Morning Market Update

Positive Profit Season Commences to Pull Some off the Fences

The US equity markets are solidly higher heading into afternoon action with a favorable beginning to 3Q earnings season treating technology and financial sectors well following better-than-forecasted earnings reports from Dow members Intel Corp and JPMorgan Chase & Co. Also, transportation stocks are hauling in gains on the heels of a favorable profit report from CSX Corp, which is the first major railroad firm to release results. Meanwhile, sentiment is also receiving a boost from yesterday’s release of the minutes from the US Federal Reserve’s September monetary policy meeting, which boosted expectations that further stimulus efforts are likely in the offing. Treasuries are lower after import prices declined slightly more than expected and mortgage applications rose solidly on a jump in refinancing. In other equity news, Dow member Chevron Corp warned about lower 3Q earnings on a negative impact from the weak US dollar, while Walgreen Co announced a new $1 billion share repurchase program. Overseas, European markets gained solid ground as the aforementioned favorable data was amplified by a stronger-than-anticipated rise in euro-zone industrial production.

At 1:02 p.m. ET, the Dow Jones Industrial Average is up 1.1%, the S&P 500 Index is 1.0% higher, and the Nasdaq Composite is advancing 1.1%. Crude oil is up $1.32 at $82.99 per barrel, wholesale gasoline is up $0.04 at $2.16 per gallon, and the Bloomberg gold spot price is up by $19.80 at $1,370.15 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.2% at 77.13.

Dow member JPMorgan Chase & Co. (JPM $40) announced 3Q earnings of $1.01 per share, well above the $0.90 Reuters estimate, but revenues declined 15.4% year-over-year (y/y) to $24.3 billion, compared to the $24.8 billion that the Street was forecasting, but it is unclear if the analyst estimate was fully comparable. The company said its investment bank posted solid earnings, its commercial banking unit recorded record revenue, and its asset management has strong net asset inflows. In its card services unit, JPM said its net charge-offs—loans that the company does not expect to be repaid—and delinquencies—a gauge of future charge-offs—continued to improve, and it reduced its loan loss reserves by $1.5 billion. JPM’s CEO Jamie Dimon said the company is pleased to report a continued overall decline in credit costs, although its mortgage and credit card portfolios continued to bear “very high net charge-offs.”

However, JPM’s investment banking unit saw its revenues fall 14% compared to last quarter and 28% y/y to $5.4 billion, with its fixed income business revenues falling about 14% to $3.1 billion versus 2Q. The company said the decline in its fixed income unit compared to last year largely reflected lower results in credit and rates markets.

Meanwhile, fellow Dow member Intel Corp. (INTC $20) reported 3Q EPS of $0.52, two cents above analysts’ expectations, with revenues gaining 18% y/y to $11.1 billion, versus the $11.0 billion that the Street had expected. The world’s largest chipmaker’s PC client group posted record mobile microprocessors revenue, and record server microprocessor revenue aided its data center group. Also, the company said the average selling price for microprocessors was approximately flat quarter-over-quarter (q/q) and “up significantly” y/y. INTC said its results were driven by solid demand from corporate customers, and continued growth in emerging markets. The company said looking ahead, it continues to see healthy worldwide demand for computing products of all types and it expects 4Q revenues of $11.4 billion, plus or minus $400 million. Analysts were expecting the company report 4Q revenue of $11.2 billion. INTC is trading modestly lower.

However, Dow component Chevron Corp.(CVX $83) warned that 3Q earnings are expected to be lower than in 2Q, as the weakening of the US dollar is forecasted to reduce earnings by about $400 million, primarily in the international upstream—exploration and production—business segment. Also, CVX said higher expenses and lower crude oil realizations are expected to further reduce upstream earnings. Shares are lower.

Elsewhere, CSX Corp. (CSX $57) was the first railroad firm to report earnings for 3Q, posting a 48% y/y increase in profits to $1.08 per share, four cents above the Street’s expectation. Revenues rose 16% y/y to nearly $2.7 billion, which was roughly inline with analysts’ forecasts, as volume rose 10% y/y “in an improving marketplace.”

Outside of earnings news, Walgreen Co. (WAG $35) is moving higher after the pharmacy retailer reported that its Board of Directors authorized a new $1 billion share repurchase program. The company completed its previous $2 billion share repurchase program last month.

Import prices decline, mortgage applications rise

The Import Price Index declined 0.3% month-over-month (m/m) for September, compared to the expectation of economists surveyed by Bloomberg, which called for the index to decrease by 0.2%. Year-over-year (y/y), import prices are higher by 3.5%, versus the 3.8% forecast of economists. Treasuries are lower after slightly extending losses following the release.

In other economic news, the MBA Mortgage Application Index gained 14.6% last week, after the index that can be quite volatile on a week-to-week basis, inched 0.2% lower in the previous week. The solid increase came as the Refinance Index jumped 21.0%, to more than offset an 8.5% drop in the Purchase Index. The increase in the overall index came amid a 4 basis-point drop in the average 30-year mortgage rate to a new record low of 4.21%.

Europe nicely higher on boosted US Fed action expectation and favorable data

Stocks in Europe finished solidly higher, led by basic materials on the heels of yesterday’s release of the minutes from the US Federal Reserve’s September policy meeting, which reinforced growing expectations that the central bank is near the deployment of further economic stimulus. Also, an unexpected increase in Chinese lending helped buoy the outlook for the global recovery, lending additional support to the materials sector and stocks across the pond. Meanwhile, Intel Corp’s better-than-expected 3Q profit report helped technology shares pace the advance in Europe, amplified by the expectation-exceeding earnings report from Dutch chip-equipment maker ASML Holding (ASMLF $32), which traded well above the unchanged mark. However, some of the advance in stocks may have been limited by a solid decline in shares of Standard Chartered Plc. (SCBFF $30) after the UK bank announced plans to raise about 3.3 billion pounds ($5.2 billion) in capital through a rights offering in the wake of the recently agreed “Basel” global capital rules.

Moreover, the European economic calendar aided to the optimistic backdrop, after a report showed euro-zone industrial production rose 1.0% m/m in August, compared to the 0.8% increase that was anticipated, and y/y, production was 7.9% higher, topping the 7.4% gain that was expected. However, data out of the UK was mixed, with a gauge of consumer confidence in the region deteriorating more than expected, and jobless claims rising more than forecasted, while UK weekly earnings rose more than expected and the unemployment rate surprisingly ticked lower to 7.7%. Inflation was also in focus in Europe, with reports showing France’s consumer prices unexpectedly declined m/m in September, along with import and producer prices in Switzerland for September.

The UK FTSE 100 Index was 1.5% higher, France’s CAC-40 Index and Germany’s DAX Index advanced 2.1%, while Switzerland’s Swiss Market Index gained 1.3%.