Morning Market Update

Disappointing Data Dominating the Day

US stocks have given up a solid advance that began the day and are solidly lower heading into afternoon action as traders are focusing on the negative side of the corporate earnings ledger instead of the plethora of positive global profit reports. Technology shares are one of the biggest losers in today’s action on the heels of disappointing reports from Symantec Corp and NVIDIA Corp. Moreover, consumer-related issues are also being bogged down by disappointing sales and guidance from Colgate-Palmolive Co as well as a missed profit performance and reduced outlook from Kellogg Co. Treasuries are mixed after paring early losses that came from the positive open to today’s session, which was aided slightly by a modestly larger-than-forecasted drop in weekly initial jobless claims. Adding some uneasiness to the second half of trading, FOMC voting member James Bullard offered some dovish comments, including a warning about the possibility of a Japanese-style deflationary environment in the US. In other US earnings news, Dow member Exxon Mobil Corp, Visa Inc, and Motorola Inc all posted better-than-forecasted profits. Europe gave up an early gain that came from favorable earnings and economic data, finishing lower despite a larger-than-forecasted increase in euro-zone economic confidence and a drop in the unemployment rate in Germany—Europe’s largest economy.

At 1:02 p.m. ET, the Dow Jones Industrial Average is 0.6% lower, the S&P 500 Index is down 0.8%, while the Nasdaq Composite is declining 1.2%. Crude oil is up $0.99 at $77.98 per barrel, wholesale gasoline is up $0.02 at $2.09 per gallon, and the Bloomberg gold spot price is up by $0.65 at $1,164.25 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.6% at 81.64.

Dow member Exxon Mobil Corp. (XOM $60) reported 2Q EPS of $1.60, above the $1.46 Reuters estimate, with revenues jumping 24% year-over-year (y/y) to $92.5 billion, compared to the $98.3 billion that the Street was forecasting. XOM said its earnings jumped 85% y/y, reflecting higher crude oil realizations, improved downstream—refining—margins, and strong chemical results. Meanwhile the company’s oil and equivalent production increased 8% y/y. Shares have relinquished an early gain and are lower.

Visa Inc. (V $72) reported fiscal 3Q EPS of $0.97, four pennies above the Street’s forecast, while revenues grew 23% y/y to $2.03 billion, slightly above the $1.97 billion forecast, aided by “continued improvements” in global payments and processed transactions volumes. The credit card processor reaffirmed its full-year outlook. The company added that, “It goes without saying, the United States debit market will undergo changes following implementation of the Wall Street Reform and Consumer Protection Act next year,” but it said that it is “too early” to fully and accurately gauge the impact of the legislation. Shares are solidly lower.

Kellogg Co. (K $49) reported 2Q earnings ex-items of $0.89 per share, short of the $0.94 that analysts were expecting, with revenues declining 5% y/y to $3.1 billion, also shy of the $3.3 billion that the Street was looking for. The breakfast food firm said its 2Q results reflect the deflationary environment in the cereal category, particularly in the US and UK, softer sales at its Eggo unit, and the voluntary cereal recall. The company also lowered its full-year outlook, but it said it is anticipating a stronger back half. Shares are down solidly.

Colgate-Palmolive Co. (CL $78) posted 2Q profits of $1.17 per share, which exceeded the consensus estimate by one cent, with revenues rising 2% y/y to $3.8 billion, but was short of the $3.9 billion that the Street was anticipating. CL said it was “very pleased” to have delivered solid results in 2Q, despite heightened competitive activity and difficult economic conditions around the world. Also, the consumer products firm warned that foreign exchange volatility worldwide and the economic environment in Venezuela remain challenging, with an impact of a $0.10-0.15 per share reduction in full-year earnings expected, up from a previous forecast of between a $0.06-0.10 reduction. Shares are under solid pressure.

Symantec Corp. (SYMC $13) announced fiscal 1Q EPS ex-items of $0.35, matching expectations, as its revenues were flat y/y at $1.4 billion, below the $1.5 billion forecast. The technology security and storage firm’s CEO said during the quarter the company saw “lengthening of procurement cycles driven by continued cautiousness among IT buyers,” and this affected its storage management results. SYMC issued 2Q guidance that came in below the Street’s anticipation and shares are sharply lower.

NVIDIA Corp. (NVDA $9) is also under heavy pressure after the graphics chip maker lowered its 2Q revenue forecast to a range of $800-820 million, from its previous forecast of between $950-970 million. The company said the revenue shortfall occurred primarily in the consumer GPU—graphics procession chips—business, resulting from increased memory costs and economic weakness in Europe and China.

However, Motorola Inc. (MOT $8) is moving higher after the mobile phone maker reported 2Q EPS ex-items of $0.09, one cent above the Street’s forecast, and posted revenues that although dipped 1.5% y/y to $5.4 billion, were above the $5.2 billion that was anticipated by analysts. MOT said it shipped 8.3 million handsets and the company said its enterprise mobility solutions and network businesses posted strong operating earnings and excellent cash generation. MOT issued 3Q EPS guidance with a range that has a midpoint view that came in above the Street’s forecast.

Jobless claims decline to headline a light economic docket

Weekly initial jobless claims fell 11,000 to 457,000, versus last week's figure which was upwardly revised by 4,000 to 468,000, and compared to the consensus estimate of economists surveyed by Bloomberg, which called for claims to decrease to 460,000. The four-week moving average, considered a smoother look at the trend in claims, dropped by 4,500 to 452,500, while continuing claims rose by 81,000 to 4,565,000, compared to the increase to 4,500,000 that was anticipated by economists.

The jobless claims report was the lone major release scheduled on today’s economic calendar, but there was some Fedspeak today that deserves a mention. Federal Reserve Bank of St. Louis President and voting member of the Federal Open Market Committee (FOMC), James Bullard, offered some dovish comments regarding inflation, saying that the FOMC’s “extended period” language referring to the fed funds rate may be “increasing the probability of a Japanese-style deflationary outcome for the US within the next several years.” Bullard, in a recent research publication, concluded that, “an appropriate quantitative easing policy offers the best hope for avoiding a low nominal interest rate, deflationary outcome.”

Treasuries are mixed heading into afternoon action, paring early losses that came from some global earnings reports and the slightly larger-than-forecasted decline in jobless claims.

Europe gives up advance as US market slips gears

Stocks in Europe gave up an early advance and finished mostly lower as early enthusiasm that came from a slew of reports from both the corporate and economic arenas, was dampened by some mixed emotions in the US, which has Wall Street seeing red. However, telecommunications issues maintained their solid gains to limit losses across the pond as Telefonica SA (TEF $69) and France Telecom (FTE $21) moved nicely higher after they reported better-than-forecasted profits. Meanwhile technology issues gave up an early advance that came from a larger-than-anticipated first-half profits and improved outlook from French IT services firm Capgemini (CGEMY $24), finishing lower to weigh on equities in Europe. In other earnings news, Royal Dutch Shell (RDS/A $56) reported favorable 2Q earnings and AstraZeneca Plc. (AZN $52) announced that its 2Q profits exceeded forecasts and that a panel of advisers to the US Food and Drug Administration (FDA) voted in favor of the company’s heart drug.

Meanwhile the European economic calendar was chock full of reports, including a larger-than-forecasted increase in euro-zone economic confidence in July, Germany’s unemployment change and rate declined to match expectations, while separate reports showed UK home prices fell more than anticipated and UK mortgage approvals rose by an amount that missed estimates. Other reports across the pond that deserve a mention were an unexpected drop in Swedish retail sales but Sweden reported an improvement in consumer sentiment, Spain’s housing permits posted another steep decline, and Italian business confidence improved by an amount that topped expectations.

The UK FTSE 100 Index dipped 0.1%, France’s CAC-40 Index traded down 0.5%, Germany’s DAX Index declined 0.7%, and Sweden’s OMX Stockholm 30 Index decreased 0.2%, while Spain’s IBEX 235 Index advanced 0.2%, and Italy’s FTSE MIB Index rose 0.1%.