Morning Market Update

Mixed Bag of Data Has Markets Fractionally Above the Flatline

The US equity markets are modestly higher in morning action as traders are digesting mixed results from the corporate and economic fronts. On the positive side of the ledger, tech stalwarts Apple Inc and Dow member IBM both posted better-than-expected earnings reports, while building permits jumped nearly 17% to easily exceed economists’ forecasts. However, financials are finding some resistance to a revenue shortfall from Goldman Sachs and inline earnings from Wells Fargo & Co. Moreover, housing starts fell more than expected in December to keep the outlook for the housing sector lackluster. Treasuries are higher amid the data, which also showed mortgage applications increased on a rise in refinancing. Overseas, Asia moved higher on the heels of the US earnings reports out of the tech sector and ahead of key economic data in China, while Europe is lower in reaction to the data out of the US.

As of 8:47 a.m. ET, the March S&P 500 Index Globex future is 1 point above fair value, the Nasdaq 100 Index is 5 points above fair value, while the DJIA is 21 points above fair value. Crude oil is $0.55 higher at $92.86 per barrel, and the Bloomberg gold spot price is up $9.13 at $1,377.38 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.9% at 78.32.

Apple Inc. (AAPL $341) reported fiscal 1Q EPS of $6.43, well above the $5.39 that analysts surveyed by Reuters had anticipated, with revenues jumping from $15.7 billion a year ago to $26.7 billion, exceeding the $24.3 billion that the Street had forecasted. The company said international sales accounted for 62% of the period’s revenue and it sold 7.3 million iPads during the quarter. Elsewhere, AAPL said it sold 4.1 million Macs in 4Q, representing a 23% increase year-over-year (y/y) and sales of iPhones surged 86% y/y to 16.2 million units, while sales of its iPods declined 7% y/y to 19.5 million. For 2Q, the company issued EPS and revenue guidance that topped analysts’ forecasts.

Meanwhile, Dow member International Business Machines Corp. (IBM $151) posted 4Q EPS of $4.18, ten cents above the Street’s expectations, as revenues rose 7% y/y to $29.0 billion, above the $28.3 billion that was forecasted by analysts. The company achieved 11% y/y growth in software revenue, excluding divestitures, its systems and technology sales jumped 21%, and its services revenues grew 2%, while its system z mainframe revenues surged 69%. The technology firm said revenues in the Americas rose 9% y/y, and its sales in Asia-Pacific increased 14%, but in Europe/Middle East/Africa, revenues declined 2%. Elsewhere, revenues from the company’s growth markets gained 15%, while sales in the BRIC countries—Brazil, Russia, India and China—rose 19%. IBM issued better-than-expected full-year 2011 EPS guidance.

Meanwhile, a plethora of earnings reports were released out of the financial sector, headlined by Goldman Sachs Group Inc. (GS $175), which announced 4Q EPS of $3.79, compared to the $3.77 that analysts had expected, with revenues of $8.6 billion coming in just shy of the $9.0 billion that the Street was looking for. Moreover, Wells Fargo & Co. (WFC $32) posted 4Q earnings of $0.61 per share, matching expectations, while revenues of $21.5 billion modestly exceeded the $21.1 billion that was forecasted.

Housing starts and building permits mixed, mortgage applications rise

Housing starts for December came in below expectations, falling 4.3% month-over-month (m/m) from a downwardly revised 553,000 annual rate of units in November, to a rate of 529,000 units, and compared to expectations of economists surveyed by Bloomberg, which called for starts to come in at 550,000. However, building permits exceeded expectations, jumping 16.7% m/m in December to an annual rate of 635,000, after November’s upwardly revised 544,000 rate. The expectation was for permits to increase to 554,000 units.

In other housing news, the MBA Mortgage Application Index increased by 5.0% last week, after the index that can be quite volatile on a week-to-week basis, rose 2.2% in the previous week. The increase came as a 7.7% gain in the Refinance Index offset a 1.9% decline in the Purchase Index. The advance in the overall index also came as the average 30-year mortgage rate dipped 1 basis point to 4.77%, above the record low of 4.21% on October 8.

Treasuries are higher in morning action following the housing data, with the yields on the two-year note and 10-year note declining 1 bp to 0.58% and 3.36%, respectively, while the 30-year bond yield is decreasing 2 bps to 4.55%.

Europe lower as technology issues slip

The equity markets in Europe are mostly lower in afternoon action, with technology shares posting a decline despite last night’s favorable profit reports from the sector in US, while the mixed housing data and disappointing results from the financial sector in the US pushed markets below the flatline. Meanwhile, European truck makers are finding some pressure to bog down the markets after European Union (EU) authorities launched cartel raids on the sector, per Reuters. Economic news across the pond is relatively light, but separate reports showed UK jobless claims unexpectedly fell in December, and euro-zone construction output declined in November. Elsewhere, euro-area debt concerns remain in focus as traders continue to grapple the notion that the EU’s euro-area bailout fund will not be expanded at least for the time being, and another successful debt auction out of Portugal, which drew lower borrowing costs and respectable demand for the troubled nation’s debt.

The UK FTSE 100 Index is 0.3% lower, France’s CAC-40 Index is down 0.2%, and Germany’s DAX Index is declining 0.1%, while Portugal’s PSI 20 Index is gaining 0.5%.

Asia mostly higher on the heels of US earnings and ahead of China data

Stocks in Asia posted gains as technology shares led the way following the better-than-expected earnings reports from US tech bellwethers Apple Inc and IBM, with South Korea’s Kospi Index rising 0.9% to another record high. However, the focus was on China ahead of tomorrow’s 4Q GDP report and data on inflation. China’s Shanghai Composite Index rose 1.8% and Hong Kong’s Hang Seng Index gaining 1.1%. Economists surveyed by Bloomberg are forecasting China’s 4Q GDP expanded by 9.4% y/y, a slight slowdown from 9.6% in 3Q, and consumer prices are expected to slow from a 5.1% y/y increase in November to 4.6%, helping soothe some concerns about an overheating of the economy, which has prompted China’s central bank to deploy monetary policy tightening measures to try to thwart runaway inflation and the formation of asset bubbles. Meanwhile, Australia’s S&P/ASX 200 Index increased 0.7% as strength in mining and financial issues helped stocks show some resilience in the face of a solid drop in the nation’s consumer confidence for January. Elsewhere, Japan’s Nikkei 225 Index gained 0.4%, aided by the aforementioned upbeat tech earnings in the US.