Morning Market Update

Modest Losses Seen as Profits Season Gains Steam

US stocks are slightly below the flatline in morning trading as traders digest a plethora of major profit reports as 2Q earnings season heats up, highlighted by Dow members General Electric Co. and Bank of America Corp both exceeding the Street’s profit projections. Meanwhile, Citigroup also topped analysts’ earnings expectations, but Google Inc missed bottomline expectations. In other US equity news outside of the earnings front, Goldman Sachs Group Inc confirmed late-day reports yesterday that it has settled an SEC fraud case, paying a record $550 million. Treasuries are nearly unchanged in early trading, following another subdued inflation report, and ahead of a read in consumer sentiment. Overseas, Japanese stocks led Asia lower, while Europe is gaining ground after BP Plc announced that it has temporarily capped the Gulf of Mexico oil leak.

As of 8:51 a.m. ET, the September S&P 500 Index Globex future is 3 points below fair value, the Nasdaq 100 Index is 4 points below fair value, while the DJIA is 27 points below fair value. Crude oil is down $0.30 at $76.32 per barrel, and the Bloomberg gold spot price is down $16.60 at $1,191.65 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.2% at 82.18.

Dow member General Electric Co. (GE $15 ¹) reported 2Q EPS of $0.30, three cents above the Reuters estimate, with revenues declining 4% year-over-year (y/y) to $37.4 billion, short of the $38.2 billion that the Street had expected.

Fellow Dow component Bank of America Corp. (BAC $15 ¹) posted 2Q EPS of $0.27, above the $0.22 that analysts were anticipating, with revenues net of interest expense dropping 11% y/y to $29.2 billion, compared to the $29.8 billion that was forecasted by the Street.

Meanwhile, Citigroup Inc. (C $4) announced 2Q earnings of $0.09 per share, four pennies above what was forecasted by analysts, with revenues falling 26% y/y to $22.1 billion, roughly inline with the consensus estimate of analysts.

Elsewhere on the earnings front, Google Inc. (GOOG $494) released its 2Q results, which showed the world’s largest internet search engine posted profits excluding items of $6.45, but that was shy of the $6.50 that was expected. Revenues, excluding traffic acquisition costs (TAC), came in at $5.09 billion, above the Reuters estimate, excluding TAC, of $4.99 billion.

Goldman Sachs Group Inc. (GS $145) confirmed that it has agreed to a settlement with the US Securities and Exchange Commission (SEC) to resolve the SEC’s pending case against the firm, which alleged that GS misled investors relating to a subprime mortgage financial security. GS will have to pay a record $550 million to settle the charges and the company said it entered into the settlement without admitting or denying the SEC’s allegations.

Consumer prices remain benign, consumer sentiment check on deck

The Consumer Price Index showed prices at the consumer level were down 0.1% in June month-over-month (m/m), matching the forecast of economists, after falling 0.2% in May. Meanwhile, the core rate, which strips out food and energy, rose 0.2% in June after rising 0.1% in May, just above the estimate of a 0.1% increase. On a year-over-year basis, consumer prices were up 1.1% in June, down from the 2.0% rate in May, and the core CPI was 0.9% higher y/y. Treasuries are nearly unchanged following the inflation report.

Later this morning, the economic calendar will yield the release of the preliminary University of Michigan’s Consumer Sentiment Index, forecasted to decline from 76.0 in June to 74.0 in July.

Europe moving higher as BP offers encouraging Gulf-leak progress

Stocks in Europe are advancing in afternoon action, led by gains in basic materials and oil and gas issues amid a mixed bag of key earnings reports in the US and as BP Plc. (BP $39) is solidly higher after it announced that it has at least temporarily stopped the oil leak in the Gulf of Mexico. BP said it is analyzing data from a pressure test after it placed a containment cap on the leaking well to try to determine if it can remain sealed. BP said even if no oil is released during the test, this will not be an indication that oil and gas flow has been permanently stopped. BP is also getting a boost from reports that the company is close to announcing a deal to sell some of its assets, although BP has not confirmed that reports. In other equity news, shares of fertilizer firm Yara International (YARIY $34) are nicely higher to help the advance, following its better-than-expected 2Q profit report.

Economic news across the pond is relatively light, with the euro-zone trade balance coming in at a larger-than-anticipated deficit, while Italy’s trade deficit widened, and Spain reported that its 2Q home prices fell 0.9% quarter-over-quarter (q/q).

The FTSE 100 Index is 0.8% higher, France’s CAC-40 Index is up 0.2%, Germany’s DAX Index is gaining 0.5%, Italy’s FTSE MIB Index is advancing 0.2%, and Spain’s IBEX 35 Index is rising 0.2%.

Asia lower on disappointing US data

Stocks in Asia were mostly lower on the heels of some disappointing manufacturing data out of the US, which stunted optimism regarding the global economic recovery. Japan’s Nikkei 225 Index fell 2.9% to lead the decline on the disappointing US data, which prompted strength in the yen versus the dollar, dampening the outlook for revenues of large export stocks, exacerbating sentiment in Japan. Nintendo Co. (NTDOY $35), a Japanese firm that relies heavily on sales outside the country, came under pressure on the appreciation in the yen and after the video game console maker said yesterday that its US sales of its DS handheld device fell by more than 30%. Also, a report that showed Japanese department store sales fell 6% year-over-year (y/y) in June did little to help limit pressure in the region. Meanwhile, South Korea’s Kospi Index declined 0.7%, as a sizeable drop in shares of automaker Hyundai Motor Co. (HYMLF $67) helped pace the decrease in the equity markets, as increasing concerns about a potential strike at the company’s domestic facilities. The decline in South Korea came despite a report showing an 11.3% y/y jump in the nation’s department store sales for June. In other economic news, New Zealand consumer prices rose by a smaller-than-expected amount for 2Q, and the NZX 50 Index declined 0.6%.

Elsewhere, China’s Shanghai Composite Index and Hong Kong’s Hang Seng Index both finished flat, and Australia’s S&P/ASX 200 Index and Taiwan’s Taiex Index both declined 0.5%, while India’s BSE Sensex 30 Index rose 0.3%.