Morning Market Update

Greece Concerns Resurface to Weigh on Wall Street

The equity markets are under pressure in early action amid some mixed results from the US corporate earnings front, while sentiment is being stymied by more uneasiness in the euro-zone toward Greece’s deficit concerns. Ebay’s and Qualcomm Inc’s disappointing outlooks are bogging down the tech sector, and PepsiCo Inc posted soft sales, while Starbucks Corp topped profit projections and raised its outlook and Dow member Verizon Communications Inc matched expectations. The economic front is not helping soothe sentiment in morning action, as producer prices rose more than forecasted and jobless claims fell by a fewer amount than was anticipated. Treasuries are nearly unchanged after paring gains following the inflation and employment data, while existing home sales are set to be reported later this morning. Overseas, markets are under pressure.

As of 8:53 a.m. ET, the June S&P 500 Index Globex future is 8 points below fair value, the Nasdaq 100 Index is 19 points below fair value, and the DJIA is 49 points below fair value. Crude oil is down $1.22 at $82.46 per barrel, and the Bloomberg gold spot price is down $6.40 at $1,140.35 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.4% to 81.52.

Dow member Verizon Communications Inc. (VZ $30) announced 1Q EPS ex-items of $0.56, matching the consensus estimate of Wall Street analysts, as revenues grew 1.2% year-over-year (y/y) to $26.9 billion, which was also inline with analysts’ estimates. The company said its wireless unit Verizon Wireless—co-owned with Vodafone (VOD $23)—showed 1.5 million total net customer additions, and its FiOS internet unit added 185,000 customers, while its FiOS TV segment grew by 168,000.

Ebay Inc. (EBAY $26) reported 1Q EPS ex-items of $0.42, one penny ahead of the Street forecast, with revenues growing 9% y/y to $2.2 billion, roughly inline with analysts’ forecasts. The e-commerce firm said its results were due to growth in its payments and marketplaces businesses, along with a positive impact from foreign currency movements against the US dollar. However, shares are under pressure after the company issued 2Q guidance that missed the Street’s estimates.

Qualcomm Inc. (QCOM $43) reported fiscal 2Q adjusted earnings of $0.59 per share, three cents above the consensus estimate of Wall Street analysts, with revenues growing 8% y/y to $2.7 billion, slightly above the $2.6 billion that the Street was forecasting. Shares are lower after the maker of chips for wireless devices issued 3Q EPS and revenue guidance, which the midpoints of each range came in below what analysts are anticipating.

PepsiCo Inc. (PEP $66) announced 1Q EPS ex-items of $0.76, compared to the $0.75 that analysts were anticipating, with revenues growing 13% y/y to $9.4 billion, but just shy of the $9.5 billion that the Street was looking for. The company said its results benefitted from the acquisition of its two largest bottlers, volume gains in its worldwide snacks, its international beverage business, which showed growth in developing markets, and lower costs across its operations. PEP also said top-line trends are improving in North America.

Starbucks Corp. (SBUX $25) posted fiscal 2Q EPS ex-items of $0.29, four cents above the consensus estimate on the Street, with revenues increasing 9% y/y to $2.5 billion, above the $2.4 billion that analysts expected. Also the coffee chain raised its full-year EPS outlook.

Jobless claims fall less than forecast, wholesale inflation increases more than expected

Weekly initial jobless claims fell by 24,000 to 456,000, versus last week's figure which was downwardly revised by 4,000 to 480,000, and compared to the consensus estimate of economists surveyed by Bloomberg, which called for claims to decline to 450,000. The four-week moving average, considered a smoother look at the trend in claims, rose by 2,750 to 460,250, and continuing claims dropped by 40,000 to 4,646,000, compared to the decline to 4,600,000 that was anticipated.

The Producer Price Index showed prices at the wholesale level rose 0.7% month-over-month (m/m) in March, after declining 0.6% in February. The average economist forecast surveyed by Bloomberg called for prices to rise by 0.5%. Meanwhile, the core rate, which excludes food and energy, increased 0.1% m/m, matching the forecast of economists. On a year-over-year basis, headline producer prices were 6.0% higher, and the core rate was up 0.9%. Treasuries are nearly unchanged, paring modest gains following the employment and inflation reports.

Later this morning, the economic calendar will yield existing-home sales, expected to show a 5.3% m/m increase in March to an annual rate of 5.29 million units. Sales of existing homes reflect closings from contracts entered one to two months earlier. Pending home sales data from February showed the first increase in sales since the renewal of the tax credit, up 8.2% m/m, a leading indicator of this report, with differences relative to sales rates due to timing or other closing issues.

Europe falls as Greek concerns resurface and mobile phone maker misses mark

Stocks in Europe are under pressure in afternoon action, led by a solid decline in technology issues as shares of the world’s largest mobile phone maker Nokia (NOK $15) are down sharply after it reported disappointing 1Q results. NOK posted profits that came in short of analysts’ forecasts and cut its profit outlook for its phone unit, saying that, “We continue to face tough competition with respect to the high-end of our mobile device portfolio, as well as challenging market conditions on the infrastructure side.” Financials are also under pressure amid lingering concerns regarding Greece, as the nation is talking with euro-area officials regarding a 45 billion euro bailout package, exacerbated by the EU’s statistics office saying that the debt-ridden nation’s deficit was 13.6% of the Greek GDP, which was up from an early April forecast from the government of 12.9%, per Bloomberg News.

In economic news, euro-zone Composite PMI unexpectedly improved to 57.3 in April, compared to the forecast of economists, which called for the gauge of service and manufacturing activity to remain at 55.9. The favorable read was aided by better-than-expected Manufacturing PMI in Germany and the Services PMI in France. Elsewhere, a separate report showed UK retail sales grew by a smaller-than-expected 0.2% in March m/m excluding autos and fuel, while a report on euro-zone consumer confidence is set to be released later in the day.

Britain’s FTSE 100 Index is 0.9% lower, France’s CAC-40 Index is off 1.2%, Germany’s DAX Index is declining 1.0%, and Greece’s Athex Composite Index down 3.1%.

Asia finds pressure on tepid earnings reaction and China property concerns

Stocks in Asia were mostly lower following yesterday’s lackluster reaction to earnings in the US, including disappointing reports in the tech sector following the closing bell on Wall Street. Japan’s Nikkei 225 Index fell 1.3% to lead the broad-based decline, weighed down by weakness in export issues on the strength in the yen compared to the dollar, which threatens sales of these companies that rely on sales in the US, as well as a decline in shares of Toyota Motor Corp. (TM $78) after Moody’s Investors Service downgraded the world’s largest automakers credit rating. Moody’s lowered TM’s rating from Aa1 to Aa2, while Fitch Ratings said it will examine the company’s creditworthiness and a downgrade is a “possibility.” Elsewhere, stocks in China were also lower to contribute to the losses in the region, with the Shanghai Composite Index falling 1.1% and Hong Kong’s Hang Seng Index dipping 0.3%, led by weakness in property stocks amid festering concerns about the impact on the industry as measures deployed by the government to stem real estate speculation take hold. Meanwhile, Australia’s S&P/ASX 200 Index declined 1% on declines in the mining and energy sector on disappointing production forecasts from the group.

In economic news, Taiwan’s unemployment rate ticked lower in March from 5.65% in February to 5.64%, but was above the 5.60% that economists had expected, and the Taiex Index slumped 0.2%. In other equity news in the auto sector, shares of Hyundai Motor Co. (HYMTF $20) managed to eke out a 0.4% gain despite the South Korean Kospi Index declining 0.5%, after the nation’s largest automaker posted quarterly profits that more than quadrupled and topped analysts’ estimates. However, India’s BSE Sensex 30 Index bucked the tread in the region, rising 0.6%.