Evening Market Update

Earnings Reports Translate to Equity Gains

The US equity markets are solidly higher in early action as the bulls are getting their sustenance from a plethora of better-than-expected earnings reports, highlighted by results from Dow members IBM, Intel Corp, and United Technologies Corp. Moreover, technology issues are receiving some additional support from Yahoo Inc’s earnings that exceeded expectations. In other earnings news, Dow component AT&T Inc posted profits and revenues that were inline with expectations. Treasuries are lower in morning action amid the upbeat sentiment in the equity markets, ahead of the release of existing home sales, and following a rise in mortgage applications. Overseas, chipmakers helped Asian stocks move higher on the report from Intel, which is also helping technology issues pace a strong advance in Europe, along with some favorable reports across the pond.

As of 8:50 a.m. ET, the June S&P 500 Index Globex future is 18 points above fair value, the Nasdaq 100 Index is 38 points above fair value, and the DJIA is 162 points above fair value. WTI crude oil is $1.56 higher at $109.84 per barrel, and the Bloomberg gold spot price is up $5.66 at $1,502.06 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.9% at 74.38.

Dow member International Business Machines Corp. (IBM $165) reported 1Q EPS ex-items of $2.41, above the $2.29 consensus estimate of analysts surveyed by Reuters, with revenues rising 8% year-over-year (y/y) to $24.6 billion, exceeding the $24.0 billion that the Street had forecasted. The company said it saw revenue growth across its hardware, software and services units, with more than 40 countries growing in the double-digits. IBM increased its full-year EPS outlook.

Dow component Intel Corp. (INTC $20) posted 1Q EPS ex-items of $0.59, well above the $0.46 that analysts were anticipating, as revenues rose 25% y/y to $12.9 billion, also easily exceeding the $11.6 billion that the Street had projected. The chipmaker said its revenue was an all-time record, fueled by double-digit annual revenue growth in every major product segment and across all geographies, while the average selling price for its microprocessors was up quarter-over-quarter (q/q). INTC issued 2Q revenue guidance that topped analysts’ estimates.

United Technologies Corp. (UTX $82) achieved 1Q profits of $1.11 per share, beating the $1.06 Street estimate, with revenues growing 11% y/y to $13.3 billion, above the $12.9 billion expectation of analysts. The Dow member said it had broad-based organic growth—excluding acquisitions, divestitures and foreign currency translations—and the global economic recovery continues to gain traction. The industrial conglomerate raised its full-year EPS outlook and said it expects revenues to be at the high end of its previous guidance.

AT&T Inc. (T $30) announced 1Q earnings of $0.57 per share, inline with what was expected, but revenues, although rising 2.3% y/y, came in at $31.2 billion, also roughly matching analysts’ projections. The Dow member said it had 10.2% y/y growth in wireless revenues as it saw its “best ever” 1Q increase in wireless subscribers, which rose by 2 million. The company also had a 2.4% y/y increase in average monthly revenue per subscriber (ARPU) for its postpaid subscribers—customers under contract that are more highly valued over prepaid subscribers.

Yahoo Inc. (YHOO $16) reported 1Q EPS ex-items of $0.19, three cents above the forecast of analysts, with revenues excluding traffic acquisition costs (TAC) declining 6% y/y to $1.1 billion, roughly inline with expectations. YHOO issued 2Q guidance that matched analysts’ expectations.

Mortgage applications rise, existing home sales later this morning

The MBA Mortgage Application Index rose by 5.3% last week, after the index that can be quite volatile on a week-to-week basis, declined by 6.7% in the previous week. The increase came as the Refinance Index rose 2.7%, complimenting a 10.0% gain in the Purchase Index, while the average 30-year mortgage rate moved lower by 15 basis points (bps) to 4.83%.

Treasuries are lower in morning action amid the plethora of favorable earnings reports, with the yield on the 2-year note up 2 bps at 0.67%, the yield on the 10-year note 3 bps higher at 3.39%, and the 30-year bond yield advancing 2 bps to 4.45%.

Later this morning, the US economic calendar will yield the release of existing home sales, forecasted to increase 2.5% month-over-month (m/m) in March to an annual rate of 5.00 million units.

Europe nicely higher as earnings foster economic optimism

The equity markets in Europe are solidly higher in afternoon action, led by technology issues in the wake of Dow member Intel Corp’s upbeat earnings release, while a plethora of profit reports in the US and across the pond are boosting optimism about the global economy. The optimism is overshadowing a recent flare-up in US fiscal concerns and festering euro-zone debt worries, which were soothed somewhat by today’s successful bond auction in Spain a key peripheral euro-area nation that has been feared to be in need of a bailout. Meanwhile, some corporate reports in Europe are also helping sentiment with shares of Peugeot SA (PEUGY $38) moving nicely higher after Europe’s second-largest carmaker, per Bloomberg, posted better-than-forecasted sales, along with cosmetics maker L’ Oreal SA (LRLCY $25), which is also rising solidly.

Moreover, the economic calendar in Europe is helping sentiment, with reports showing producer prices in Germany—Europe’s largest economy—rose at a smaller rate than economists forecasted, and Italy’s industrial orders increased by an amount much higher than expected. In other economic news, the Bank of England released the minutes from its monetary policy meeting earlier this month, showing policymakers continue to be split between maintaining the current benchmark interest rate at 0.5% and increasing the rate.

The UK FTSE 100 Index is 2.2% higher, France’s CAC-40 Index is gaining 2.5%, Germany’s DAX Index is rising 2.8%, and Spain’s IBEX 35 Index is advancing 1.8%.

Asia moves higher following upbeat US data

Stocks in Asia moved broadly higher on the heels of some better-than-forecasted earnings and housing data out of the US yesterday, which helped boost optimism regarding the US economy. Chipmakers were lifted by Intel Corp’s report yesterday before Asian markets opened, while commodity-related issues also gained ground as metals and crude oil prices rose amid some renewed global economic optimism. Japan’s Nikkei 225 Index rose 1.8%, despite a report that showed the nation’s exports fell twice the amount forecasted by economists in March, led by shipments of autos in the month the massive earthquake and tsunami hit the nation, disrupting production in a key region north of Tokyo.

Elsewhere, the gains in commodities issues helped Australia’s S&P/ASX 200 Index advance 1.4%, while stocks in China also posted increases, with the Shanghai Composite Index rising 0.3% and the Hong Kong Hang Seng Index gaining 1.6%. Moreover, South Korea’s Kospi Index jumped 2.2% to a record high, aided by strength in the chip sector, which helped Samsung Electronics Co. Ltd. (SSNLF $800) move solidly higher, along with yesterday’s announcement that it will sell its hard-disk drive business to US-based Seagate Technology (STX $18) for about $1.4 billion. Finally, Thailand’s SET Index rose 1.1%, even after the nation’s central bank monetary policy meeting, in which it increased its benchmark interest rate by 25 bps to 2.75%, as expected, citing rising inflationary pressures.