Morning Market Update

Data Comes to the Rescue

The US equity markets are higher in early action following yesterday’s solid decline that came courtesy of Standard & Poor’s downgrading the US credit rating outlook, fueled by a plethora of favorable data from the earnings and economic fronts. Goldman Sachs Group Inc easily exceeded analysts’ earnings and revenue projections, along with Dow member Johnson & Johnson, helping offset disappointing reports from Texas Instruments Inc and Harley-Davidson Inc. Also contributing to the morning move to the upside, housing starts and building permits both increased to levels that exceeded economists’ forecasts. Treasuries are modestly lower in the wake of the upbeat data. Meanwhile, NASDAQ OMX Group Inc and IntercontinentalExchange announced that they have demonstrated their commitment to acquire NYSE Euronext. Overseas, Asia finished mostly lower following yesterday’s downgrade of the US credit rating outlook, while upbeat data is supporting an advance in Europe.

As of 8:47 a.m. ET, the June S&P 500 Index Globex future is 3 points above fair value, the Nasdaq 100 Index is 6 points above fair value, and the DJIA is 34 points above fair value. WTI crude oil is $1.25 lower at $106.44 per barrel, and the Bloomberg gold spot price is down $2.59 at $1,492.71 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.5% at 75.16.

Goldman Sachs Group Inc. (GS $154) announced 1Q EPS 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.

Dow member Johnson & Johnson (JNJ $60) 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.

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.

Harley-Davidson Inc. (HOG $40) 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.

In M&A news, NASDAQ OMX Group Inc. (NDAQ $28) and IntercontinentalExchange (ICE $120) 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 and DBOEY have not commented on the announcement. (NYX $38), submitting a proposed merger agreement that is consistent with the previously agreed combination with
Housing starts and building permits hit levels that exceed 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 expectations of economists surveyed by Bloomberg, which called for starts to come in at 520,000. Also, building permits jumped, increasing 11.2% m/m in March to an annual rate of 594,000, after February’s favorable revision to a 534,000 rate. The expectation was for permits to increase to 540,000 units.

Treasuries are slightly lower in morning action following the housing and earnings data, with the yields on the 2-year and 10-year notes 1 bp higher to 0.67% and 3.38%, respectively, while the 30-year bond yield is flat at 4.46%.

Europe higher on earnings results

The equity markets in Europe are higher in afternoon action, led by several better-than-expected earnings reports across the pond. Consumer goods issues are pacing the advance on the heels of a solid gain in shares of Burberry Group Plc. (BURBY $38) after the UK’s largest luxury retailer posted quarterly sales the topped analysts’ forecasts and issued an upbeat outlook. Also, helping the group, shares of LVMH Moet Hennessy Louis Vuitton (LVMUY $32) are nicely higher after the world’s largest luxury goods maker reported sales that exceeded estimates. Moreover, industrials are moving higher, supported by a sharp increase in shares of SKF AB (SKFRY $28) after the world’s largest maker of ball bearings reported earnings that topped projections.

Meanwhile, the economic calendar is offering some assistance to 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 is offsetting a separate report that showed euro-zone consumer confidence deteriorated more than economists expected.

The UK FTSE 100 Index is 0.8% higher, France’s CAC-40 Index is up 0.9%, and Germany’s DAX Index is advancing 0.7%.

Asia lower on reports out of the US

Stocks in Asia were mostly lower following the US credit rating outlook downgrade by Standard & Poor’s, and the disappointing earnings report from US-based Texas Instruments, which pressured chipmakers. Japan’s Nikkei 225 Index dropped 1.2% amid the uneasiness toward the fiscal problems in the US, which also pressured stocks in Australia, as the S&P/ASX 200 Index fell 1.4%. Meanwhile the equity markets in China moved solidly lower, with the Hong Kong Hang Seng Index declining 1.3% and the Shanghai Composite Index falling 1.9%. Elsewhere, South Korea’s Kospi Index faired relatively better, as a solid gain in shares of LG Display Co. Ltd. (LPL $16) helped limit losses to 0.7% after the world’s second-largest maker of flat screens, per Bloomberg, reported a smaller-than-forecasted loss and issued a favorable outlook. However, stocks in India managed to eke out a gain, with the BSE Sensex 30 Index rising 0.2%, aided by optimism toward the nation’s lenders on the heels of a solid gain in shares of HDFC Bank Ltd. (HDB $170) after the country’s third-largest lender posted better-than-expected profits.