Morning Market Update

Stocks Just Above Flatline as 1Q Output is Mostly Inline

The US equity markets are modestly higher in morning trading after paring some early gains following the first look at US 1Q GDP, which grew at a pace that was roughly inline with economists’ forecasts. Treasuries showed little reaction, maintaining modest losses on the report, and after a separate release showed employment costs were slightly above forecasts. Meanwhile, the Chicago PMI and final revision to the University of Michigan’s Consumer Sentiment Index will be released later this morning. The earnings calendar is relatively lighter than previous sessions this week, with Dow member Chevron Corp posting a mixed report, while MetLife Inc exceeded expectations and D.R. Horton Inc swung to a profit compared to last year. Overseas, Asia was mostly higher, while Europe is mixed.

As of 8:53 a.m. ET, the June S&P 500 Index Globex future is 2 points above fair value, the Nasdaq 100 Index is 3 points above fair value, and the DJIA is 23 points above fair value. Crude oil is up $0.71 at $85.88 per barrel, and the Bloomberg gold spot price is up $9.95 at $1,176.80 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.3% at 81.73.

Dow member Chevron Corp. (CVX $82) reported 1Q EPS of $2.27, compared to the $1.95 consensus estimate of Wall Street analysts, with revenues growing 33% year-over-year (y/y) to $48.18 billion, but short of the $57.2 billion that analysts were forecasting.

MetLife Inc. (MET $46) reported 1Q EPS ex-items of $1.01, four cents above the Street’s expectations, with revenues increasing 17% y/y to $13.1 billion, above the $12.9 billion that the Street was forecasting. The company said improved equity market levels, solid underwriting results and its expense savings efforts contributed to its performance. MET’s premiums, fees and other revenues rose 12% y/y, driven by growth in both its US and international businesses.

Homebuilder D.R. Horton Inc. (DHI $14) posted a fiscal 2Q profit, with earnings of $0.04 per share, versus a loss of $0.34 per share last year, and compared to the flat profit expectation of analysts. Revenues rose 16% y/y to $897 million, above the $874 million that the Street was looking for, with net sales orders increasing 55% y/y and closings up 19%. The company said market conditions in the homebuilding industry are still challenging, with rising foreclosures, significant existing home inventory levels, high unemployment, tight mortgage lending standards, the expiration of certain government support and weak consumer confidence.

First read on US output comes in roughly inline with expectations

The first look at 1Q Gross Domestic Product, the broadest measure of economic output, was released this morning and showed a 3.2% annualized rate of growth, compared to the 5.6% advance in 4Q, while the Bloomberg forecast of economists called for output in the first quarter of the year to increase 3.3%. Personal consumption advanced 3.6%, above the 3.3% that was forecasted. Real final sales, which exclude changes in inventory, were 1.6% higher, versus the 1.7% that was reported in 4Q.

The GDP Price Index rose 0.9%, matching the consensus of economists. The core PCE Index, which excludes food and energy, increased 0.6%, versus expectations of 0.5%.

Elsewhere, the Employment Cost Index for 1Q rose 0.6%, slightly above the Bloomberg consensus, which called for the index to rise by 0.5%. Treasures remained modestly lower following the GDP and employment cost data.

Later this morning, the economic calendar will yield the Chicago PMI, expected to increase from a 58.8 in March to 60.0 in April, and the final revision of the University of Michigan’s Consumer Sentiment Index, which is expected to be revised slightly higher to 71.0 for April, compared to the 69.5 that was originally reported for the month.

Europe mixed as Greece debt fears ease but oil and gas shares pressured

Stocks in Europe are mixed in afternoon action, as optimism regarding an expected weekend agreement on the bailout package for Greece is being offset by weakness in the oil and gas sector and a disappointing report from Barclays Plc (BCS $22). The upbeat sentiment in financials on the aforementioned optimism toward Greece is being limited by a solid decline in BCS after it reported 1Q profits rose 29% y/y but analysts were disappointed by the performance out of its capital unit. The energy sector is being bogged down by another decline in shares of BP Plc (BP $53) on the continued fallout from its oil well leak, which has now been forecasted to be leaking 5,000 barrels a day into the Gulf of Mexico—up from an earlier estimate of 1,000 barrels per day. Also, the pressure on the group is being exacerbated by a smaller-than-expected 1Q profit reported by fellow oil and gas firm Total SA (TOT $56), which is trading lower.
The economic front is also in focus across the pond to add to the mixed sentiment, headlined by an unexpected deterioration in a UK consumer confidence gauge for April, larger-than-expected increases in Italian and Spanish unemployment rates, while the euro-zone unemployment rate remained unchanged at 10.0% in March. Elsewhere, inflation data was in focus, with euro-zone CPI rising 1.5% y/y in April, inline with economists’ expectations, Italian CPI and PPI both topping forecasts, while French producer prices rose by an amount that was expected.

Britain’s FTSE 100 Index is down 0.4% and France’s CAC-40 Index is 0.3% lower. However, Germany’s DAX Index is advancing 0.1%, Italy’s FTSE MIB Index is up 0.3%, Spain’s IBEX 35 Index is gaining 0.6%, and Greece’s Athex Composite Index is 0.1% higher.

Asia mostly higher on a plethora of data

Stocks in Asia were mostly higher amid the backdrop of easing concerns regarding Greece and the solid gains for the US equity markets, while faced with some earnings and economic data. Japan’s Nikkei 225 Index rose 1.2% after being closed yesterday for a holiday, with the economic front in focus. The Bank of Japan left its benchmark interest rate unchanged at 0.1%, as expected, saying that its economy faces the “critical challenge of overcoming deflation” and returning to a sustainable growth path with price stability. The BoJ added that it will aim to maintain the “extremely accommodative financial environment.” Other reports from the Japanese economic calendar included the nation’s jobless rate ticking higher to 5.0% in March, versus the expectation of economists that it would remain at 4.9%, CPI falling 1.1% y/y in March to match forecasts, and industrial production increasing 0.3% month-over-month (m/m) in March, short of the 0.8% that was anticipated. In other Asian economic news, South Korea’s industrial production rose 1.6% m/m in March, compared to the 0.5% increase that was expected, and Thailand’s trade surplus widened in March. South Korea’s Kospi Index rose 0.8% on the industrial production report and after Samsung Electronics Co. (SSNLF $656) posted its biggest quarterly profit ever in 1Q, topping analysts’ estimates led by strength in its chip unit, while it boosted its spending outlook and forecasted higher profits for 2Q.

Meanwhile, Australia’s S&P/ASX 200 Index increased 0.5% as a solid gain in Macquarie Group (MQBKY $46) on its 21% increase in full-year profits helped the equity markets overcome weakness in the mining sector on concerns the government is nearing the announcement of a tax hike on the industry. Stocks in China were higher, with optimism toward banks supporting a 1.6% increase for Hong Kong’s Hang Seng Index, while the Shanghai Composite Index rose 0.1%. Elsewhere, Taiwan’s Taiex Index fell 0.6%, India’s BSE Sensex 30 Index gained 0.3%, and the Stock Exchange of Thai Index jumping 1.4%.