Morning Market Update

Rally in Remission on Earnings Misses and Flat Consumer Data

US stocks are under modest pressure in morning action as yesterday’s upbeat economic sentiment that led the steep gains in the global equity markets is waning amid a disappointing earnings report from Dow member Procter & Gamble, as well as flat readings of personal income and spending. Treasuries are higher amid the data, and ahead of readings on factory orders and pending home sales. In other US equity news, Dow component Pfizer Inc and MasterCard Inc posted better-than-forecasted profits, while Dow Chemical Co missed the Street’s profit and revenue forecasts. Overseas, Asia was mostly higher, while the upward momentum in Europe is stalling.

As of 8:54 a.m. ET, the September S&P 500 Index Globex future is 2 points below fair value, the Nasdaq 100 Index is 1 point below fair value, while the DJIA is 21 points below fair value. Crude oil is up $0.83 at $82.17 per barrel, and the Bloomberg gold spot price is up $4.15 at $1,187.00 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.5% at 80.51.

Dow member Procter & Gamble Co. (PG $62) reported fiscal 4Q EPS of $0.71, two cents shy of the Reuters estimate, with revenues increasing 5% year-over-year (y/y) to $18.9 billion, below the consensus estimate of analysts, which called for revenues of $19.1 billion. The consumer products company said its unit volume growth accelerated but it issued fiscal 1Q earnings guidance that missed expectations.

Fellow Dow component Pfizer Inc. (PFE $15) posted EPS ex-items of $0.62, ten pennies above the Street’s forecast, with revenues jumping 58% y/y to $17.3 billion, above the $16.7 billion that was anticipated by analysts. The drugmaker said its performance reflects a more balanced business mix and product portfolio. PFE said it sees its full-year EPS being at the upper end of its prior guidance range.

Dow Chemical Co. (DOW $28 ¹) announced that 2Q earnings ex-items were $0.54 per share, short of the $0.56 expectation, with revenues rising 20% y/y to $13.6 billion, just below the $13.7 billion that analysts were forecasting.

MasterCard Inc. (MA $203) achieved 2Q profits of $3.49 per share, above the $3.33 that the Street was looking for, as revenues rose 6.7% y/y to $1.4 billion, roughly inline with analysts’ expectations.

Personal incomes and spending flat, inflation remains benign

Personal income was flat in June, versus the Bloomberg survey of economists, which called for a 0.2% increase, while May’s 0.4% increase was revised to a 0.3% gain. Personal spending was also unchanged in June, compared to expectations of a 0.1% rise, and May’s 0.2% increase was revised to a 0.1% rise. The savings rate ticked higher to 6.4% in June, after a 6.3% reading for May.

Also, the PCE Price Index, which is released with the income and spending data, was up 1.4% y/y in June, after May’s upwardly revised 2.1% increase, slightly above the consensus forecast of a 1.3% increase. The core PCE Price Index, which excludes food and energy, was flat month-over-month (m/m), versus the 0.1% increase that economists expected. Year-over-year, core prices moved 1.4% higher, above the consensus of economists surveyed, which called for a 1.3% gain. Treasuries are higher, extending gains following the income and spending data.

Later this morning, the economic calendar will yield the releases of factory orders, forecasted to decline 0.5% in June, as well as pending home sales, which are expected to increase 4.0% in June after plunging 30% in May.

Europe momentum stalls as traders book some profits

Stocks in Europe are mostly lower in afternoon action, with a bout of profit taking from yesterday’s steep gains on better-than-expected manufacturing data and financial sector earnings reports weighing on the major equity markets. There is more positive news from the earnings front, with the world’s largest luxury car maker BMW (BAMXY $18) moving nicely higher after posting the biggest profit in 2 ½ years, per Bloomberg, topping expectations on solid demand in China and improvements seen in the US. Moreover, shares of Deutsche Post AG (DPSTF $17) are up solidly as Europe’s largest mail carrier, and parent of DHL, reported profits that topped estimates and the company boosted its full-year outlook.

The economic front is relatively light, with Spain reporting 73,800 jobs were lost in July but a separate report showed Spanish consumer confidence improved during the month, euro-zone producer prices were cooler than anticipated, and Switzerland’s consumer prices fell more than expected month-over-month in July.

The FTSE 100 Index and France’s CAC-40 Index are off 0.5%, Switzerland’s Swiss Market Index is down 0.1%, Germany’s DAX Index is flat, and Spain’s IBEX 35 Index is declining 0.1%.

Asia mostly higher on favorable global data

Stocks in Asia finished mostly higher, extending yesterday’s strong advance as better-than-expected manufacturing data in the US and Europe supported sentiment about the global economic recovery, along with favorable financial earnings out of the European banking sector. Stocks in Japan led the way, with the Nikkei 225 Index rising 1.3%, while equity markets in China lagged behind, as the Hong Kong Hang Seng Index increased 0.2% but the Shanghai Composite Index fell 1.7%. The mixed day in China came despite a report that showed expansion in the Chinese non-manufacturing sector accelerated in July compared to June. Meanwhile, the resource-reliant nation of Australia gained ground as the improved global economic sentiment increased the outlook for the demand for commodities, buoying the S&P/ASX 200 Index, which increased 0.7% despite some disappointing economic data. Australian retail sales rose by 0.2% in June, versus the 0.4% that was expected, and building approvals fell 3.3% month-over-month in June compared to the 2.0% increase that was forecasted. Also, the Reserve Bank of Australia kept its benchmark interest rate at 4.5% as expected, saying that the expansion has been uneven, with the major advanced countries recording only moderate growth overall but growth in Asia and Latin America being “very strong.” The RBA added that with growth likely to be close to trend, inflation close to target and the global outlook remaining somewhat uncertain, it judged this setting of monetary policy to be appropriate. Rounding out the day, South Korea’s Kospi Index increased 0.5%, Taiwan’s Taiex Index gained 0.6%, and India’s BSE Sensex 30 Index rose 0.2%.