Morning Market Update

Sentiment Stirred with Mixed Data

The equity markets are nearly unchanged in morning action as traders are grappling with a mixed bag of global data. European reports kicked things off as Greece officially requested to tap the EU and IMF’s 45 billion euro bailout fund and German business confidence bested forecasts, while 1Q UK GDP expanded by an amount that was below forecasts. The US grabbed the baton, with durable goods orders unexpectedly falling on a headline level, while after stripping out volatile components, orders jumped. The earnings front is also sending mixed signals as Microsoft and Amazon.com both topped the Street’s profit projections but the reaction is negative. Moreover, American Express topped analysts’ forecasts, while Travelers Companies Inc missed and issued a disappointing outlook. Treasuries are lower, extending losses after the durable goods reports, and ahead of the new home sales report. Overseas, Asia was mostly lower, while Europe is gaining ground.

As of 8:50 a.m. ET, the June S&P 500 Index Globex future is 1 point below fair value, the Nasdaq 100 Index is 1 point below fair value, and the DJIA is 5 points below fair value. Crude oil is down $0.61 at $83.09 per barrel, and the Bloomberg gold spot price is down $3.10 at $1,138.40 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.3% to 81.81.

Dow member Microsoft Corp. (MSFT $31) reported fiscal 3Q EPS of $0.45, three cents above the consensus estimate of Wall Street analysts, with revenues increasing 6% year-over-year (y/y) to $14.5 billion, roughly inline with the Street’s forecasts. The software firm said its Windows 7 “continues to be a growth engine,” but it also saw strong growth in areas like Bing search, Xbox Live, and its emerging cloud services. Despite the results shares are under pressure.

Also, Travelers Companies Inc. (TRV $54) reported 1Q EPS ex-items of $1.22, compared to the $1.38 that the Street had expected, and net written premiums at the property casualty insurance firm rose 1% y/y to $5.3 billion. Moreover, the Dow member issued full-year EPS guidance that misses the Street’s forecast and its shares are under solid pressure as the results and outlook are overshadowing the announcement that it raised its regular quarterly dividend by 9% to $0.36 per share.

Fellow Dow component American Express Co. (AXP $47) reported 1Q earnings of $0.73 per share, above the $0.64 that analysts were anticipating, with revenues increasing 11% y/y to $6.6 billion, also topping the Street’s expectations, which called for the company to post revenues of $6.4 billion. Shares are higher.

Amazon.com Inc. (AMZN $150) announced 1Q EPS of $0.66, six cents above the consensus Wall Street forecast, with revenues jumping 46% y/y to $7.1 billion, above the $6.9 billion that analysts’ were anticipating. However, shares are lower after the online retailer issued 2Q earnings guidance that came in below expectations.

Durable goods mixed, new home sales on the horizon

Durable goods orders unexpectedly fell, dropping 1.3% month-over-month (m/m) in March, versus the 0.2% gain that was forecast, while February was upwardly revised to a 1.1% advance from 0.5%, snapping a three-month winning streak for the headline reading. However, ex-transportation, orders rose 2.8%, better than the 0.7% increase that was expected, and February’s 0.9% advance was revised to a 1.7% gain. As illustrated by the aforementioned data, monthly orders data of goods intended to last at least three years can be very volatile as large orders for items such as airplanes and military equipment have a tendency to distort the data. Elsewhere, non-defense capital goods excluding aircraft, considered a good proxy for business spending rose 2.4%. Treasuries are lower after modestly extending losses following the release.

Later today, the economic calendar will yield new home sales, forecasted to increase 5.5% to an annual rate of 325,000, after dropping 2.2% to a rate of 308,000.

Europe higher as Greece requests to tap bailout funds and on favorable data

Stocks in Europe are nicely higher in afternoon action, led by materials and industrials issues as traders digest some better-than-forecasted economic data and as Greece requested permission to access the 45 billion euro financial aid package from the EU and International Monetary Fund (IMF). Details on the request have not been disseminated but Bloomberg quoted the Greek Prime Minister as saying, “It is a matter of national need to ask officially” for the activation of the rescue package. Yields on Greece bonds dipped on the news of the request. Also, the European economic calendar is providing some support to sentiment across the pond, highlighted by a reading of business confidence in Germany—Europe’s largest economy—and a separate report on euro-zone industrial new orders. The German Ifo Business Climate Index rose from 98.2 in March to 101.6 in April, and above the 98.7 that economists had expected. Moreover, euro-zone industrial new orders rose 1.5% m/m in February, above the 1.0% m/m forecast. The upbeat data and Greece action are helping overshadow a report that showed advance UK 1Q GDP expanded by a smaller amount than expected, as output in Britain rose 0.2% quarter-over-quarter (q/q), versus the anticipation of a 0.4% rise. In other economic news, French consumer spending rose more than forecasted, Spain’s producer prices increased by a larger amount than expected, while Italian retail sales increased by a smaller amount than was anticipated.

In equity news, shares of truckmaker Volvo (VOLVY $11) are sharply higher after it posted an unexpected profit in 1Q, sporting goods and athletic apparel firm Adidas (ADDDY $28) is gaining ground after it boosted its full-year earnings forecast after announcing better-than-forecasted 1Q results, while Ericsson (ERIC $11) is nicely higher even after its results missed forecasts, as analysts are cheering its strong improvement in its margins.

Britain’s FTSE 100 Index is 0.8% higher, France’s CAC-40 Index is up 0.6%, Germany’s DAX Index is gaining 1.4%, Spain’s IBEX 35 Index is rising 1.0%, Italy’s FTSE MIB Index is advancing 0.4%, and Greece’s Athex Composite Index is moving 0.9% higher.

Asia slips as concerns linger

Stocks in Asia were mostly lower amid the tepid response to US earnings reports, growing uncertainty about the fate of the debt ridden euro-nation of Greece, and lingering fears about the impact of the recent actions out of China to stem property speculation on the overall economic recovery. Japan’s Nikkei 225 index declined 0.3%, Hong Kong’s Hang Seng Index fell 1.0%, and China’s Shanghai Composite Index decreased 0.5%. However, Taiwan’s Taiex Index rose 0.3% after the nation’s industrial production rose 39.2% y/y in March, from a 35.2% y/y gain in February, and roughly matching the estimate of economists. Australia’s S&P/ASX 200 Index declined 0.5% after its 1Q Import Price Index unexpectedly rose q/q, and the Reserve Bank of Australia’s Governor Glenn Stevens said interest rates are “close to normal” after the RBA has increased it benchmark rate five times out of the past six monetary policy meetings. South Korea’s Kospi Index dipped 0.1% as a solid gain in shares of LG Display Co. (LPL $21) limited the loss in reaction to its better-than-expected profits yesterday, supported by flat-screen TV sales strength in demand out of China. Elsewhere, India’s BSE Sensex 30 Index rose 0.7% to go against the grain in the region.