Morning Update

Sentiment Bogs after First Report on Jobs

Stocks have moved lower in morning action after ADP reported that private sector jobs fell more than anticipated, adding some uneasiness among traders ahead of Friday's labor report. Treasuries are lower but have pared losses following the jobs reports, and mortgage applications rose last week. However, stocks are modestly lower as traders may be playing their cards close to the vest ahead of a key service-sector release and factory orders report. Earnings reports from a couple of Dow members are mixed, with Proctor & Gamble topping bottom line expectations but offering a disappointing outlook, while Kraft Foods topped earnings expectations and raised its full-year EPS guidance. Overseas, markets are mixed as banking stocks are leading Europe higher, but disappointing profit reports in Japan weighed on Asia.

As of 8:53 a.m. ET, the September S&P 500 Index Globex futures contract is 1 point below fair value, the Nasdaq 100 Index is 1 point below fair value, and the DJIA is 31 points below fair value. Crude oil is down $0.25 at $71.17 per barrel, and gold is down $1.1.78 at $965.18 per ounce.

Proctor & Gamble (PG $55) reported fiscal 4Q EPS of $0.80, two cents ahead of the Reuters estimate, but revenues fell 11% to $18.7 billion, which missed the Street's forecast of $19.3 billion. The Dow component and consumer goods producer said unfavorable foreign exchange reduced revenues and volume declined 5%. PG issued 1Q revenue guidance that missed expectations and it narrowed its full-year revenue outlook.

Fellow Dow member Kraft Foods (KFT $28) announced 2Q earnings of $0.56 per share, two pennies above analysts' forecasts, and revenues declined 5.9% to $10.2 billion, which was $200 million below the Street's expectations. The company said it had solid performance across all geographies, organic revenues rose 2.9%, reflecting the impact of cost-driven pricing actions and positive volume and product mix. KFT raised its full-year EPS guidance.

Private sector jobs fall more than expected

ADP reported that private sector jobs fell 371,000 in July, more than the Bloomberg estimate of a loss of 350,000 jobs, but June was favorably revised from -473,000 to -463,000. The ADP report is the first read on employment conditions this week, which will culminate with the labor report from the Bureau of Labor Statistics, which is scheduled for release on Friday and expected to show 328,000 jobs were shed from nonfarm payrolls in July, and the unemployment rate rose from 9.5% to 9.6%. However, the ADP report has not been a reliable gauge of the labor report, although adjustments have been made recently. Weekly initial jobless claims will be the next piece of employment data to precede the labor report, expected to fall by 4,000 to 580,000 tomorrow.

The US MBA Mortgage Application Index rose 4.4% last week after falling 6.3% in the previous week, in an index that can be quite volatile on a week-to-week basis. The gain was attributed to the Refinance Index, which rose 7.2% and a drop in the average 30-year mortgage rate by 19 basis points to 5.17% versus the previous week, while the Purchase Index was up modestly. The average 30-year mortgage rate remains steadily above the record low of 4.61% that was reached at the end of March.

Later today, the ISM Non-Manufacturing Index comes out and is expected to rise to 48.0 in July from 47.0 in June. Recent economic reports have shown that exports are leading the recovery, with last month’s sub-component, new export orders, rising to 54.5, the first time the index indicated growth since September 2008. The report is the complement to the ISM Manufacturing Index released Monday, which improved to 48.9 from 44.8, much better than the 46.5 forecast.

Also look for the release of June factory orders, which is also set to be reported later in morning action.

Financials and UK data drives Europe

Stocks in Europe are higher in afternoon action, led by financials after several upbeat earnings reports in the group are boosting sentiment regarding the health of the sector in the eurozone. Lloyds Banking Group (LYG $6) is up about 13%, despite reporting a first-half loss on a jump in bad loan loss impairment charges, after the UK bank said that it expected provisions for bad loans will decline "significantly" in the second half of the year. Elsewhere, France's second-largest bank by market value, Societe Generale (SCGLY $13) and Europe's number-two insurer, AXA (AXA $22) are both solidly higher after they posted better-than-expected profits. However, shares of Swiss Re (SWCEY $41) are lower after the world's second-largest reinsurer posted an unexpected quarterly loss. The economic front is also helping support the advance as separate reports showed UK industrial production and manufacturing production both came in better than expected, and the PMI Services Index topped expectations of economists surveyed by Bloomberg.

Asia falls as rally stalls

Stocks in Asia were broadly lower as traders took a breather, taking some profits off the table from the recent rally in region, prompted by some disappointing earnings reports in Japan—Asia's largest economy. Shares of Isuzu (ISUZY $15) were down about 5% after the Japanese truck maker posted a quarterly net loss, and memory chip maker Elpida Memory (ELPDF $6) also fell 5% after reporting a wider-than-expected loss on lower semiconductor prices. Japan's Nikkei 225 Index and China's Shanghai Composite Index both dropped 1.2%, Hong Kong's Hang Seng Index declined 1.5%, and the South Korean Kospi Index dipped 0.4%. Elsewhere, Australia's S&P/ASX 200 Index fell 1%, led by an 8% drop in shares of the region's number-two department store chain, David Jones after reporting disappointing same-store sales. In economic news, China's central bank reaffirmed its "moderately loose" monetary policy and policy makers will fine tune the approach as needed.