Morning Market Update

Flat on Financial Reform and Despite Lower GDP Read

The US equity markets are nearly unchanged in early action, following yesterday’s disappointing slide, and after the early morning agreement between US lawmakers on financial industry regulatory reform and an unexpected downward revision to US 1Q GDP. Treasuries are nearly unchanged, paring modest gains following the GDP report, and ahead of a reading on consumer sentiment. On the equity front, Oracle Corp topped analysts’ profit projections, while Research in Motion posted a mixed earnings report. Overseas, Asia came under pressure, while financials are helping limit losses in Europe.

As of 8:55 a.m. ET, the September S&P 500 Index Globex future is 1 point above fair value, the Nasdaq 100 Index is 4 points above fair value, and the DJIA is 1 point below fair value. Crude oil is up $0.26 at $76.77 per barrel, and the Bloomberg gold spot price is up $7.55 at $1,251.00 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.1% at 85.83.

Oracle Corp. (ORCL $22) reported fiscal 4Q EPS ex-items of $0.60, topping the $0.54 Reuters estimate, with adjusted revenues rising 40% year-over-year (y/y) to $9.6 billion, above the $9.5 billion that analysts were expecting. The business software company said it “continues to take large chunks of market share away” from Germany’s SAP AG (SAP $46).

Research in Motion (RIMM $59) announced fiscal 1Q EPS of $1.38, four cents above the Street’s forecast, with revenues growing 24% y/y to $4.24 billion, below the $4.35 billion that analysts were expecting. Also, the maker of the Blackberry handheld device said it shipped 43% more units compared to the same period last year. Additionally, RIMM announced a stock repurchase program to buy up to 31 million common shares. The company issued 3Q EPS guidance that topped analysts’ forecasts.

The financial sector may receive larger-than-expected attention on Wall Street today following the early morning agreement between US lawmakers on financial regulatory reform, in a session that lasted more than 21 hours, per Reuters. The reform still needs to win final approval from both the House and Senate. The agreement includes new capital controls, derivative trading restrictions, and proprietary trading limitations.

Final read on 1Q GDP revised lower, read on consumer sentiment on the horizon

The final look at 1Q Gross Domestic Product, the broadest measure of economic output, was released this morning and showed a 2.7% annualized rate of growth, compared to the 3.0% gain in the first revision last month, and where economists surveyed by Bloomberg had forecasted for output in the first quarter of the year to remain. Personal consumption gained 3.0%, below the 3.5% that was forecasted and where the figure was revised to in May.

The GDP Price Index rose 1.1%, slightly above the consensus of economists, which called for it to remain at a 1.0% increase. The core PCE Index, which excludes food and energy, increased 0.7%, above expectations which called for it to remain at a 0.6% increase. Treasuries are nearly unchanged following the report, giving up early modest gains.

Later today, the final reading on the University of Michigan Consumer Sentiment Index for June will be released, expected to remain at 75.5, the highest reading since January 2008, increasing from a 73.6 reading in May.

In other global economic news, the G20 meeting of world leaders will commence over the weekend in Toronto, and may garner extra attention given the backdrop of the euro-area debt crisis and subsequent tough austerity actions across the region, China’s announcement this week that it will allow yuan currency fluctuation after being pegged to the US dollar for two years, and given the mixed US economic data and financial regulatory reform agreement early today.

Europe in the red as global economic worries continue to be fed

Stocks in Europe are under some pressure in afternoon action, with weakness in basic materials on global economic recovery worries lingering, which were agitated by yesterday’s steep losses in the US on a few disappointing earnings reports from some consumer-related firms. Also, oil and gas issues are helping pace the decline, led by another solid decline in shares of BP Plc (BP $29), hitting fourteen-year lows, amid concerns that a potential hurricane in the Gulf of Mexico over the weekend could disrupt the company’s oil leak containment and cleanup efforts as the first tropical storm of the hurricane season could make its way into the Gulf. However, financials are higher to help limit losses following the US industry reform agreement and amid a Financial Times report that new rules for European financial regulation moved closer to an agreement, but the report noted that discussions continue and further talks are scheduled for next week.

On the economic front across the pond, German import prices rose 0.6% month-over-month (m/m) in May, above the 0.2% gain that economists forecasted, and Germany released its IFO business climate survey by industry report, which showed manufacturing production deteriorated, construction orders declined, while retail trade and wholesale trade business both improved.

The UK FTSE 100 Index is 0.5% lower, France’s CAC-40 Index is down 0.8%, and Germany’s DAX Index is declining 0.7%, while Greece, following yesterday’s sharp drop, is higher with the Athex Composite Index increasing 0.1%.

Asia falls following US slide

Stocks in Asia were broadly lower on the heels of the solid decline in the US on concerns about the global recovery and amid lackluster profit reports in the world’s largest economy. Japan’s Nikkei 225 Index fell 1.9% to pace the decline, led by export issues that rely on sales in the US following the disappointing US reports and strength in the Japanese yen, which exacerbated the outlook for sales outside the Asian nation. The decline in Japan also followed a report that showed the country’s Consumer Price Index fell 0.9% y/y in May, compared to a 1.3% drop that economists expected, while excluding food and energy, consumer prices dropped 1.6% y/y, matching forecasts. However, shares of Bridgestone Corp. (BRDCY $34) were able to gain ground in Japan, after the nation’s largest tiremaker hiked its first half profit forecast and issued a full-year earnings outlook that came in above analysts’ estimates. Meanwhile, Taiwanese stocks were among the leading decliners, with the Taiex Index falling 1.5%, in the wake of yesterday’s unexpected interest rate increase by the country’s central bank, which weighed on real-estate companies, along with today’s pledge by the nation’s central bank to increase oversight of the mortgage market. Elsewhere, Australian stocks came under pressure amid the aforementioned global economic uneasiness, and on uncertainty in the mining industry about the pending hefty tax on mining firms as the nation’s newly appointed prime minister seeks to negotiate and reach a consensus on the tax.

However, stocks in China faired relatively the best, with Hong Kong’s Hang Seng Index dipping 0.2%, while the Shanghai Composite Index declined 0.5%. Rounding out the day, South Korea’s Kospi Index decreased 0.6% and India’s BSE Sensex 30 Index fell 0.9%.