Evening Market Update

Housing Data Helps to Recoup Some Losses

US equities rebounded a bit from yesterday’s losses to finish higher, aided by better-than-expected housing data and some positive reports on the earnings front. Housing starts and building permits both exceeded economists’ forecasts, while Goldman Sachs Group and Dow member Johnson & Johnson easily exceeded analysts’ earnings and revenue projections. However, Texas Instruments and Harley-Davidson disappointed investors with their respective reports. In other earnings news, IBM and Intel reported earnings after the close that bested analysts’ estimates. Meanwhile, NASDAQ OMX Group and IntercontinentalExchange solidified their commitment to acquire NYSE Euronext by submitting a revised merger proposal. Treasuries finished modestly higher.

The Dow Jones Industrial Average gained 65 points (0.53%) to 12,267, the S&P 500 Index was 7 points (0.6%) higher at 1,313, and the Nasdaq Composite added 10 points (0.4%) to 2,745. In modest volume, 848 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.59 to $108.28 per barrel, wholesale gasoline was $0.02 lower at $3.23 per gallon, and the Bloomberg gold spot price increased $1.50 to $1,496.80 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies— was 0.6% lower at 75.49.

After the close, IBM (IBM $165) beat analysts’ forecasts by reporting 1Q operating EPS of $2.41, on revenues of $24.6 billion, also topping expectations, while Intel Corp. (INTC $20) reported 1Q EPS of $0.59, above the $0.46 consensus estimate of analysts surveyed by Reuters, on revenues of $12.8 billion, higher than the $11.6 billion projection.

Goldman Sachs Group Inc. (GS $152) announced 1Q EPS, excluding a $1.64 billion preferred dividend, of $1.56, well above the $0.82 consensus estimate of analysts surveyed by Reuters, and although revenues declined 7% year-over-year (y/y) to $11.9 billion, they were above the $10.2 billion that the Street was forecasting. The company said its results benefitted from generally improving market and economic conditions, and it continues to see encouraging indications for economic activity globally. Revenues at its fixed income, currency and commodities trading unit fell 28% compared to a “particularly strong” 1Q a year ago, and equities trading revenues were also down y/y. But investment management revenues rose and its investing and lending unit benefited from an increase in global equity prices and favorable credit markets. Shares gave up an early gain and were lower. 

Dow member Johnson & Johnson (JNJ $63) posted 1Q earnings ex-items of $1.35 per share, above the $1.25 that the Street had anticipated, with revenues increasing 3.5% year-over-year (y/y) to $16.2 billion, compared to the $15.8 billion that analysts expected. The company said its domestic sales declined 0.6% y/y, while international sales increased 7.3%, with its pharmaceuticals business showing strong growth. JNJ increased its full-year EPS outlook. JNJ traded nicely higher.

Texas Instruments Inc. (TXN $35) reported 1Q EPS ex-items of $0.57, one penny below analysts’ estimates, with revenues increasing 6% y/y to $3.4 billion, inline with the Street’s forecasts. The company said the quarter started strong with customer demand in January and February tracking above-seasonal growth, but the Japan earthquake disrupted local demand and together with substantially weaker demand for wireless broadband chips resulted in lower revenue. Also, TXN said higher expenses resulting from the earthquake affected earnings. The company issued 2Q EPS guidance that came in below analysts’ projections as costs resulting from the tragedy in Japan are expected to negatively impact earnings. TXN was lower.

Harley-Davidson Inc. (HOG $38) achieved 1Q profits of $0.51 per share, three cents below the estimate of analysts, with revenues increasing 2.5% y/y to $1.1 billion, compared to the $1.0 billion that was expected on the Street. The company said its revenues from its motorcycles grew 3% y/y, led by strength in Europe, even as it continues to encounter some headwinds in the US related to the challenging macro-economic conditions, and it is maintaining a cautious outlook for the year. Shares of HOG were solidly lower.

In M&A news, NASDAQ OMX Group Inc. (NDAQ $27) and IntercontinentalExchange (ICE $119) announced that they have demonstrated their commitment to acquire NYSE EuronextDeutsche Boerse (DBOEY $8). The companies said they are prepared to pay a termination fee of $350 million, in the event that they are unable to obtain necessary antitrust and competition approvals and they have received fully committed financing of $3.8 billion for a group of leading institutions. NYX confirmed it received the revised proposal and it said it will review it in due course, while DBOEY said it believes its merger plan is the best industry solution. DBOEY and NYX were higher in US trading, while ICE and NDAQ were lower. (NYX $39), submitting a proposed merger agreement that is consistent with the previously agreed combination with
Housing starts and building permits rise to levels that exceeded expectations

Housing starts for March rose 7.2% month-over-month (m/m) from an upwardly revised 512,000 annual rate of units in February, to a rate of 549,000 units, and compared to the increase to 520,000 expected by a Bloomberg survey of economists. Also, building permits jumped, increasing 11.2% m/m in March to an annual rate of 594,000, above the 540,000 expectation and while February’s figure was upwardly revised to a 534,000 rate. Building permits is one of the leading indicators tracked by the Conference Board as it is a gauge of future construction. The data comes before tomorrow’s March existing home sales report, which reflects closings from contracts entered one to two months earlier, which is forecasted to rise 2.5% m/m to an annual rate of 5.0 million units.

Today’s report was positive, but the level of both permits and starts remain at a low level, with single family starts remaining at a level below that of every month in 2010, despite rising 7.7%, and while single-family permits increased 5.7% to a 405,000 rate, they also are near last month’s record low of 383,000. New home sales have struggled to compete with the steep price discounts of foreclosures. Housing affordability has benefitted from these price declines, as well as low mortgage rates.
In addition to the existing home sales report, the only other item on tomorrow’s US economic docket is MBA Mortgage Applications.

Treasuries finished modestly higher despite the housing and earnings data, with the yields on the 2-year and 10-year notes down 2 bp to 0.64% and 3.36%, repectively, while the yield on the 30-year bond was down 3 bps to 4.43%.

European economic news helps sentiment

The economic calendar across the pond aided the advance in Europe, headlined by unexpected increases in PMI Manufacturing reports out of France and Germany—Europe’s largest economy—which helped the euro-zone also post a surprising acceleration in manufacturing activity. The favorable reads on manufacturing activity offset a separate report that showed euro-zone consumer confidence deteriorated more than economists expected.

Sentiment in the Asia/Pacific region was mostly negative following the US credit rating outlook downgrade by Standard & Poor’s and the disappointing earnings report from US-based Texas Instruments. Economic news was in short supply, as March consumer confidence in Japan fell, while Hong Kong’s unemployment rate came in slightly better than forecasts at 3.5% for the month of March.

Economic news out of the US’ neighbor to the north was mixed, as Canada’s CPI came in at a hotter-than-expected 1.1% m/m for March, nearly double what a Bloomberg survey of economists had expected, wholesale sales declined triple what was anticipated during February, while the nation’s leading index rose 0.8% m/m during March, above the 0.5% forecasted.

Tomorrow’s international calendar will include: German PPI and industrial orders out of Italy, while Sweden’s central bank will conclude its monetary policy meeting where economists are expecting policymakers to bump its benchmark interest rate by 25 bps to 1.75%, and the Bank of England will release the minutes from its last policy meeting. Further east, Japan will report its trade balance and Tertiary Industry Index, and the Conference Board Leading Economic Index for China will be released.