Morning Market Update

Earnings and Retail Sales Supplying the Spring in a Rebound

Taking their cue from overseas trading, the US equity markets are higher in early action to follow yesterday’s solid declines. Better-than-forecasted earnings and revenues from Dow member JPMorgan Chase & Co, along with favorable gains and revisions to key components of the US retail sales report, are aiding sentiment in early action. Treasuries are lower amid the data and the advance in the equity markets, which offset another decline in mortgage applications. However, a read on business inventories and a look at business conditions in the US Federal Reserve districts are slated to be released later today. Overseas, Asia posted broad-based gains amid strength in automakers, while European stocks are nicely higher in afternoon action, supported by upward moves in technology and industrials.

As of 8:47 a.m. ET, the June S&P 500 Index Globex future is 8 points above fair value, the Nasdaq 100 Index is 17 points above fair value, and the DJIA is 73 points above fair value. WTI crude oil is $0.61 higher at $106.86 per barrel, and the Bloomberg gold spot price is up $7.79 at $1,460.76 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is flat at 74.85.

Dow member JPMorgan Chase & Co. (JPM $47) reported 1Q EPS of $1.28, above the $1.16 consensus estimate of analysts surveyed by Reuters, and although revenues declined 8% year-over-year (y/y) to $25.8 billion, the top line results were higher than the $25.2 billion that the Street expected. JPM said its earnings benefited by $0.29 per share from reduced credit card loan loss reserves, but profits were negatively impacted by losses from mortgage servicing asset adjustments and expenses for estimated costs of foreclosure-related matters, totaling $0.26 per share.

The company’s Chairman and CEO Jamie Dimon said the firm’s results reflected a strong quarter across its investment banking unit and solid performance from its card services, commercial banking, Treasury & securities services, and asset management businesses. He added that these results partially benefitted from improved credit trends, and it intends to meet the global Basel III capital requirements “substantially ahead of time,” but unfortunately losses from mortgage-related issues “will continue for a while.”

Retail sales rise, mortgage applications fall, Fed business activity report set for afternoon

Advance retail sales for March rose 0.4% month-over-month (m/m), just below the 0.5% increase that was forecasted by economists surveyed by Bloomberg, but February’s 1.0% gain was revised to a 1.1% advance. March sales ex-autos increased 0.8%, topping expectations of a 0.7% increase, and February’s 0.7% rise was revised nicely higher to a 1.1% gain. Sales ex-autos and gas gained 0.6% in March, versus the 0.5% increase that was anticipated, and its February figure was revised from a 0.6% increase to a 0.9% gain.

In other economic news, the MBA Mortgage Application Index decreased by 6.7% last week, after the index that can be quite volatile on a week-to-week basis, declined by 2.0% in the previous week. The decrease came as the Refinance Index fell 7.7%, accompanied by a 4.7% drop in the Purchase Index, and the average 30-year mortgage rate moved higher by 5 basis points (bps) to 4.98%.

Treasuries are lower in morning action following the data, with the yield on the 2-year note up 2 bps at 0.77%, the yield on the 10-year note 5 bps higher at 3.54%, and the 30-year bond yield advancing 4 bps to 4.62%.

Later this morning, the US economic calendar will yield the release of business inventories, forecasted to increase 0.8% m/m in February, after gaining 0.9% in January.

Moreover, in afternoon action, we will get the release of the Federal Reserve Beige Book, wherein Fed staffers summarize anecdotal economic data from all twelve Federal Reserve districts in preparation for the next Federal Open Market Committee (FOMC) meeting scheduled for April 26-27.

Europe nicely higher following yesterday’s losses

Stocks in Europe are solidly higher in afternoon action following the steep losses seen yesterday, with technology issues leading the way on the rebound in Asia and some favorable analyst comments in the sector. Also, industrials are finding support from an analyst upgrade of the building-material sector and a solid gain in shares of ThyssenKrupp (TYEKF $43) on a report by the Financial Times that Germany’s largest steelmaker may sell assets to improve its balance sheet. The company did not comment on the report. Meanwhile, financials are gaining solid ground to help the advance on the heels of the better-than-expected profit report from JPMorgan Chase & Co. out of the US.

The advance across the pond comes despite some unfavorable economic news, with a report showing euro-zone industrial production accelerated m/m in February, but the increase was below economists’ expectations. Moreover, UK jobless claims unexpectedly rose in March, while consumer prices in France and wholesale prices in Germany both came in hotter than forecasted.

The UK FTSE 100 Index and France’s CAC-40 Index are up 1.2%, while Germany’s DAX Index is increasing 1.3%.

Asia rebounds as carmakers lead the way

The equity markets in Asia finished broadly higher following yesterday’s declines as automakers gained solid ground in the region on the heels of an analyst upgrade of the sector, which sparked some bargain hunting in the region. However, trading was choppy as traders continued to try to estimate the economic impact of the March 11 earthquake and tsunami that hit Japan, and commodity-related issues found pressure amid the recent pullback in resource prices. Japan’s Nikkei 225 Index rose 0.9%, aided by a steep gain in shares of Tokyo Electric Power Co. (TKECY $7) after a report that liabilities of the operator of the damaged nuclear facility that continues to be threatened by a meltdown may be capped. But as a result, other utility companies may be forced to cover some of the losses, and shares of these firms came under pressure.

Meanwhile, stocks in China reversed early losses and finished higher, with real estate and banking shares leading the Shanghai Composite Index to a 1.0% gain and a 0.7% increase for the Hong Kong Hang Seng Index. Australian equities lagged behind amid the recent sell-off in commodity prices, and the S&P/ASX 200 Index rose 0.3%, but Energy Resources of Australia (EGRAF $8) moved sharply lower after the uranium miner that is controlled by Rio Tinto (RIO $72) forecasted a first-half loss. Elsewhere, South Korea’s Kospi Index jumped 1.6% amid the strong gains in the auto sector, despite the nation’s unemployment rate unexpectedly remaining at 4.0% and the Bank of Korea saying that inflation will likely increase by a higher amount than it previously forecasted. Finally, India’s BSE Sensex 30 Index rose 2.3% and Taiwan’s Taiex Index gained 0.6%.