Morning Update

Earnings Continue to Excite

Stocks are higher in morning action as the Street is digesting a slew of earnings reports from several Dow members, highlighted by Caterpillar's trouncing of analysts' estimates and upbeat EPS guidance. Treasuries are lower as equities are finding continued demand amid the plethora of profit reports, as Coca-Cola, DuPont, Merck& Co, and United Technologies all posted better-than-expected earnings to help buoy the Dow Jones Industrials. Moreover, Texas Instruments posted favorable EPS for 2Q, and outside the earnings front, CIT Group confirmed that it has reached a deal with major bondholders to provide $3 billion in rescue financing. Traders are also waiting for Federal Reserve Chairman Ben Bernanke's semi-annual testimony on Capitol Hill, although the Fed Chief did provide some details ahead of time regarding reining in the stimulus measures. Overseas, Europe is higher for the seventh-straight session, while Asia was mixed.

As of 8:52 a.m. ET, the September S&P 500 Index Globex futures contract is 5 points above fair value, the Nasdaq 100 Index is 2 points above fair value, and the DJIA is 52 points above fair value. Crude oil is up $0.96 at $64.94 per barrel, and gold is up $1.47 at $950.17 per ounce.

Dow member Caterpillar (CAT $37 ¹) announced 2Q EPS ex-items of $0.72, well above the $0.22 estimate of analysts surveyed by Reuters, but revenues fell 41% versus the period a year ago to $8 billion. The company said its profit, despite the sharp decline in sales, reflects its response to the severe global recession and the continued deployment of its economic trough strategy. CAT added that there is still a great deal of economic uncertainty, but it is seeing signs of stabilization that it hopes will set the foundation for an eventual recovery. Credit markets have improved significantly, and it is seeing signs that fiscal and monetary stimulus efforts, particularly in China, are beginning to work, the company said as it raised its full-year EPS guidance to a range above analysts' estimates.

Coca-Cola (KO $51) reported 2Q comparable EPS of $0.92, down 9% compared to last year reflecting a negative currency impact, but ahead of the Street's estimate which called for the Dow member to report EPS of $0.89. Revenues fell 9% to $8.3 billion, which came in below the Reuters estimate of $8.6 billion, but the company said it saw strong worldwide unit case volume growth.

Dow member DuPont (DD $28) announced 2Q EPS ex-items of $0.61, above the $0.53 estimate that the Street had forecast, as consolidated net sales fell 22% to $6.9 billion, principally reflecting 19% lower volume. DD said its aggressive actions to improve productivity and cut costs across the company are paying off as it contends with continued weak demand in key segments. The company reaffirmed its full-year EPS guidance.

Merck & Co. (MRK $28) reported 2Q EPS ex-items of $0.83, topping the $0.77 Reuters estimate, and worldwide revenues declined 3% to $5.9 billion. The Dow component said its results were driven by solid operational performance with significant growth from key products Singulair, Januvia, Janumet, and Isentress. MRK reaffirmed its full-year EPS guidance.

Texas Instruments (TXN $24) reported 2Q EPS ex-items of $0.25, two cents above the Street's forecast, as revenues of $2.5 billion also topped analysts' estimates of $2.4 billion. The company said its analog segment was the biggest driver of sequential growth this quarter and after sharp inventory corrections in its markets during the prior two quarters, its revenue levels are beginning to more closely reflect end demand. TXN offered 3Q EPS guidance that topped analysts' expectations.

Dow member United Technologies (UTX $55) posted 2Q EPS of $1.05, one penny ahead of the Street's forecast, as revenues fell 17% to $13.2 billion. The aerospace and building technology company said benefits from cost reduction actions accelerated in the quarter and substantially offset the impact of a $2.7 billion revenue decline. UTX lowered its full-year revenue guidance and the high end of its previous EPS forecast.

Outside of the earnings front, CIT Group (CIT $1 1) confirmed that it reached an agreement with bondholders for $3 billion in rescue financing—helping the firm restructure its finances and possibly stave off filing for Chapter 11 bankruptcy protection.

Bernanke set to testify on Capitol Hill

Treasuries are lower in morning action as there are no major economic reports scheduled for release today. However, traders will likely be paying close attention to Federal Reserve Chairman Ben Bernanke's semi-annual monetary policy report before the House Financial Services Committee at 10 a.m. ET. The Fed's exit strategy of it massive amounts of stimulus measures deployed to try to stem the global recession seems to be the main focus of the Street as the Fed takes to Capitol Hill. But Bernanke offered some comments before his testimony in a Wall Street Journal Article, saying that the Federal Reserve will need to rein in accommodative measures to prevent inflation as a recovery takes hold, though the pace and timing will depend on the strength of the economy. "Overall, the Federal Reserve has many effective tools to tighten monetary policy when the economic outlook requires us to do so. As my colleagues and I have stated, however, economic conditions are not likely to warrant tighter monetary policy for an extended period," Bernanke said in the article dated July 20. The Fed chief offered two ways to tighten policy: raising the interest rate on bank reserves held at the Fed, and reducing the overall stock of reserves.

Europe poised for seven in a row

Stocks in Europe are in the green for a seventh-consecutive session on continued upbeat sentiment toward the health of the economy as several key companies are reporting better-than-expected profit reports. Retailers are getting a lift by an 8% jump in shares of UK food company William Morrison Supermarkets (MRWSY $22) after it said full-year results will be ahead of earlier expectations after gaining market share from competitors. Elsewhere, Switzerland's largest biotech firm, Actelion (ALIOF $54) is up solidly after it increased its full-year sales and earnings forecast, while Volvo (VOLVY $7) is under pressure after the world's second-largest truck maker posted a wider-than-expected 2Q loss and said it is confronting a difficult 3Q.

Asia mixed ahead of key US earnings reports

Stocks in Asia were mixed as traders treaded cautiously before a plethora of key US corporate earnings reports that are set to be reported today on Wall Street. Hong Kong's Hang Seng Index and Australia's S&P/ASX 200 Index finished near the unchanged mark, while China's Shanghai Composite Index fell 1.6% and South Korea's Kospi Index rose 0.7%. However, stocks in Japan posted solid gains as traders got back to work after sitting out yesterday's rally due to a holiday. The Nikkei 225 Index and the broader Topix Index both gained 2.7% led by metals and mining firms as the first wave of corporate earnings reports came in mostly better than expected, boosting optimism about the recovery in the global economy, which typically benefits demand for commodity-related issues. In equity news, Australia's largest electronics retailer, Harvey Norman, fell over 6% after it reported same-store sales rose 2% for the three months ended in June, compared to the 5% increase analysts surveyed by Bloomberg expected. Elsewhere, shares of Honda Motor (HMC $27) gained 3% after Japan's second-largest automaker said it will increase overtime at two plants to meet demand.