.m. ET, the December S&P 500 Index Globex future is 13 points below fair value, the Nasdaq 100 Index is 29 points below fair value, and the DJIA is 110 points below fair value. WTI crude oil is $1.70 lower at $78.81 per barrel, and the Bloomberg gold spot price is down $54.46 at $1,685.93 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is flat at 78.43.

Dow member Hewlett-Packard Co. (HPQ $23) announced that its Board of Directors has appointed former eBay Inc. (EBAY $32) Chief Executive Officer (CEO) Meg Whitman as President and CEO, replacing Leo Apotheker, effective immediately. HPQ said it is at “a critical moment and we need renewed leadership to successfully implement our strategy and take advantage of the market opportunities ahead.” HPQ added that Ray Lane has moved to Executive Chairman of the Board of Directors.

In earnings news, Nike Inc. (NKE $84) reported fiscal 1Q earnings of $1.36 per share, above the $1.21 consensus estimate of analysts surveyed by Reuters, with revenues rising 18% year-over-year (y/y) to $6.1 billion, exceeding the $5.7 billion that the Street had forecasted. The apparel and footwear maker said its NIKE brand revenues grew in every geography except Western Europe, which was flat due to the negative impact from changes in timing of shipments and comparisons to last year’s World Cup related sales. The company said as of the end of the quarter, worldwide futures orders for NIKE brand athletic footwear and apparel, scheduled for delivery from September 2011 through January 2012, are up 16% y/y to $8.5 billion.

Treasuries modestly higher as there are no major economic reports due out today

Treasuries are modestly higher in early action amid the declines in stocks and as there are no major US economic reports scheduled to be released today, with the yield on the 2-year note flat at 0.19%, the yield on the 10-year note 1 bp lower at 1.71%, and the 30-year bond rate declining 4 bps to 2.76%.

Treasury yields on the mid-to-long end of the curve had been pummeled in the last two days of trading. The pressure on yields followed the Federal Reserve’s monetary policy meeting, in which it noted that there are “significant downside risks” to the economic outlook, while announcing its latest policy measure of buying longer-term Treasuries and selling the same amount in shorter-term securities aimed at putting downward pressure on longer-term interest rates. Also, disappointing manufacturing data out of China and Europe, along with uncertainty regarding a Greek debt default and a continued lack of confidence that policymakers across the pond have the cohesion to combat the threat of contagion in a timely and effective manner have pressured the equity markets and bond yields.

More troubling is the potentially unique relationship we're seeing between stocks and the economy. Normally the stock market is a discounting mechanism, and its weakness could indeed be sending a message about future economic growth. But the stock market has also become a catalyst, and its weakness (and the attendant weakness in confidence) could actually be the trigger for another recession.

The rout in Europe continues amid economic and debt concerns

The equity markets in Europe are once again under heavy pressure on growing concerns regarding slowing economic growth and the festering threat of contagion of the euro-area’s sovereign debt crisis. Exacerbating the debt uneasiness, Moody’s Investors Service downgraded the ratings of eight Greek banks. Meanwhile, the Group of 20 (G-20) finance ministers and central bankers from the world’s major economies offered a pledge to “a strong and coordinated international response to address the renewed challenges facing the global economy,” while offering no new measures aimed at combating the debt crisis and stimulating the global economy. Also, European Central Bank (ECB) Governing Council member Luc Coene said the ECB may act to address the economic and debt crisis as soon as next month if economic data deteriorate further, per Bloomberg. However, stocks are finding little relief from the comments as there seems to be no sense of urgency among policymakers to do what is necessary.

The UK FTSE 100 Index is down 1.3%, France’s CAC-40 Index is dropping 1.9%, Germany’s DAX Index is falling 2.1%, Italy’s FTSE MIB Index is decreasing 1.4%, Switzerland’s Swiss Market Index is trading 1.7% lower, and Greece’s Athex Composite Index is tumbling 3.9%.

Asia falls amid global economic fears and eurozone debt uncertainty

Stocks in Asia finished broadly lower amid the elevated concerns regarding the global economy following yesterday’s data that showed a third-straight monthly contraction in China’s manufacturing activity and disappointing manufacturing reports out of Europe. Adding to the pressure was the growing lack of confidence in the eurozone’s ability to stem the debt crisis in the region. Meanwhile, the G-20 pledge to do all that is necessary to stabilize the banking system and financial markets had little impact on the exacerbated sentiment. Volume was lighter than usual as the Japanese markets were closed for a holiday. South Korean stocks led the declines, with the Kospi Index tumbling 5.7%, while Taiwan’s Taiex Index dropped 3.6%, as a report that showed the nation’s August industrial production came in below economists’ forecasts amplified the uneasiness.

Elsewhere, Australia’s S&P/ASX 200 Index fell 1.6% amid the increased concerns about recessions in the US and Europe and following a report that showed the country’s Leading Index declined for a second-consecutive month in July. Finally, stocks in China moved lower, with the Hong Kong Hang Seng Index declining 1.4% and the Shanghai Composite Index decreasing 0.4%, with a report on the nation’s business sentiment rebounding month-over-month in September, on improvements in the outlook for new orders and production, possibly helping limit losses.