Morning Market Update

Earnings and Sales Have Stocks Doing Well

The bulls are enjoying a morning run on the heels of better-than-expected profit reports from Dow members Intel Corp. and JPMorgan Chase & Co., which are coupling with stronger-than-forecasted retail sales and tame inflation to lift sentiment in morning trading. Treasuries are slightly lower following the reports, but a plethora of data remains as business inventories and the Federal Reserve’s Beige Book are expected to be released later today, along with Fed Chief Ben Bernanke’s testimony on Capitol Hill, where he will give his economic outlook. In other economic news, mortgage applications fell again. Meanwhile, CSX Corp. joined the favorable earnings party, posting better-than-expected top-line and bottom-line results. Overseas, the upbeat earnings reports in the US are helping buoy international markets.

As of 8:51 a.m. ET, the June S&P 500 Index Globex future is 4 points above fair value, the Nasdaq 100 Index is 12 points above fair value, and the DJIA is 43 points above fair value. Crude oil is up $0.74 at $84.79 per barrel, and the Bloomberg gold spot price is up $9.85 at $1,160.50 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.2% to 80.37.

Dow member Intel Corp. (INTC $23) reported 1Q EPS of $0.43, five cents above the consensus estimate of Wall Street analysts, with revenues growing 44% year-over-year (y/y) to $10.3 billion, compared to the $9.8 billion that the Street was anticipating. The chipmaker said its PC client group revenue was flat versus 4Q, while it saw record mobile processor revenue. Also, INTC said the average selling price for microprocessors was up slightly. However, the company said its data center group revenue was down 8%. INTC issued 2Q revenue guidance that exceeded analysts’ forecasts. Shares are higher.

Fellow Dow member JPMorgan Chase & Co. (JPM $46) announced 1Q EPS of $0.74, up 85% y/y, and ten pennies above the forecast of analysts, with revenues growing 5% y/y to $28.2 billion, versus the $26.5 billion that was expected on the Street. JPM’s CEO Jamie Dimon said the results, including $3.3 billion in net income, reflected another strong quarter for the investment bank, particularly in fixed income markets, and continued solid performance across asset management, commercial banking and retail banking. The company said its 1Q earnings generated additional capital, resulting in a “very strong” Tier 1 capital ratio—a key financial strength industry metric—of 11.5%, with total firmwide credit reserves more than $39 billion, or 5.6% of total loans. “We continued to see delinquencies stabilize, and in some cases improve, in our credit portfolios,” the company added. Shares are nicely higher.

CSX Corp. (CSX $53) was the first railroad firm to report 1Q results, showing EPS of $0.78, compared to the $0.69 that the Street had anticipated, with revenue rising 11% y/y to nearly $2.5 billion, compared to the $2.4 billion that was forecasted by analysts. The company said it drove strong efficiencies in its operations as the economy continued to recover. CSX is trading higher.

Retail sales top forecasts, consumer prices tame, but plethora of data is on tap

Advance retail sales for March rose 1.6%, compared to the Bloomberg forecast of an increase of 1.2%, while February’s 0.3% increase was revised to a 0.5% gain. Sales ex-autos gained 0.6%, versus the expectation of an increase of 0.5%. Sales ex-autos and gas increased 0.7%, versus the 0.6% rise that was anticipated.

Meanwhile, the Consumer Price Index showed prices at the consumer level ticked up 0.1% in March month-over-month (m/m), matching the forecast of economists surveyed by Bloomberg. The core rate, which strips out food and energy, was flat m/m for March, compared to the 0.1% increase that was anticipated. While food and energy is the smallest component in the CPI basket, it tends to be the most volatile and often explains a majority of changes in the index at the headline level. On a year-over-year basis, consumer prices were up 2.3% in March, compared to the forecast of 2.4%, and the core CPI was 1.1% higher y/y, compared to the 1.2% forecast.

In other economic news, the US MBA Mortgage Application Index declined 9.6% last week, after the index, which can be quite volatile on a week-to-week basis, fell 11.0% in the previous week. The decrease came amid a 9.0% drop in the Refinance Index, while the Purchase Index fell 10.5%. However, the decline in the overall index came despite a 14 basis-point decrease in the average 30-year mortgage rate, which fell to 5.17%, remaining above the record low of 4.61% that was reached at the end of March 2009.

Treasuries remained modestly lower following the morning’s reports but more lies ahead for the economic calendar, with business inventories for February being released just after the opening bell, forecast to increase by 0.4%. Moreover, the Federal Reserve Beige Book will also be released at 2:00 p.m. ET, and is expected to provide a broad-based view of conditions across the Fed’s twelve districts in the US. The Beige Book is not a formal survey or index like most other economic reports, but rather it is a compilation of anecdotal pieces of information gathered from the Fed’s various contacts in local businesses and Fed policymakers use the data to prepare for its next monetary policy meeting on April 27-28.

However, traders will get data out of the Fed before the afternoon release of its Beige Book, with Federal Reserve Chairman Ben Bernanke’s testimony on Capitol Hill before the Joint Economic Committee of Congress, in which he will deliver his outlook on for the US economy. The testimony is scheduled for 10:00 a.m. ET and traders will be scrutinizing the Fed’s economic outlook for any clues on the timing of Fed’s “extended period” language referring to the “exceptionally low” level of the fed funds rate. Last week’s minutes from the Federal Open Market Committee showed that policymakers modestly downgraded its GDP outlook on concerns that high unemployment and the possibility of a relapse of the housing downturn could threaten economic prosperity. Also, the report revealed that members tried to clarify the “extended period” language, as it said, “A number of members noted that the Committee’s expectation for policy was explicitly contingent on the evolution of the economy rather than on the passage of any fixed amount of calendar time.”

Europe higher on upbeat earnings out of US

Stocks in Europe are higher in afternoon action, led by technology shares on increased sentiment in the chip sector on the heels of Dow member Intel’s better-than-expected earnings report, while financials are showing some signs of life after fellow Dow member JPMorgan Chase & Co’s favorable quarterly results. Adding to the optimism in the semiconductor group, Europe’s largest chip equipment maker ASML Holding (ASML $36) reported that it expects sales in 2010 to reach a record level of more than 3.8 billion euros, which was above the 3.6 billion euros that analysts surveyed by Bloomberg had forecasted. However, shares have given up a solid gain and are lower. In economic news across the pond, euro-zone industrial production rose 0.9% m/m in February, versus the 0.1% gain that was anticipated, which is helping boost materials issues in the euro-area, supporting the positive backdrop of today’s session, taking some of the attention off of the debt uncertainty in Greece.

Britain’s FTSE 100 Index is 0.8% higher, France’s CAC-40 Index is up 0.9%, Germany’s DAX Index is advancing 1.0%, while Greece’s Athex Composite Index is down 1.7%.

South Korea leads Asia higher

Stocks in Asia were mostly higher amid the backdrop of optimism toward the semiconductor sector after Intel’s favorable earnings reports, while data out South Korea helped pace the advance in the region. South Korea’s Kospi Index rose 1.5% after Moody’s Investors Service raised the nation’s sovereign credit rating from A2 to A1, prompted by “Korea’s demonstration of an exceptional level of economic resilience to the global crisis, while containing the government’s budget deficit.” Adding to the sentiment in Korea, a report showed the country’s unemployment rate fell from 4.4% in February to 3.8% in March. In other economic news for the nation included a separate report which showed South Korea’s export and import prices both fell. Elsewhere, Japan’s Nikkei 225 Index rose 0.4% as the yen weakened to help export issues, Taiwan’s Taiex Index gained 0.8% on the aforementioned optimism in the chip sector, while stocks in China were modestly higher, with Hong Kong’s Hang Seng Index rising 0.1% and the Shanghai Composite Index advancing 0.2%. Trading may have been a bit cautious in China ahead of the report on its 1Q GDP, which will be the first global read on output in the first quarter of the year, forecast to show an expansion of 11.7% y/y. Meanwhile, Australia’s S&P/ASX 200 Index gained 0.9% to help the advance in the region, despite a 1% drop in a reading on consumer confidence for April.