Morning Market Update

Earnings Preside to Help Continue the Ride

Stocks are higher in morning action as traders are digesting a plethora of earnings reports, mainly from members of the Dow, however, Goldman Sachs Group Inc’s better-than-forecasted earnings are helping concerns over its fraud allegations be less palpable on the Street. Other earnings reports include results that exceeded analysts’ forecasts from IBM and JNJ, while Coca-Cola Co’s soft sales are tarnishing the beverage company’s earnings that bested the Street’s expectations. Outside of earnings, fellow Dow member Procter & Gamble Co increased its quarterly dividend. Treasuries are modestly lower as there are no major economic reports scheduled to be released today. Overseas, Asia finished mixed, while European markets are nicely higher after a favorable reading of German investor confidence and as some air travel in Europe that had been stopped due to the Icelandic volcano ash is expected to resume in some areas.

As of 8:51 a.m. ET, the June S&P 500 Index Globex future is 6 points above fair value, the Nasdaq 100 Index is 8 points above fair value, and the DJIA is 23 points above fair value. Crude oil is up $1.05 at $82.50 per barrel, and the Bloomberg gold spot price is up $6.60 at $1,142.35 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.1% to 80.95.

Goldman Sachs Group Inc. (GS $163) reported 1Q EPS of $5.59, compared to the $4.05 that Wall Street analysts had expected, with revenues rising 36% year-over-year (y/y) to $12.8 billion, compared to the $11.0 billion that the Street was anticipating. The company benefitted from the performance in its fixed income, currency and commodities unit, which had its revenues rose 13% y/y to $7.4 billion, reflecting strong performances in credit products, mortgages an currencies. Shares are higher.

Dow member International Business Machines (IBM $132) reported 1Q EPS of $1.97, four cents above the Street’s forecasts, with revenues rising 5% y/y to $22.9 billion, compared to the $22.7 billion that the Street was looking for. The company said it drove “significantly improved” revenue growth rates from last quarter across its businesses and geographies. IBM raised its full-year profit outlook.

Fellow Dow member Coca-Cola Co. (KO $55) announced 1Q EPS ex-items of $0.80, six pennies above the consensus forecast of analysts, with revenues increasing 5% y/y to $7.5 billion, compared to $7.6 billion that the Street was forecasting.

Also, Dow component Johnson & Johnson (JNJ $66) posted 1Q EPS ex-items of $1.29, compared to the $1.27 that analysts are expecting, with revenues increasing 4% y/y to $15.6 billion, matching the expectation of analysts. However, JNJ lowered its full-year EPS outlook to reflect recent changes in foreign currency exchange rates and incorporate the impact of recently enacted health care reform legislation.

Outside of earnings, Procter & Gamble Co. (PG $63) declared an increase in its quarterly dividend from $0.44 per share to $0.4818 per share, representing a 9.5% increase. The dividend from the Dow component will be payable on or after May 17, 2010.

Economic calendar yields to earnings season

Treasuries are slightly lower on the short-to-mid end of the curve, as today’s economic calendar is void of any major releases today, allowing the attention on Wall Street to focus on the plethora of earnings reports that are out today.

Europe higher as German investor confidence increases

Stocks in Europe are nicely higher in afternoon action, led by industrials and consumer goods on some favorable earnings news and a larger-than-forecasted increase in a gauge of investor confidence in Germany—Europe’s largest economy. Also helping the backdrop across the pond, European airline woes are dissipating as some flights that have been delayed due to the Icelandic volcano eruption ash are set to resume today. Moreover, fears about fraud charges against Goldman Sachs are easing after the firm posted better-than-forecasted earnings, although the UK announced that it has launched an investigation of the company’s London units.

The release of the German ZEW Survey of Economic Sentiment Index is dominating a full economic calendar across the pond, as it rose from 44.5 in March to 53.0 in April, compared to the modest rise to 45.1 that economists surveyed by Bloomberg had forecasted. Other reports that deserve a mention include German producer prices for March increasing by a larger amount than forecasted, UK consumer prices rising more than anticipated, Spain’s trade balance narrowing, the euro-zone current account deficit widening, Italian Industrial orders unexpectedly falling, and Sweden’s central bank keeping its benchmark interest rate unchanged at 0.25%.

In equity news, Daimler (DAI $52) moved higher after the luxury car maker increased its full-year earnings from its Mercedes-Benz cars unit. Also, shares of Novartis AG (NVS $53) are higher after the drugmaker posted 1Q earnings that exceeded analysts’ expectations.

Britain’s FTSE 100 Index is 0.8% higher, France’s CAC-40 Index is up 1.2%, Germany’s DAX Index is advancing 1.3%, Italy’s FTSE MIB Index is gaining 1.7%, Spain’s IBEX 35 Index is rising 0.7%, and Sweden’s OMX Stockholm 30 Index is 1.3% in the green.

Asia mixed on data

Stocks in Asia were mixed, with Japan’s Nikkei 225 Index dipping 0.1% and China’s Shanghai Composite Index flat, while most other major markets in the region posted gains as financial concerns on Goldman Sachs’ fraud allegations seemed to wane. Hong Kong’s Hang Seng Index rose 1.0% after a report showed the nation’s unemployment declined more than anticipated in March, falling from 4.6% in February to 4.4%, compared to the 4.5% that was forecasted. Meanwhile, India’s BSE Sensex Index increased 0.3% after the country’s central bank raised its interest rates for a second time in a month, while Australia’s S&P/ASX 200 Index increased 0.2% after the Reserve Bank of Australia released the minutes from its last monetary policy meeting where it raised its benchmark interest rate for the fifth time in six meetings, which noted that while the Australian economy was “benefiting significantly” from developments in the resources sector, these “would also pose challenges,” and various measures of inflation expectations were around or a little above their average levels. In other economic news, export orders in Taiwan rose more than expected to 43.66% y/y in March, and the nation’s Taiex Index rose 0.6%. Rounding out the day, South Korea’s Kospi Index increased 0.8%.

On the equity front, shares of Isuzu Motors (ISUZY $29) were solidly higher after the Japanese automaker boosted its full-year profit outlook. Meanwhile yesterday, Australian regulators blocked the A$13.3 billion merger proposal of National Australia Bank (NABZY $26) to acquire AXA Asia Pacific Holdings (AXAPF $4), possibly opening the door for AMP Ltd (AMLTY $23) to step in an bid again for AXAPF, as it said it “continues to believe it can put forward a proposal that is financially disciplined. Shares of NABZY were higher, while AXAPF and AMLTY were both lower. Moreover, after today’s closing bell in Asia, China Mobile (CHL $50) reported 1Q earnings that missed analysts’ forecasts as subscriber growth slowed at the world’s largest phone carrier by market value, per Bloomberg News.