Morning Market Update

Sluggish Start as Alcoa’s Revenue Miss Causes Street to Hiss

1Q earnings season got under way in disappointing fashion as Dow member Alcoa Inc. reported earnings that matched analysts’ estimates but posted revenues that missed the Street’s forecast. Also, larger-than-expected demand for Greece’s debt auction is being offset by uneasiness regarding the interest rate that the debt-ridden nation must pay. Treasuries are slightly higher in morning action after import prices increased by a smaller amount than forecasted, while the trade deficit widened. Overseas, markets are mostly lower.

As of 8:48 a.m. ET, the June S&P 500 Index Globex future is 2 points below fair value, the Nasdaq 100 Index is 4 points below fair value, and the DJIA is 14 points below fair value. Crude oil is down $0.66 at $83.68 per barrel, and the Bloomberg gold spot price is down $1.55 at $1,154.65 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.1% to 80.47.

Alcoa Inc. (AA $15) became the first Dow member to report 1Q results and unofficially commencing earnings season, by reporting EPS ex-items of $0.10, inline with the consensus estimate of Wall Street analysts. However, the aluminum producer posted a revenue decline of 10% compared to the previous quarter to $4.9 billion, which was below the $5.2 billion that analysts were anticipated. The company said its results for the quarter benefited from productivity gains and higher realized prices for alumina and aluminum, which grew 13% and 8%, respectively, compared to last quarter, but were hampered by lower volumes and higher energy costs. The company said its markets are “gradually improving” and both policy trends and consumer sentiment “bode well for aluminum demand.”

Import prices rise by a smaller amount than anticipated, trade deficit widens

The Import Price Index rose 0.7% month-over-month (m/m) for March, compared to the expectation of economists, which called for the index to increase by 1.0%. Year-over-year, import prices are higher by 11.4%, versus the 11.7% forecast of economists.

The trade deficit widened from a slightly smaller-than-initially reported $37.0 billion in January to $39.7 billion in February, versus the Bloomberg estimate calling for the deficit to increase to $38.5 billion.

Europe lower as metals slide and Greece debt finds demand but rates are elevated

Stocks in Europe are under some modest pressure in afternoon action, led by weakness in the materials group on lower metals issues and in reaction to the Alcoa’s disappointing revenue performance. Greece also remains in focus in the region as the debt-ridden nation conducted its first offering of debt since the 45 billion euro bailout package backed by euro-members and the International Monetary Fund (IMF) was announced. Greece raised about 1.6 billion euros in an offering of 26-week and 52-week bills, which both drew strong demand, but the interest rates that Greece must pay are relatively high. The yield on the 26-week bill was 4.55% and the yield on the 52-week bill was 4.85%, compared to similar auctions conducted in January, which had yields of 1.38% and 2.2% for the 26-and 52-week bills, respectively. The ability for Greece to raise capital in the markets is one of the key factors on whether the country will need to tap into the aforementioned financial backstop that euro-zone members announced over the weekend.

In other news across the pond, reports showed UK home price increases slowed to the smallest pace in eight months, per Bloomberg, and Britain’s trade deficit narrowed by a larger amount than anticipated. Meanwhile, German consumer prices were left unrevised at a 0.5% gain m/m in March, while a separate report showed wholesale prices in the euro-zone’s largest economy rose more than forecast. Elsewhere, French consumer prices increased by an amount that exceeded expectations, while its current account deficit narrowed.

Britain’s FTSE 100 and Germany’s DAX Indexes are declining 0.2%, and Greece’s Athex Composite Index is down 1.6%, while France’s CAC-40 Index is up 0.1%.

Asia mostly lower as traders harvest gains before key earnings reports

Stocks in Asia were mostly lower as the major equity markets were hampered by some profit taking following a lackluster start to 1Q earnings season in the US, which weighed on metals and commodity issues. Japan’s Nikkei 225 Index declined 0.8% as exporters were also bogged down by some strength in the yen, which dampened the outlook for revenues in companies that rely on sales outside of the Asian nation’s economy. However, there were some markets in the region that managed to escape the selling pressure, with China’s Shanghai Composite Index rising 1% following yesterday’s disappointing yuan loan growth and decelerated money supply reports, which may slow the Chinese central bank’s efforts to cool down the economy as it tries to stem excess liquidity. Also, South Korea’s Kospi Index was nearly unchanged, buoyed somewhat by some weakness in the Korean won, which helped exporters and limited the sting from the weakness in metals issues. The declines in metals also overshadowed a better-than-expected 1Q profit report from South Korea’s Posco (PKX $121), which came under pressure even after Asia’s third-largest steelmaker, per Bloomberg, posted profits that were up almost four-fold and also raised its full-year sales forecast.

Elsewhere, the aforementioned weakness in materials led Australia’s S&P/ASX 200 Index 0.7% lower, with a report showing the nation’s business conditions improved doing little to help sentiment as the report also showed business confidence deteriorated. Rounding out the day, Hong Kong’s Hang Seng Index declined 0.2%, Taiwan’s Taiex Index fell 1.1%, and India’s BSE Sensex 30 Index finished 0.2% lower.