Morning Update

Quarterly Reports Continue to Promote Optimism

Stocks are slightly higher in morning action as upbeat 2Q results from Ford, 3M, and AT&T are continuing to sweeten sentiment regarding the health of the corporate sector and what that means for an economic recovery. A smaller-than-expected increase in weekly initial jobless claims and accompanying declines in the four-week moving average and continuing jobless claims are also helping keep stocks mostly in the green. Treasuries are mixed ahead of a key reading on existing home sales. In other earnings news, McDonald's matched but revenues came in a bit light, while UPS matched profit expectations but missed on the top line and issued disappointing guidance. Overseas, markets are higher.

As of 8:48 a.m. ET, the September S&P 500 Index Globex futures contract is 3 points above fair value, the Nasdaq 100 Index is 1 point below fair value, and the DJIA is 27 points above fair value. Crude oil is down $0.19 at $65.21 per barrel, and gold is up $2.28 at $953.68 per ounce.

Ford (F $6) posted a smaller-than-expected 2Q loss ex-items of $0.21 per share, versus the Reuters estimate, which called for the company to report a $0.50 per share loss, on revenues of $27.2 billion. The company said it ended the quarter with $21 billion in automotive gross cash and a cash burn rate of $1 billion, down from almost $4 billion 1Q. The automaker said strong new products drove market share gains in all regions, while achieving further improvements in transaction prices and margins.

3M Company (MMM $65) reported 2Q EPS ex-items of $1.20, much higher than the Street's forecast, which called for the company to reports profits of $0.94 per share. Revenues of $5.7 billion also beat analysts' expectations, exceeding forecasts by $300,000. The Dow member said its health care and consumer and office businesses each delivered double-digit year-over-year profit improvements. The company raised its full-year EPS guidance to a level that topped expectations.

Fellow Dow component AT&T (T $25) announced 2Q EPS of $0.54, three cents above the Street's forecast, as revenues totaled $30.7 billion, just above the expectations. The company said strong wireless growth, continued cost discipline, and solid free cash flow highlighted the company's quarterly results.

McDonald's (MCD $59) reported 2Q EPS ex-items of $0.97, in line with the Street's forecast, as revenues of $5.6 billion came in just shy of estimates. The Dow member said global same-store sales increased 4.8%.

United Parcel Service (UPS $82 ¹) said adjusted 2Q EPS declined from $0.85 to $0.49, which matched analysts' expectations, as consolidated revenues fell about 17% to $10.8 billion, below the $11.1 billion that was expected. UPS said its results were adversely affected by continuing weakness in global economic activity, and package volume fell 4.7%. The company issued 3Q EPS guidance below the Street's estimates.

Jobless claims rise, existing home sales on deck

Weekly initial jobless claims increased 30,000 to 554,000, versus last week's figure that was upwardly revised by 2,000 to 524,000. The Bloomberg consensus called for claims to reach 557,000. The four-week moving average declined by 19,000 to 566,000, while continuing claims also fell, declining by 88,000 to 6,225,000, versus the forecast of 6,390,000. Treasuries are mixed after the labor data.

Existing home sales for June will be released later today, expected to rise 1.5% month-over-month (m/m) in June to an annual rate of 4.84 million, after rising 2.4% in May to 4.77 million units. The June sales data is expected to show the third-straight m/m rise. Pending home sales have increased for four months, and typically lead existing home sales by a month or two. However, contract closings have come in lower than would have been predicted by pending contracts, and the National Association of Realtors said that some contracts are falling through after appraisals are coming in at lower prices, as appraisers who aren't familiar with the locale are using recent sales, which have been dominated by distressed sales, to model prices. The NAR believes that distressed sales typically sell for 20% less than the normal market price.

Europe modestly higher in lackluster action

Stocks in Europe are slightly higher in afternoon action as a report showing UK retail sales jumped much more than expected is boosting optimism about the economic recovery to support basic materials. But gains are being limited as traders take a breather and book profits from the recent rally in the past eight sessions. The Office for National Statistics said UK retail sales gained 1.2% in June, four times the forecast of economists surveyed by Bloomberg. Adding to the early optimism across the pond, Credit Suisse (CS $46) reported a 29% increase in 2Q earnings, led by investment banking profits at the largest Swiss bank by market value, which exceeded analysts' estimates, according to Bloomberg. CS is almost 5% higher. Also, shares of Roche Holding (RHHBY $36) are solidly higher after the drug maker posted better-than-expected earnings and raising its earnings guidance. In other equity news, Porsche (POAHY $7) announced that its CEO will step down after 16 years, possibly paving the way for a merger with Volkswagen (VLKAY $72) as Porsche's chief opposed the selling of the luxury carmaker's automotive unit to Volkswagen.

Asia advances on weaker yen and Japanese export data

Stocks in Asia were mostly higher, as Japan's Nikkei 225 Index rose 0.7%, supported by export issues after the yen weakened to boost hopes for profits in firms that rely on sales outside the region. Additionally, Taiwan reported export declines in the region eased and Japan's Finance Ministry reported that the decline in exports for the month of June posted the slowest pace of decline this year, helping stoke some optimism about the health of the Asian economy. However, a 1% gain in China's Shanghai Composite Index and a 2.6% jump in India's BSE Sensex 30 Index were some of the Asia/Pacific' region's largest gainers-joining Hong Kong's 3% gain in the Hang Seng Index-to support Senior Market Analyst for the Schwab Center for Financial Research, Michelle Gibley's, CFA, view that emerging markets may be poised to continue to lead in the global economic recovery in her article Emerging Markets Back in the Spotlight, located at www.schwab.com/marketinsight. Elsewhere, South Korea's Kospi Index rose 0.2%, while Australia's S&P/ASX 200 Index fell 0.1% on weakness in financials after shares of National Australia Bank (NABZY $18) fell after pricing a share sell at a discount.