Morning Market Update

Earnings Enthusiasm Energizes Equities

The US equity markets are higher in early action, with mostly better-than-forecasted earnings results supporting sentiment, headlined by reports from Dow member 3M Co, along with Ford Motor Co. Treasuries are modestly higher despite the gains in stocks, after a report showed US home prices fell again, ahead of reads on consumer confidence and manufacturing activity in Richmond. In other earnings news, Dow member Coca-Cola Co missed the Street’s earnings and revenue estimates, UPS beat analysts’ bottomline forecasts, but came up just shy on the topline, while Netflix Inc offered a disappointing outlook, which is overshadowing its better-than-estimated 1Q results. Overseas, Asia came under pressure on several fronts, while Europe is higher after UBS posted much higher-than-expected client fund inflows into its core wealth management unit.

As of 8:41 a.m. ET, the June S&P 500 Index Globex future is 6 points above fair value, the Nasdaq 100 Index is 6 points above fair value, and the DJIA is 42 points below fair value. WTI crude oil is $0.24 higher at $112.52 per barrel, and the Bloomberg gold spot price is down $1.88 at $1,505.35 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.2% at 73.91.

Dow member Coca-Cola Co. (KO $68) reported 1Q EPS ex-items of $0.86, below the $0.87 consensus estimate of analysts surveyed by Reuters, with revenues jumping 40% year-over-year (y/y) to $10.5 billion, compared to the $10.6 billion that the Street had forecasted.

Fellow Dow member 3M Co. (MMM $94) posted 1Q EPS of $1.49, above the $1.44 that analysts were expecting, with revenues increasing 15% y/y to $7.3 billion, compared to the $6.9 billion that the Street had estimated. The company noted that sales in emerging markets were strong and it was able to “more than overcome” the impact of the massive earthquake and tsunami in Japan. MMM raised its full-year EPS outlook.

Ford Motor Co. (F $16) achieved 1Q earnings ex-items of $0.62 per share, well above the $0.50 that the Street projected, as revenues increasing 18% y/y to $33.1 billion, above the $30.6 billion that analysts anticipated.

Netflix Inc. (NFLX $252) announced 1Q EPS of $1.11, four cents above the Street’s estimates, with revenues growing 46% y/y to $719 million, exceeding the $706 million that analysts had forecasted. However, the online movie and TV subscription service company issued 2Q EPS guidance that missed analysts’ expectations.

United Parcel Service Inc. (UPS $74 1) reported 1Q profits of $0.88 per share, exceeding the $0.85 that analysts had expected, as revenues rose 7.2% y/y to $12.6 billion, compared to the $12.7 billion that the Street was looking for.

Home prices decline, consumer confidence and regional manufacturing reports on deck

Just before the opening bell, the S&P/Case-Shiller Home Price Index was released showing a decline in home prices of 3.33% y/y in February, compared to the 3.30% drop that economists surveyed by Bloomberg had expected. Month-over-month (m/m), home prices were 0.18% lower, compared to forecasts, which called for a decline of 0.40%.

Treasuries are modestly higher following the home price data, with the yield on the 2-year note unchanged at 0.64%, while the yield on the 10-year note is down 1 bp to 3.35%, and the 30-year bond yield is declining 2 bps to 4.44%.

Later this morning, the economic calendar will yield the releases of the Consumer Confidence Index, forecasted to increase from 63.4 in March to 64.5 in April, and the Richmond Fed Manufacturing Index, expected to remain at 20 for April.

Also, the Federal Open Market Committee (FOMC) will begin its two-day monetary policy meeting, with no major changes expected to the Fed’s stance and the statement will be released earlier than usual on Wednesday, at 12:30 p.m. EST, followed by the first post-statement news conference and Q&A session led by Fed Chair Bernanke beginning at 2:15 p.m. EST.

Europe higher following holiday break

The equity markets in Europe are higher in afternoon action, with financials showing some strength as shares of UBS AG (UBS $19) are solidly higher after Switzerland’s largest bank reported that its wealth management unit attracted the most inflows of client funds since the end of 2007, per Bloomberg. UBS’ results in its core business unit were more than double analysts’ forecasts. However, basic materials are lagging behind to limit gains in the region amid a pullback in metals prices. Moreover, some M&A action is helping sentiment, with shares of Italy’s largest dairy company Parmalat SpA (PLATF $3) moving sharply higher after French diary firm Lactalis announced a 3.38 billion euro ($4.9 billion) bid to acquire the remaining shares of the company that it does not already own. Finally, Spain, a key peripheral nation that has been feared to be near a bailout, conducted a short-term debt auction, and although the yield that it had to pay rose, stocks in the nation are nicely higher.

In economic news across the pond, a read on UK business optimism improved by a smaller amount than economists forecasted, and a separate reports showed the 2010 euro-zone debt-to-GDP ratio rose from 79.3% to 85.1%.

The UK FTSE 100 Index is 0.4% higher, France’s CAC-40 Index is gaining 0.3%, Germany’s DAX Index is up 0.5%, Italy’s FTSE MIB Index is advancing 0.7%, Switzerland’s Swiss Market Index is rising 0.4%, and Spain’s IBEX 35 Index is increasing 0.8%.

Asia finds pressure from multiple fronts

Stocks in Asia finished lower following media reports that China raised capital requirements for its top five lenders, some disappointing earnings releases, and commodity issues falling victim to some profit taking as metals prices declined, while some strength in the Japanese yen pressured the nation’s export stocks. China’s Hong Kong Hang Seng Index declined 0.5% and the Shanghai Composite Index fell 0.9%, exacerbated by a solid decline in shares of China Life Insurance Co. (LFC $56) after the company reported a steep drop in 1Q profits. Meanwhile, Japan’s Nikkei 225 Index fell 1.2%, as the decline was amplified by weakness in shares of Nintendo Co. (NTDOY $30) after the video game console maker issued a disappointing outlook. Moreover, Japan reported that its department store sales during March, when the tragedy hit the nation, fell 14.7% y/y. Elsewhere, South Korea’s Kospi Index declined 0.4% amid the negative sentiment in the region, ahead of tomorrow’s release of its 1Q GDP, expected to show a quarter-over-quarter (q/q) rate of expansion of 1.5%, after output grew 0.5% in 4Q, and a y/y rate of expansion of 4.2%, a slight deceleration from the 4.7% pace seen in the previous quarter. Markets in Australia remained closed for a holiday.