Morning Market Update

Earnings and Data Helping the Bulls Rebound

The US equity markets are pointing higher in early action, with sentiment being buoyed by some better-than-expected earnings from Dow members IBM Corp, Coca-Cola Co, and Johnson & Johnson, while finding some support from a favorable read on housing starts and building permits. Meanwhile, traders are digesting some key 2Q results from the financial sector, with Dow member Bank of America Corp posting an inline loss and Wells Fargo & Co reporting mixed results, while Goldman Sachs Group Inc missed the Street’s estimates. Treasuries are mixed amid the equity and economic reports, and as the US debt ceiling and eurozone contagion concerns remain. Overseas, Asian stocks finished mixed, with technology issues gaining ground, while European markets are nicely higher amid some optimism on the earnings front.

As of 8:50 a.m. ET, the September S&P 500 Index Globex future is 9 points above fair value, the Nasdaq 100 Index is 25 points above fair value, and the DJIA is 90 points above fair value. WTI crude oil is $1.43 higher at $97.36 per barrel, and the Bloomberg gold spot price is down $4.22 at $1,600.56 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.4% at 75.11.

Dow member Bank of America Corp. (BAC $10) announced a 2Q net loss of $0.90 per share, inline with the consensus estimate of analysts surveyed by Reuters, with revenues of $13.2 billion exceeding the $12.3 billion that the Street had estimated. BAC said the results were driven by charges related to the recently announced agreement to resolve nearly all of the legacy mortgage-backed securities issues pertaining to its acquisition of Countrywide, along with other mortgage-related costs.

However, the company said it intends to continue its efforts to “put the mortgage uncertainty behind us,” and build capital. Moreover, BAC said credit costs continue to decrease, its capital ratios are above prior guidance, and liquidity levels “remain strong.” Also, the company’s global banking and markets unit posted record investment banking fees and its wealth & investment management segment achieved record asset management fees.

Goldman Sachs Group Inc. (GS $129) achieved 2Q profits of $1.85 per share, compared to the $2.27 that the Street had projected, with revenues decreasing 17.6% year-over-year (y/y) to $7.3 billion, below the $8.2 billion that analysts had expected.

Wells Fargo & Co. (WFC $27) announced 2Q EPS of $0.70, two cents above what analysts were looking for, but revenues declined 4.7% y/y to $20.4 billion, compared to the $20.5 billion that the Street had estimated.

International Business Machines Corp. (IBM $175) reported 2Q EPS ex-items of $3.09, exceeding the $3.03 that analysts had projected, with revenues increasing 12% y/y to $26.7 billion, above the $25.3 billion that the Street had anticipated. The Dow member said its software and systems & technology units posted revenue growth of 17%, while its services segment saw sales rise by 10%. IBM raised its full-year EPS outlook.

Dow component Coca-Cola Co. (KO $67) posted 2Q earnings ex-items of $1.17 per share, slightly above the $1.16 that analysts forecasted, with revenues jumping 47% y/y to $12.7 billion, topping the $12.4 billion that the Street expected.

Fellow Dow member Johnson & Johnson (JNJ $67) announced 2Q EPS ex-items of $1.28, compared to the $1.24 that analysts had estimated, with revenues of $16.6 billion, versus the $16.2 billion that the Street had anticipated.

Housing starts and building permits top expectations

Housing starts for June jumped 14.6% month-over-month (m/m) from a downwardly revised 549,000 annual rate of units in May, to a rate of 629,000 units, and compared to expectations of economists surveyed by Bloomberg, which called for starts to come in at 575,000. Also, building permits unexpectedly increased, gaining 2.5% m/m in June to an annual rate of 624,000, after May’s downward revision to a 609,000 rate. The expectation was for permits to come in at 595,000 units.

Treasuries are mixed in morning action following the data and as traders grapple with the US debt ceiling issue, as the yields on the 2-year and 10-year notes are advancing 2 bps to 0.38% and 2.95%, respectively, while the 30-year bond rate is 1 bp lower at 4.30%. Schwab’s

Europe higher as earnings are in focus

The equity markets in Europe are nicely higher in afternoon action, with technology and financial issues leading the way as some of the focus on the eurozone debt crisis is being cast on the earnings front, with US Dow member IBM’s better-than-expected 2Q report lending some support. Also, Novartis AG (NVS $61) is moving nicely higher to help prop up the healthcare sector after the pharmaceutical company posted profits that exceeded analysts’ forecasts. Meanwhile, the earnings optimism is helping keep the sovereign debt concerns relatively contained ahead of Thursday meeting of euro-area leaders to discuss the crisis and a plan to help debt-laden Greece. Elsewhere, Spain, which is in the contagion crosshairs, conducted a debt auction which roughly raised its target capital amount, but yields that the nation had to pay increased.

The advance across the pond is overshadowing some disappointing data, with the German ZEW Survey of investor confidence falling more than economists had forecasted, while shares of Electrolux AB (ELUXY $44) are sharply lower after the appliance maker posted disappointing profits.

The UK FTSE 100 Index is gaining 0.6%, France’s CAC-40 Index is rising 1.4%, Germany’s DAX Index is advancing 1.3%, and Spain’s IBEX 35 Index is moving 1.5% to the upside.

Asia mixed as technology issues help limit global debt concerns

Stocks in Asia finished mixed as sentiment continued to be hampered by the inability of US lawmakers to agree on the debt ceiling issue and the growing eurozone debt contagion uneasiness. Export issues came under pressure to lead Japan’s Nikkei 225 Index 0.9% lower, while China’s Shanghai Composite Index fell 0.7% on weakness in financial issues. However, technology stocks gained some ground to help limit losses on the heels of IBM’s favorable 2Q earnings report, and South Korea’s Kospi Index finished flat. Meanwhile, the Hong Kong Hang Seng Index rose 0.5%, aided by strength in oil stocks. Finally, Australia’s S&P/ASX 200 Index dipped 0.1%, with traders digesting the minutes from the Reserve Bank of Australia’s (RBA) July policy meeting, which showed that the RBA may be holding off on resuming its rate-hike campaign longer than some expected. The RBA’s report noted that, “The flow of recent information suggested both that there was more time to assess the likely strength in inflationary pressures in Australia and that it would be prudent to use that time.”