Morning Market Update

Stocks Lower as the Street Grapples Economic Outlook

The US equity markets are lower in early action as traders are contemplating what lies ahead for the economy as global central bank monetary policies are diverging and US fiscal issues continue to loom over Capitol Hill. Meanwhile, earnings news remains for the Street to digest, with Dow member Pfizer Inc reporting mixed results, while Chesapeake Energy severely missed analysts’ revenue expectations. Moreover, Sears Holdings Corp posted a drop in 1Q same-store sales and forecasted a steep loss for the quarter. Treasuries are modestly higher amid the early decline in the equity markets, ahead of a report on factory orders. Elsewhere, overseas action is not providing much support, as Asian markets were lower amid some disappointing earnings reports and as India raised interest rates by a larger amount than expected, while European stocks are lower in afternoon trading with automakers and mining companies finding some pressure.

As of 8:49 a.m. ET, the June S&P 500 Index Globex future is 3 points below fair value, the Nasdaq 100 Index is 2 points below fair value, and the DJIA is 21 points below fair value. WTI crude oil is $1.27 lower at $112.25 per barrel, and the Bloomberg gold spot price is down $0.25 at $1,545.20 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.2% to 73.18.

Dow member Pfizer Inc. (PFE $21) reported 1Q EPS ex-items of $0.60, compared to the $0.59 consensus estimate of analysts surveyed by Reuters, with revenues roughly flat year-over-year (y/y) at $16.5 billion, just below the $16.6 billion that the Street was looking for. The company said its results were negatively impacted by the loss of exclusivity of its drugs Lipitor in Canada and Spain, and Aricept in the US, while growth of its patent-protected products including Lyrica, Spiriva, and Celebrex aided results. PFE reaffirmed its full-year guidance.

Sears Holdings Corp. (SHLD $84) reported that its 1Q same-store sales—sales at stores open at least a year—fell 3.6% y/y, driven by appliances which were boosted by the Cash for Appliances rebate program last year, and apparel which experienced slow spring/summer sales due in part to worse weather than the prior year. The company also said consumer electronics also declined and it expects to report a net loss of $1.35-1.81 per share after reporting EPS of $0.14 last year. Analysts were expecting the company to post 1Q EPS of $0.03. However, the company reported that its Board of Directors approved the repurchase of up to an additional $500 million in the company’s common stock.

Chesapeake Energy Corp. (CHK $33) posted adjusted 1Q EPS of $0.75, five cents above the expectations of analysts, but revenues fell 42% y/y to $1.6 billion, well below the $2.6 billion that the Street had forecasted, led by a steep decline in natural gas and oil sales.

Factory orders due out after the opening bell

Treasuries are modestly higher amid the decline in the equity markets and ahead of a read on manufacturing, with the yield on the 2-year note down 1 bp to 0.59%, the yield on the 10-year note 3 bps lower to 3.25%, and the 30-year bond declining 2 bps to 4.36%.

Shortly after the opening bell, the economic calendar will yield the release of factory orders, forecasted to rise 2.0% month-over-month (m/m) in March, after declining slightly by 0.1% in February.

Some profit taking hampering European action

The equity markets in Europe are lower in afternoon action as traders are booking some profits from the recent string of advances that have been seen across the pond amid the backdrop of mostly better-than-forecasted earnings reports. The UK markets returned to action after sitting out the last couple of trading sessions due to public holidays, but stocks in the region are modestly lower after a report showed the UK PMI Manufacturing Index decelerated more than economists forecasted for April. Meanwhile, automakers are under some pressure amid worries that Germany could impose a new tax on company cars in the nation. Also, German stocks are under pressure amid a solid decline in shares of Hannover RE (HVRRY $29) after the reinsurer cut its earnings forecast. Elsewhere, mining issues are lower to drag on the European markets amid a decline in copper prices out of London. In other economic news, euro-zone producer prices came in hotter-than-expected y/y in March. In other equity news, Infineon Technologies (IFNNY $11) is nicely higher after the chipmaker boosted its full-year outlook, and shares of Man Group (MNGPY $4) are moving solidly to the upside after the world’s largest publicly-traded hedge fund said it raised $1.5 billion for a new fund in Japan.

The UK FTSE 100 Index is down 0.1%, France’s CAC-40 Index is down 0.6%, and Germany’s DAX Index is declining 0.8%.

Asia mostly lower as earnings and central banks in focus

Stocks in Asia finished mostly lower as the enthusiasm regarding the death of Osama bin Laden faded and traders focused on earnings reports and central bank actions in the region. However, trading was lighter than usual with the Japanese markets closed for a holiday. Australia’s S&P/ASX 200 Index declined 0.8%, pressured by weakness in shares of Australia & New Zealand Banking Group Ltd (ANZBY $26) after the lender posted earnings that missed analysts’ forecasts. Also, the losses in Australia came as the Reserve Bank of Australia kept its benchmark interest rate unchanged at 4.75% as expected, saying the appreciation in its currency will help hold down prices for some consumer products but over the longer term, inflation can be expected to increase somewhat if economic conditions evolve broadly, as expected.

However, India’s BSE Sensex 30 Index led the decline in the region, falling 2.4%, after the nation’s central bank raised its interest rate by 50 basis points (bps) to 6.25%, compared to the expected 25 bps increase to 6.00% by economists, as it expects inflation to stay at an “elevated level.” Elsewhere, Taiwan’s Taiex Index decreased 0.7% after shares of Hon Hai Precision Industry Co Ltd (HNHAF $5) moved solidly lower after the largest global contract maker of electronics, per Bloomberg, reported profits that missed expectations. Meanwhile, South Korea’s Kospi Index fell 1.3% on weakness in automakers and airlines, while stocks in China were mixed, with the Hong Kong Hang Seng Index declining 0.4% and the Shanghai Composite Index rising 0.7%.