Morning Update

In the Green Before Fed Comes Into the Scene

Stocks are nicely higher in morning action, gaining ground ahead of the conclusion of the Federal Reserve’s monetary policy meeting this afternoon as traders are eagerly awaiting the central bank’s policy statement for clues to a stimulus exit strategy, which may have an impact on the viability of the economic recovery. Equities are advancing despite a slightly higher-than-expected drop in private sector payrolls as earnings continue to top analysts’ expectations. Dow member Kraft Foods topped earnings estimates, but its sales were softer than expected, while Time Warner and Comcast both exceeded profit projections. In other equity news, General Motors announced that it will not sell its European auto unit to Canadian firm Magna International. Treasuries are lower ahead of a key service sector report, and overseas, markets are higher.

As of 8:52 a.m. ET, the December S&P 500 Index Globex future is 7 points above fair value, the DJIA is 63 points above fair value, and the Nasdaq 100 Index is 7 points above fair value. Crude oil is higher by $0.81 at $80.41 per barrel, and the Bloomberg gold spot price is up $5.95 at $1,090.35 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.4% to 76.06.

Dow member Kraft Foods (KFT $28) reported 3Q EPS from continuing operations of $0.55, topping the $0.48 estimate of Wall Street analysts, with revenues of $9.8 billion coming up short of the Street’s $10.3 billion estimate. The company said it continues to build its operating and financial momentum despite the difficult consumer environment. KFT increased its full-year EPS guidance but the soft sales performance is weighing on shares in morning action.

Time Warner Inc. (TWX $30) announced adjusted 3Q earnings of $0.61 per share, compared to the $0.53 that analysts had forecast, as revenues declined 6% from last year to $7.1 billion, which was inline with the Street’s expectation. The media conglomerate said its revenue decline came as lower revenues at its AOL, and the publishing and filmed entertainment segments more than offset growth at its networks unit. TWX raised its full-year EPS outlook and said it continues to plan on spinning off its AOL unit in December. Shares are higher.

Comcast Corp. (CMCSA $15) posted 3Q EPS ex-items of $0.28, three cents above the Street’s expectation, with revenues increasing 3% versus last year to $8.8 billion, matching analysts’ estimates. The cable company said its revenue growth was due to solid results at all of its operating segments. Shares are higher.

In other equity news in North America, General Motors announced that it will not sell its European unit called Opel to Canadian auto parts maker Magna International (MGA $40), citing improving business conditions and the strategic importance of Opel.

Private sector jobs fall more than expected, Fed statement lies ahead

ADP reported that private sector jobs fell 203,000 in October, more than the Bloomberg estimate of a loss of 198,000 jobs, but September’s 254,000 decline was favorably revised to a 227,000 decrease. The ADP report is the first read on employment conditions this week, which will culminate with the labor report from the Bureau of Labor Statistics, which is scheduled for release on Friday and expected to show 175,000 jobs were shed from nonfarm payrolls in October, and the unemployment rate rose from 9.8% to 9.9%. However, the ADP report has not been a reliable gauge of the labor report, although adjustments have been made recently. Weekly initial jobless claims will be the next piece of employment data to precede the labor report, expected to decrease by 8,000 to 522,000 tomorrow (economic calendar). Treasuries remained lower following the report.

In other economic news, the US MBA Mortgage Application Index rose 8.2% last week, after the index, which can be quite volatile on a week-to-week basis, declined 12.3% in the previous week. The advance was attributed to a 7 basis-point decline in the average 30-year mortgage rate to 4.97% versus the previous week, and the Refinance Index, which jumped 14.5%. However, to the Purchase Index fell 1.8% to limit the advance. The average 30-year mortgage rate remains above the record low of 4.61% that was reached at the end of March and well below the 6.47% it sat at a year ago.

Elsewhere, the ISM Non-Manufacturing Index will be released later this morning and is expected to have increased to 51.5 in October from 50.9 in September. The report is the companion to the ISM Manufacturing Index released on Monday, which showed a much better-than-expected rise to 55.7 in October from 52.6 in September, versus the forecast of a reading of 53.0. A reading above 50 indicates economic expansion.

Meanwhile, the headlining economic event today will likely be the conclusion of the two-day Federal Open Market Committee (FOMC) meeting with the release of the statement mid-day today. No changes are expected to interest rate policy at the meeting but traders will meticulously scour the Fed’s statement for any hints or clues pointing to any potential time frame on when it will begin to rein in its massive stimulus efforts and what impact this could have on the continuation of the economic recovery.

Key profit reports boost European trading

Stocks in Europe are nicely higher in afternoon action, led by a plethora of favorable earnings reports from around the eurozone. Shares of Societe Generale (SCGLY $13) are up over 5% after France’s second-largest bank by market value reported earnings that more than doubled compared to last year and exceeded the expectation of analysts surveyed by Bloomberg. Also in France, shares of the country’s second-biggest automaker Renault (RNSDF $47) are nicely higher after Nissan Motor (NSANY $14)—of which Renault has a 44% stake—posted upbeat earnings and an improved outlook in Asia. Meanwhile, UK retailers are solidly higher after the nation’s largest clothing retailer Marks & Spencer (MAKSY $11), and number-two UK clothing retailer Next Plc (NXGPY $14), both posted profits that exceeded analysts’ estimates. The economic front is also helping lift sentiment in the UK, as a report showed consumer confidence in the region held at a 1 ½ year high, per Bloomberg.

Asia rises modestly on earnings news

Stocks in Asia were mostly higher, led by South Korea’s Kospi Index and Hong Kong’s Hang Seng Index advancing 1.9% and 1.8%, respectively, after an improved reading of Hong Kong’s Purchasing Managers Index for October, and as financials were supported by Korea Exchange Bank posting earnings that nearly doubled the expectation of analysts surveyed by Bloomberg. The upbeat report sent shares up about 8%. Japan’s Nikkei 225 Index finished 0.4% higher after the Japanese markets returned to trading following yesterday’s holiday, with a 10% jump in shares of Japan Steel Works (JPSWY $114) after the maker of nuclear-reactor parts boosted its full-year operating profit forecast. Meanwhile, following the closing bell in Japan, the nation’s third-largest automaker, Nissan Motor, reported better-than-expected quarterly profits and favorably revised its full-year forecast and raised its Chinese sales projection by 25%. Elsewhere, Australia’s S&P/ASX 200 Index rose a modest 0.2% as an unexpected decline in the nation’s retail sales limited enthusiasm, partially offsetting strength in shares of Westpac Banking Corp. (WBK $115) after it posted better-than-expected earnings. Rounding out the day in the Asia/Pacific Region, China’s Shanghai Composite Index rose 0.5%, while developed Eastern Asian nations received support from the World Bank’s increased growth forecast for the group.