Morning Market Update

Positive Data Helps Bulls Stumble to Their Feet

Stocks are higher in early action as the markets look to recover from yesterday’s broad-based selloff. Investors are finally welcoming some positive data from the domestic economic front, as the ADP Employment Change report showed a larger-than-expected increase in private sector jobs, while an increase in mortgage applications also bested forecasts. Some optimistic corporate earnings are also helping provide a crutch for the ailing equity markets, as Comcast, Time Warner, and CBS Corp all beat the Street’s 2Q EPS estimates, while Mastercard also managed to best top- and bottom-line estimates. Stocks in Asia finished sharply lower on the heels of yesterday’s US selloff, and amid some weak economic data out of China and Australia. Meanwhile, markets in Europe are lower as well, as the latest saga in the euro-debt crisis remains focused on Italy. Treasuries are lower to start the day following the employment and housing data, as the markets await the release of the ISM Non-Manufacturing Index and factory orders later this morning.

As of 8:55 a.m. ET, the September S&P 500 Index Globex future is 4 points above fair value, the Nasdaq 100 Index is 8 points above fair value, and the DJIA is 44 points above fair value. WTI crude oil is $0.38 lower at $93.41 per barrel, while the Bloomberg gold spot price is up $3.68 at $1,663.08 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is 0.1% lower at 74.05.

Comcast Corp. (CMCSA $23) reported 2Q earnings ex-items of $0.42 per share, one cent above the consensus estimate of analysts surveyed by Reuters, while revenues jumped 51% year-over-year (y/y) to $14.33 billion, above the $13.83 billion that the Street had anticipated. The high top-line growth was helped by the company’s acquisition of a majority stake in NBCUniversal, which saw a 13% increase in revenue for the quarter. CMCSA said its cable distribution business rose 5.6% y/y as it added 99,000 total video, internet and voice customers, up from 83,000 in the second quarter last year.

Time Warner Inc. (TWX $34) posted 2Q EPS ex-items of $0.60, four pennies above the Street’s estimate, with revenues increasing 10% y/y to $7.03 billion, compared to the $6.82 billion that analysts had expected. TWX benefitted from stronger advertising sales at its TV networks division, its largest business that includes cable channels such as CNN, as well as increased revenue growth at its film segment.

CBS Corp. (CBS $26) reported 2Q EPS ex-items of $0.58, beating the $0.45 consensus estimate of analysts surveyed by Reuters, with revenues increasing 7.7% year-over-year (y/y) to $3.59 billion, exceeding the $3.55 billion that the Street had forecasted. The media company said the quarter was driven by upfront ad sales and new licensing deals, with revenue at its entertainment unit rising 10% y/y and revenue at its cable networks climbing 12% y/y.

Mastercard Inc. (MA $298) announced 2Q EPS of $4.76, well above the $4.23 that analysts forecasted, with revenues increasing 22.1% y/y to $1.7 billion, above the $1.55 projected by the Street. The credit card transaction processor said gross dollar volume, or spending on MasterCard-branded cards, rose 16% y/y, on a local currency basis, while processed transactions jumped 17% y/y.

Private sector payrolls and mortgage applications rise, more data on tap

The ADP Employment Change Report showed private sector payrolls rose by 114,000 jobs in July, versus the forecast of economists surveyed by Bloomberg, which called for a 100,000 increase, and June’s 157,000 job gain was revised to a rise of 145,000 jobs. Services provided the biggest share of the gain, rising 121,000 in July, after increasing by 130,000 in June. The release, which does not include government hiring and firing, comes ahead of Friday’s broader nonfarm payrolls report, where economists expect an increase of 85,000 jobs in July, after posting a disappointing 18,000 increase in June. Excluding government hiring, July private sector payrolls are expected to increase 115,000, after expanding by 57,000 in June. The unemployment rate is forecasted to remain at 9.2% and average hourly earnings are anticipated to rise 0.2% month-over-month (m/m), after being flat in June.

Elsewhere, the MBA Mortgage Application Index rose 7.1% last week, after the index that can be quite volatile on a week-to-week basis, declined by 5.0% in the previous week. The decline came as a 7.8% rise in the Refinance Index was accompanied by a 5.1% increase in the Purchase Index. Elsewhere, the average 30-year mortgage rate moved lower by 12 basis points (bps) to 4.45%.

Later this morning, the economic calendar will yield the release of the ISM Non-Manufacturing Index, anticipated to increase to 53.5 in July from 53.3 in June, with 50.0 marking the level that separates expansion from contraction. The report is generally considered a measure of economic strength in the service sector and is the companion to the ISM Manufacturing Index, which was released on Monday, and posted a disappointingly large decline to 50.9 in July. Factory orders will also be released shortly, forecasted to fall 0.8% in June following a 0.8% increase in May.

Treasuries are modestly lower in morning action following the data, with the yield on the 2-year note up 1 bp to 0.33%, the yield on the 10-year note increasing 1 bp to 2.62%, while the 30-year bond rate is flat at 3.91%.

Europe trading mostly lower despite mostly positive data from services sector

European equities are in the red, as ongoing debt concerns in the region are overshadowing some mostly positive PMI services data. The service sectors in Italy and the UK both increased more than economists expected in July, while final readings out of France and Germany were unrevised from their previous readings. Italy’s latest debt concerns continue to make headlines, as Italian Prime Minister Silvio Berlusconi is set to meet with parliament today to discuss the crisis. Yields on Italian bonds hit an all-time high on Tuesday, but have come down slightly today, while the equity markets in Italy, Spain and Portugal have actually recovered some ground today. On the European currency front, the Swiss National Bank unexpectedly cut its target interest rate and said it would significantly increase the supply of Swiss francs in the market over the next few days, in an effort to stem the rapid rise in the currency, which is seen as a safe haven for investors.

In equity news across the pond, shares of French bank Societe Generale (SCGLY $9) are falling after the company warned it would struggle to meet its 2012 profit target. The bank took a 395 million euro pretax loss on its exposure to Greece due to its contribution to the troubled country’s bailouts, resulting in a 17.3% y/y increase in loan loss provisions.

The UK FTSE 100 Index is down 1.2%, France’s CAC-40 Index is 0.3% lower, Germany’s DAX Index is declining 1.0%, Spain’s IBEX 35 Index is up 1.0%, and Italy’s FTSE MIB Index is increasing 0.1%.

Asia follows US markets to solid losses

The Asia/Pacific equity markets moved sharply lower following the tumble in US stocks yesterday, while economic data out of China and Australia did little to help the regions cause. China’s services sector grew at its slowest pace in three months in July, according to the HSBC Services PMI Index, although the survey contrasts a services PMI released by the Chinese Federation of Logistics and Purchasing, which showed an increase to 59.6 in July from 57.0 in June, with the 50-point level demarcating expansion and contraction. China’s Shanghai Composite managed to finish the trading session mostly unchanged, while Japan’s Nikkei 225 Index fell 2.1%, Hong Kong’s Hang Seng Index slid 1.9% and South Korea’s Kospi Index dropped 2.6%, marking the largest decline in the region. Meanwhile, Australia’s S&P/ASX 200 Index declined 2.3%, the largest one-day loss in 14 months, following a report that showed a 0.1% dip in retail sales for June, short of the 0.3% rise forecasted by economists, while the country’s trade balance narrowed in June. Automakers in the region were among the biggest decliners on the day after reporting sharp declines in US sales for July yesterday. Toyota Motor Corp (TM $81) said sales declined 22.7% in the US in July, and reported it first quarterly loss in two years after the March 11th earthquake and tsunami virtually halter production.