Morning Update

Taking a Break After Milestone Day

Stocks are under some pressure in morning action as lackluster earnings reports from Dow members Microsoft and American Express, along with Amazon.com, are prompting traders to book some profits after yesterday's rally, which took stocks to new highs for 2009. However, Treasuries are nearly unchanged ahead of a key consumer sentiment report. In other equity news, Verizon Wireless reported customer additions that fell short of rival AT&T, and CIT announced that it has amended terms of its cash tender offer of senior notes, which could help it avoid seeking bankruptcy protection. Overseas, markets are higher, as Europe is up for the tenth-straight session as favorable readings on German business confidence and eurozone manufacturing are offsetting the UK's disappointing 2Q GDP report.

As of 8:53 a.m. ET, the September S&P 500 Index Globex futures contract is 5 points below fair value, the Nasdaq 100 Index is 21 points below fair value, and the DJIA is 21 points below fair value. Crude oil is up $0.09 at $67.25 per barrel, and gold is up $2.89 at $952.04 per ounce.

Dow member Microsoft (MSFT $26) reported fiscal 4Q EPS ex-items of $0.36, in line with the Reuters estimate, as revenues fell 17% versus the same period last year to $13.1 billion, short of the Street's estimate of $14.5 billion. The software giant said its business continued to be negatively impacted by weakness in the global PC and server markets. Sales of its Windows operating system-the firm's most important business-fell for the first time on record to weigh on its shares.

Fellow Dow component American Express (AXP $29 ¹) announced 2Q EPS ex-items of $0.27, also matching the Street's estimates, with revenues of $6.1 billion, which was $300 million short of analysts' estimates. The credit card firm said provisions for loan losses totaled $1.6 billion versus $1.8 billion a year ago, primarily reflecting lower average cardmember receivables and loans, offset by higher write-offs and past due loans. AXP added, "Although it is still too early to point to any sure signs of an economic recovery, the number of cardmembers who are falling behind in their payments, the volume of bankruptcy filings and the level of loan write-offs were better than we had expected."

Amazon.com (AMZN $94) posted 2Q EPS of $0.32, one cent above analysts' forecasts, as revenues grew 14% to $4.7 billion, which was slightly below estimates. Sales in the US rose 13%, and its international unit increased 16%. The online retailer issued 3Q revenue guidance that matched the Street's expectations.

Jointly held Verizon Wireless-a partnership of Dow component Verizon Communications (VZ $) and Vodafone (VOD $19)-announced that it added 1.1 million customers in 2Q, below the 1.4 million posted by rival and fellow Dow member AT&T (T $25).

CIT Group (CIT $1 ¹) said that it has amended the terms of its cash tender offer for floating rate senior notes and if the offer is successful the company does not intend to seek relief under the US Bankruptcy Code but rather to pursue restructuring efforts through other means. Shares are higher.

Treasuries nearly unchanged ahead of consumer sentiment report

Treasuries are flat in morning action as traders digest another slew of earnings reports and wait for the final reading of the University of Michigan's Consumer Sentiment Index for July, expected to be released later today and increase slightly from its preliminary reading of 64.6 to 65.0. The preliminary reading in this index was released earlier this month, and saw a fall from June's 70.8 level as rising gas prices in recent months and continued increases in the unemployment rate appeared to weigh on consumer sentiment.

Europe looking for ten in a row

Stocks in Europe are higher in afternoon action and are poised to post their tenth-straight session in the green on some favorable key economic reports in the eurozone region. Germany-Europe's largest economy-released its Ifo survey of business confidence index, which rose more than expected and posted the fourth-consecutive monthly increase. Also, a separate report showed eurozone manufacturing activity contracted at a slower pace than expected, helping support sentiment across the pond. However, gains are being limited by another economic report that showed 2Q GDP in the UK fell by more than twice the estimate of economists surveyed by Bloomberg. There is also plenty of equity news for traders to chew on, highlighted by Vodafone posting a solid advance after it said 1Q sales rose slightly more than expected. However, shares of Ericsson (ERIC $10) are under solid pressure after the world's largest maker of wireless phone networks reported 2Q earnings that missed analysts' estimates, and shares of Merck KGaA (MKGAY $35) are down about 13% after the German drug maker reported worse-than-expected quarterly results and said a European Union review panel announced that its drug Erbitux should not be used to treat lung cancer.

Asia again in the green as favorable South Korean output report seen

Stocks in Asia were broadly higher, continuing the recent momentum as the rally in the US on upbeat earnings and a larger-than-expected rise in existing home sales carried over to boost sentiment. A report that showed South Korea's 2Q GDP rose 2.3% from 1Q, which came in above the 2.2% growth estimate by economists surveyed by Bloomberg-helping support the advance in the Asia/Pacific region. South Korea's Kospi Index gained 0.4%, while Japan's Nikkei 225 Index advanced 1.6% to lead the way as a steep drop in the yen versus most major currencies amplified gains on optimism regarding the outlook for corporate profits of firms that do business outside the Japanese economy. The weakness in the yen came as the recently resurfacing economic optimism has increased traders' risk appetites, prompting them use proceeds from selling the Japanese currency to finance investments in more risky assets. Elsewhere, Hong Kong's Hang Seng Index rose 0.8% and China's Shanghai Composite Index increased 1.3%, but gains in Thailand were limited by its central bank lowering its 2009 GDP and inflation forecasts. In equity news, shares of Murchison Metals (MUMTF $1) surged over 17% after it said Chinese groups were interested in helping develop an iron-ore project.