Morning Market Update

Early Pressure Pared by US Economic Data

The US equity markets have pared a large portion of early losses and are nearly unchanged, following reports that showed US core consumer prices were cooler than economists forecasted and manufacturing activity in the New York region unexpectedly improved in April. Treasuries are higher following the data, ahead of reports on consumer sentiment and industrial production and capacity utilization. Meanwhile, corporate earnings reports are mostly to the negative side, with Dow member Bank of America and the world’s largest internet search engine Google Inc both missing analysts’ profit forecasts. In other equity news Mattel Inc matched the Street’s earnings forecasts and increased its dividend. Overseas, Asia was mixed after some stronger-than-expected inflation and GDP data out of China, which is also contributing to some diverging action in Europe.

As of 8:51 a.m. ET, the June S&P 500 Index Globex future is at fair value, the Nasdaq 100 Index is 9 points below fair value, and the DJIA is 10 points below fair value. WTI crude oil is $0.58 lower at $107.53 per barrel, and the Bloomberg gold spot price is up $0.31 at $1,474.46 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.2% at 74.87.

Dow member Bank of America Corp. (BAC $13 ¹) announced 1Q earnings of $0.17 per share, below the $0.26 consensus estimate of analysts surveyed by Reuters, with revenues falling 15.9% year-over-year (y/y) to $26.9 billion, but exceeding the $26.7 billion that the Street had forecasted. The company said its results for the quarter were positively affected by lower credit costs, gains from equity investments, and higher asset management and investment banking fees. BAC said these factors were partially offset by higher legacy mortgage-related costs, higher litigation expenses, and lower sales and trading revenue. Additionally, the company announced that Bruce Thompson will become the firm’s Chief Financial Officer.

Elsewhere, Google Inc. (GOOG $579) reported 1Q EPS ex-items of $8.08, slightly lower than the $8.10 estimate of analysts, while revenue ex-traffic acquisition costs (TAC) came in at $6.5 billion, which beat the $6.3 billion forecast. GOOG said capital expenditures were $890 million, due mainly to IT infrastructure spending, and it expects to continue to make “significant capital expenditures.” The world’s largest internet search engine said its paid clicks metric increased 18% y/y, while its cost-per-click rose 8% y/y. Also, the company continued to expand its headcount, adding 1,916 full-time employees in the first quarter, as its work force is now 28% larger than it was a year ago.

Moreover, Mattel Inc. (MAT $26) posted 1Q EPS of $0.05, inline with analysts’ forecasts, as revenues rose 8% y/y to $952 million, topping the $904 million that the Street had projected. The toymaker said its girls and boys business unit revenues rose 15% y/y, and also announced that it will pay a quarterly dividend of $0.23 per share, representing an annualized dividend of $0.92 per share, an increase of 11% y/y.

Core consumer prices cooler than expected, NY manufacturing activity unexpectedly rises

The Consumer Price Index showed prices at the consumer level were up 0.5% month-over-month (m/m) in March, matching the forecasts of economists surveyed by Bloomberg, and the increase seen in February. Meanwhile, the core rate, which strips out food and energy, was 0.1% higher m/m in March, compared to the estimate of a 0.2% increase, which was the rate of increase seen in February. On a y/y basis, consumer prices were 2.7% higher in March, up from 2.1% in February, and the core CPI was up 1.2% y/y, after rising by 1.1% in February. Economists expected headline CPI to come in at 2.6% and a core rate of 1.2% y/y.

Meanwhile, the Empire Manufacturing Index, a measure of manufacturing in the New York region, rose in April to a level of 21.70, compared to the estimates of economists, which expected a decrease to 17.00, from the previous month’s level of 17.50. The index moved further into expansionary territory depicted by a reading above zero. The report is the first major piece of data looking at manufacturing conditions in April.

Treasuries are higher in morning action following the data, with the yield on the two-year note down 5 bps to 0.71%, the yield on the 10-year note 7 bps lower to 3.43%, and the 30-year bond yield losing 5 bps to 4.50%.

Later this morning, the US economic calendar will yield the release of industrial productioncapacity utilization, with production expected to rise 0.6% m/m in March and utilization forecasted to increase from 76.3% in February to 77.4% in March. Also, we will get the preliminary University of Michigan Consumer Sentiment Index for April, expected to improve to 68.8 from 67.5 in March. and
Europe mixed as corporate results are being met with debt and inflation concerns

The equity markets in Europe are mixed in afternoon action as traders digest some favorable earnings reports in the region, while grappling with continued euro-area debt concerns and inflation worries. Shares of Nestle SA (NSRGY $60) are higher after the food company posted better-than-forecasted sales growth, and Syngenta AG (SYT $67) is also gaining ground after the agriculture chemicals firm reported larger-than-estimated revenues and offered an upbeat outlook as higher commodity prices should bolster demand. However, shares of Micro Focus International Plc. (MCFUF $5) are down sharply after the technology firm announced that its CEO has left the company.

Meanwhile, euro-area debt concerns were exacerbated by Moody’s Investors Service downgrading the sovereign credit rating of troubled nation Ireland, while keeping its outlook on the bailed-out nation negative. Also, inflation concerns are hampering sentiment across the pond, as a report showed euro-zone consumer prices came in hotter-than-forecasted in March, supporting the European Central Bank’s (ECB) interest rate hike last week, and exacerbating inflationary sentiment that was already agitated by some higher-than-expected inflation data out of India and China.

The UK FTSE 100 Index is 0.2% higher, France’s CAC-40 Index is down 0.3%, Germany’s DAX Index is gaining 0.4%, and Ireland’s Irish Overall Index is up 0.4%.

Asia mixed as traders mull hotter-than-forecasted Chinese data

Stocks in Asia finished mixed in the final trading session of the week as sentiment was torn between optimism of global economic growth and concerns of further monetary policy tightening in some of the emerging markets on the heels of data released out of China and India. China reported that its 1Q GDP expanded by 9.7% y/y, from 9.8% in 4Q and above economists’ expectations of 9.4% growth, while a separate report showed industrial production increased 14.8% y/y in March, above the 14.0% gain that was expected. However, inflation concerns in the region were supported by larger-than-forecasted readings of consumer and producer prices in China, which was followed by India’s wholesale prices increasing more than expected. Other reports from China included: retail sales exceeding economists’ forecasts, and fixed asset investment coming in above estimates. Stocks in China finished modestly to the upside, with the Shanghai Composite Index increasing 0.3% and the Hong Kong Hang Seng Index finishing unchanged, while India’s BSE Sensex 30 Index fell 1.6%.

The equity markets in other parts of Asia were mixed as well, with Japan’s Nikkei 225 Index declining 0.7% and South Korea’s Kospi Index closing nearly unchanged, while Australia’s S&P/ASX 200 Index dropped 0.7%.