Morning Market Update

Stocks Looking to Rebound as Earnings Continue to be Abound

US equity markets are trading higher in early action, rebounding somewhat from yesterday’s steep decline that came on disappointing 3Q results out of the tech sector and on exacerbated concerns regarding the foreclosure mess unfolding in the US banking sector. Today’s earnings calendar is again chock full of major reports, highlighted by better-than-expected profits from Dow members Boeing Co and United Technologies, but Yahoo Inc, Morgan Stanley, and Wells Fargo announced mixed results for the quarter. Treasuries are mixed in morning trading, showing little reaction to a drop in mortgage applications, as traders await a key piece of data used by the Federal Reserve to construct monetary policy. Overseas, Asia was mixed as Japan moved solidly lower in reaction to the surprise rate hike in China yesterday, while Europe is gaining ground as a report suggested Bank of England policymakers are nearing the deployment of further stimulus.

As of 8:55 a.m. ET, the December S&P 500 Index Globex future is 4 points above fair value, the Nasdaq 100 Index is 6 points above fair value, while the DJIA is 27 points above fair value. Crude oil is up $0.48 at $80.64 per barrel, and the Bloomberg gold spot price is up $4.80 at $1,336.85 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.7% at 77.68.

Yahoo Inc. (YHOO $15) reported 3Q EPS ex-items of $0.16, one penny above the estimate of analysts surveyed by Reuters, with revenues excluding traffic acquisition costs (TAC) declining 0.6% year-over-year (y/y) to $1.12 billion, compared to the $1.13 billion that the Street was anticipating. The world’s number-two internet search engine said display advertising revenue growth was “good,” and margins were double what they were last year. YHOO issued 4Q revenue guidance that missed analysts’ forecasts.

Morgan Stanley (MS $25) posted 3Q EPS ex-items of $0.05, including a $0.30 per share loss on debt-related credit spreads and a $0.12 per share gain from a tax item, compared to the $0.15 that the Street had expected, but it was unclear if analysts had factored in the aforementioned items included in the company’s earnings results. However, although revenues fell 20% y/y to $6.8 billion, the results beat the $6.4 billion that was anticipated by analysts.

Dow member United Technologies Corp. (UTX $74) announced 3Q EPS of $1.30, compared to the $1.28 analyst estimate, with revenues increasing 1% y/y to $13.5 billion, but below the $13.9 billion that was expected on the Street. The industrial conglomerate said commercial aerospace aftermarket orders have rebounded “nicely,” but the commercial construction markets “remain weak.” UTX raised its 2010 EPS outlook to the high end of its prior range.

Fellow Dow component Boeing Co. (BA $69 ¹) achieved 3Q EPS of $1.12, six pennies above the Street’s forecast, with revenues growing 2% y/y to $17.0 billion, compared to the $16.8 billion that analysts expected. BA raised its full-year EPS guidance.

Wells Fargo & Co. (WFC $25) reported 3Q EPS of $0.60, five cents north of the expectation of analysts, with revenues of $20.9 billion coming up just shy of the $21 billion that was expected on the Street.

Mortgage applications fall as refis stall, Fed economic assessment tool on the horizon

The MBA Mortgage Application Index fell 10.5% last week, after the index that can be quite volatile on a week-to-week basis, jumped 14.6%, led by a surge in refinancing in the previous week. The solid decline came as the Refinance Index fell 11.2%, teaming up with a 6.7% drop in the Purchase Index. The decrease in the overall index came amid an increase in the average 30-year mortgage rate from the record low of 4.21% on October 8, to 4.34% last week.

Treasuries are mixed, showing little reaction to the housing data, and ahead of what will likely be the week’s headlining economic event in form of the afternoon release of the Federal Reserve’s Beige Book today, wherein Fed staffers summarize anecdotal economic data from all twelve Federal Reserve districts in preparation for the next Federal Open Market Committee (FOMC) meeting scheduled for November 2-3. The Fed is concerned about the possibility of a period of falling prices, or deflation. In his speech on Friday, Fed Chair Ben Bernanke indicated “risk of deflation is higher than desirable,” and that there was “a case for further action” by the Fed, but he cautioned that possible costs must be weighed against benefits. Meanwhile, New York Fed President William Dudley has repeatedly said that in regard to the Fed’s dual mandate of maximum employment with price stability, the current situation is “wholly unsatisfactory.” As such, many market watchers believe that another round of quantitative easing, or QE2, is almost assured, and markets have begun to price in this possibility before it happens.

Europe modestly higher as Bank of England minutes suggest more easing

Stocks in Europe are higher in afternoon action, amid a rebound in basic materials from yesterday’s steep declines, aided by a report that showed Bank of England policy makers may be nearing the deployment of further monetary policy easing. The BoE report showed members were split three ways as to the direction its policy should take, with some feeling that the “likelihood that further monetary stimulus would become necessary in order to meet the inflation target in the medium term had increased in recent months.” Also, the advance across the pond is being aided by a solid gain in shares of BASF (BASFY $69) after the world’s largest chemical maker, per Bloomberg, increased its profit forecast for 2010 following its 3Q earnings results that topped expectations. Moreover, Peugeot SA (PEUGY $37) is gaining ground to help support the equity markets, after the car maker posted 3Q sales that exceeded analysts’ forecasts.

In economic news, German producer prices rose more than economists expected in September, Italian industrial orders more than doubled forecasts, and the UK fiscal budget deficit grew by a larger amount than expected to the biggest for any September since records began in 1993, per Bloomberg.

The UK FTSE 100 Index is 0.2% higher, France’s CAC-40 Index is up 0.5%, Germany’s DAX Index advancing 0.3%, and Italy’s FTSE MIB Index is gaining 0.8%.

Asia mixed after surprise rate hike in China

The equity markets in Asia were mixed amid concerns about a slowdown in the global economic recovery after the Chinese central bank increased its benchmark lending and deposit rates for the first time since 2007. Japan’s Nikkei 225 Index fell 1.7% to lead the decline as export issues found weakness, exacerbated by yesterday’s steep decline in US stocks on concerns regarding the potential foreclosure crisis emerging in the banking sector.

Meanwhile, Australia’s S&P/ASX 200 Index declined 0.7% as the action in China promoted solid pressure on commodity prices, with the US dollar finding solid support and the outlook for the demand for resources if China slows being dampened. However, stocks in China showed some resilience as the Shanghai Composite Index erased early losses and finished 0.1%, but the Hong Kong Hang Seng Index remained in negative territory, falling 0.9%. Also, South Korea’s Kospi Index managed to post a gain, rising 0.7%, despite a report that showed the nation’s unemployment rate rose to 3.7% for September, and Taiwan’s Taiex Index rose 1.0% after a report showed the nation’s exports were higher than forecasted. Elsewhere, Thailand’s SET Index declined 0.1% after its central bank left its benchmark interest rate unchanged at 1.75%, as was expected by economists, and the nation’s trade surplus expanded by a much larger-than-expected amount. In other economic news in the region, Japan’s Leading Index was revised slightly higher, while Australia’s Leading Index declined.