US equity markets are looking to rally in early action, after dire predictions for the jobs report were not met and after posting the worst decline yesterday since December 2008. Job growth of 117,000 in July was better than forecast and June's figures were revised upward, prompting Treasuries to move lower. Meanwhile, the eurozone debt crisis also remains top of mind, with emergency meetings today providing some salvation but continued disagreement by politicians amid tepid help from the European Central Bank, which today added to purchases of Portuguese and Irish debt made yesterday but continued to avoid buying Spanish or Italian debt, has traders treading cautiously. In equity news, Dow component Procter & Gamble and Viacom Inc beat the Street and priceline.com Inc posted a blowout quarter. Overseas, Asian stocks finished solidly lower following the losses in other regions yesterday, while European equities are trimming early losses.
As of 8:46 a.m. ET, the September S&P 500 Index Globex future is 10 points above fair value, the Nasdaq 100 Index is 16 points above fair value, and the DJIA is 94 points above fair value. WTI crude oil is $0.16 higher at $86.79 per barrel, and the Bloomberg gold spot price is up $5.37 at $1,651.89 per ounce. Elsewhere, the Dollar Index-a comparison of the US dollar to six major world currencies-is lower by 0.4% to 74.97.
Procter & Gamble (PG $60) reported 4Q EPS of $0.84, beating the Street estimate of $0.82 per share on revenues of $20.86 billion, that also bested estimates. Organic sales - which exclude the impact of currency, acquisitions and divestitures - rose 5% year-over-year (y/y), with higher prices and volume both adding 3%, respectively. Volume growth of 3% during the quarter was slower than the 6% achieved over the full year period but the CEO said that they have not seen any dramatic changes in consumer behavior recently. The company gave a forecast for next fiscal year organic growth of 3-6%, "generally inline with prior estimates," but offered 1Q guidance that was below analyst estimates.
Viacom Inc (VIA.B $45) reported 3Q earnings of $0.97 per share on revenue growth of 15% y/y to $3.77 billion, higher than the Street's estimates of $0.86 EPS and $3.52 billion in sales. The company noted strong performance in its networks division for the performance.
priceline.com Inc (PCLN $542) shares are nicely higher after beating the Street by posting 2Q EPS of $5.02 on revenue growth of 44% y/y to $1.1 billion. The company said that gross bookings, the value of all travel services purchased online, jumped a better-than-expected 70%, while international bookings surged 98%, the best rate of growth in at least two and a half years with currency adding to the gain, while domestic bookings grew 13%. Additionally, the company gave a bullish forecast, calling for 3Q earnings of $9.10-9.30 per share, higher than analyst EPS estimates of $7.98.
July job growth a positive surprise, consumer credit to follow
Nonfarm payrolls rose by 117,000 month-over-month (m/m) in July, compared to the consensus estimate of economists surveyed by Bloomberg, which forecasted an 85,000 increase, and the initial 18,000 gain seen in June was revised upward to a growth of 46,000 jobs. Additionally, excluding government hiring and firing, private sector payrolls increased by 154,000 in July, versus the forecast of a gain of 113,000, after expanding by an upwardly adjusted 80,000-from an initially reported 57,000 gain-in June. The unemployment rate unexpectedly fell to 9.1%, compared to expectations for the rate to remain at 9.2%. Additionally, average hourly earnings rose 0.4% versus the Street's forecast of a 0.2% increase, while average weekly hours came in unchanged at 34.3, matching expectations.
Treasuries moved generally lower following the employment data, with the yield on the two-year note up 3 bps to 0.28%, the yield on the 10-year note 3 bps higher at 2.43%, while the 30-year bond yield is flat at 3.68%.
The US economic calendar will continue with the 3:00 p.m. ET release of consumer credit, forecast to grow $5.0 billion in June following a $5.1 billion increase in May.
Europe lower amid continued sovereign debt worries
While global growth worries have held markets hostage this week, the eurozone debt crisis has also raised concerns on trading floors globally. However, debt markets in Spain and Italy received somewhat of a reprieve after an emergency phone call between France's Sarkozy, Germany's Merkel and Spain's Zapatero was scheduled for today, with Zapatero calling for a speedier implementation of accords reached in July. Elsewhere, the Dutch Finance Minister said that "now is the time to take action" on July decisions, and European Union's Rehn added that "focus must be on implementation of existing measures" and that both G7 and G20 coordination is of "critical importance" to find a solution to current turmoil. Meanwhile, Rehn's call for an increase in the size of the current bailout fund, the European Financial Stability Facility, was dismissed by the German Economy Minister and a spokesperson for Merkel's bloc in parliament added that calling in parliament early or "loading new proposals onto us is just not going to fly."
The European Central Bank (ECB) restarted its Securities Markets Program yesterday by purchasing Portuguese and Irish debt, and was reported to be adding to those positions again today, but the failure to buy Spanish or Italian debt was seen as a disappointment. Meanwhile, the ECB's Trichet said that Italy must show that it is "ahead of the curve" in taming its debt and ECB council member Luc Coene said that the ECB is ready to relieve the situation, but that "first the countries (governments) have to take steps," adding that "It doesn't make sense to pour water into a bucket with a hole in it."
Adding to the debt worries were fresh economic data showing continued sluggish growth after Germany's industrial production in June fell 1.1% despite forecasts for a modest rise, Italian factory output unexpectedly dropped 0.6% in June, and Italy reported 2Q GDP of 0.3% that matched estimates. Elsewhere, producer prices in the UK rose at the fastest pace since 2008 in July, although the figure was only slightly higher than expected.
In equity news, banking shares continued their rout after the Royal Bank of Scotland Group Plc (RBS $9) dropped solidly after the bank reported a first-half net loss that was wider than analysts had estimated, Allianz SE (AZSEY $11), Europe's largest insurer according to Bloomberg, missed forecasts and Franco-Belgian bank Dexia SA (DXBGY $2) reported it biggest quarterly loss in its history.
The UK FTSE 100 Index is down 1.8%, France's CAC-40 Index up 0.1%, Germany's DAX Index is declining 1.6%, and Greece's Athex Composite Index is falling 2.2%, while Spain's IBEX 35 Index is rising 1.3% and Italy's FTSE MIB Index is 1.0% higher.
Asia plunges, follows yesterday's action in the US and Europe
Stocks in Asia finished solidly to the downside amid the rising worries about a slowdown in global growth. An illustration of the concerns was embodied in the revised forecast by the Reserve Bank of Australia, which lowered its growth forecast for the nation to 2% from its previous estimate of 3.25%, while also raising its outlook for inflation to 3.5% from 3.25%. Meanwhile, Australia's resource-oriented S&P/ASX 200 Index, which declined 4.0%, also came under pressure after Rio Tinto PLC (RIO $61) reported 35% increase in first-half profit that missed the expectations of analysts, and the company announced a $2 billion expansion in its existing share buyback program. Elsewhere, Japan's Nikkei 225 Index fell 3.7%, despite the Bank of Japan's (BoJ) intervention in the currency market yesterday in the hopes of weakening the yen to help exporters after a surging yen is threatening the nation's recovery. After the yen's fall was partially reversed, officials reiterated that they will continue to take "appropriate" measures when necessary. Elsewhere, the BoJ upgraded its assessment of Japan's economy for the third time in a row. There was good news on the earnings front in Japan, after Rakuten (RKUNF $1100), the nation's largest online retailer, posted earnings that beat expectations.
Elsewhere, Hong Kong's Hang Seng Index dropped 4.3% after Cheung Kong (CHEUY $15), Hong Kong's second-biggest property developer by market value reported first-half net income that fell short of estimates, and conglomerate Hutchinson Whampoa also missed expectations. Elsewhere, China's Shanghai Composite fell 2.2%, India's BSE Sensex 30 Index fell 2.2% and South Korea's Kospi Index dropped 3.7%, prompting South Korean officials to hold an emergency meeting on August 7th to discuss the global economy and market turmoil.
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