Morning Market Update

US Dollar Strengthens to Cause Equity Markets to Weaken

The US equity markets have turned below the unchanged mark in early action as the US dollar is gaining ground in morning action, offsetting a slew of better-than-expected profit reports. Dow member DuPont, along with Texas Instruments, Ford Motor Co, and Amgen Inc all posted profits that exceeded analysts’ forecasts. Treasuries are lower in morning action, following a lackluster report on US home prices in August, and ahead of readings on consumer confidence and regional manufacturing activity. Overseas, Asia was mixed as the yen flirted with another new fifteen-year high versus the dollar, and European equities are being pressured by disappointing data from the earnings front, which is more than offsetting a better-than-forecasted 3Q GDP report out of the UK.

As of 8:46 a.m. ET, the December S&P 500 Index Globex future is 3 points below fair value, the Nasdaq 100 Index is 7 points below fair value, while the DJIA is 31 points below fair value. Crude oil is down $0.31 at $82.21 per barrel, and the Bloomberg gold spot price is down $7.00 at $1,332.85 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.5% at 77.50.

Dow member DuPont (DD $48) reported 3Q EPS of $0.40, six cents above the consensus estimate of analysts surveyed by Bloomberg, with revenues growing 17% year-over-year (y/y) to $7.0 billion, compared to the $6.8 billion that the Street was looking for. The conglomerate said it saw “robust” volume increases in all segments, led by safety & protection and electronics & communications, while emerging markets also achieved solid sales growth. But the company said earnings were negatively impacted by lower pharmaceuticals income related to patent expirations. DD raised its full-year EPS outlook, reflecting strong 3Q results and expectations for sustained demand in key global markets, continued pricing momentum and benefits from ongoing productivity.

Texas Instruments Inc. (TXN $29) posted 3Q earnings of $0.71 per share, above the $0.69 forecast by analysts, with revenues jumping 30% y/y to $3.7 billion, roughly inline with the Street’s expectations. The semiconductor company said it had “strong” performance driven by growth in all its segments, with demand from industrial markets “especially strong,” while consumer demand cooled, impacting markets such as computing and televisions. TXN said its expects lower revenue quarter-over-quarter (q/q) in 4Q, reflecting a combination of seasonal patterns, continued soft demand in computing and consumer markets, and slowing growth in the industrial market. The company’s 4Q EPS and revenue outlooks were inline with what analysts were expecting.

Ford Motor Co. (F $14) announced 3Q profits of $0.48 per share, ten cents above the consensus forecast of analysts, with revenues increasing $1.7 billion y/y, excluding last year’s revenues from its recently sold Volvo unit, to $29.0 billion, compared to the $28.6 billion that the Street had expected. The automaker also announced further actions to reduce debt and strengthen its balance sheet including: paying down its revolving credit line by $2 billion, fully repaying the remaining $3.6 billion of debt owed to its retiree health care trust, and conversion offers on two convertible debt securities. The company now expects its automotive cash to be about equal to its debt by year end, earlier than previously expected.

Amgen Inc. (AMGN $58) achieved adjusted 3Q EPS of $1.36, above the $1.27 that was anticipated, with revenues flat y/y at $3.8 billion, matching the Street’s expectations. The biotechnology firm said total product sales increased 1% y/y, with US sales nearly unchanged after being negatively impacted by the US Health Care Reform, while international sales rose 2% as changes in foreign exchange negatively impacted results.

Home prices disappoint, consumer confidence report waiting in the wings

Just before the opening bell, the S&P/Case-Shiller Home Price Index was released showing an increase in home prices of 1.7% y/y in August, compared to the increase of 2.10% that economists surveyed by Bloomberg had expected. Month-over-month (m/m), home prices were 0.28% lower, compared to forecasts, which called for a decline of 0.20%. Treasuries remain lower following the home price data.

Later this morning, the economic calendar will yield the releases of the Consumer Confidence Index, forecasted to improve from 48.5 in September to 49.9 in October, and the Richmond Fed Manufacturing Index, expected to increase from -2 in September to 1 for October.

Europe under pressure on earnings and economic data

Stocks in Europe are lower in afternoon action with materials and financials leading the decline as traders are reacting to some disappointing earnings and economic data across the pond, which are overshadowing a favorable 3Q GDP report out of the UK. Shares of UBS AG (UBS $18) are solidly lower even after the company posted better-than-forecasted 3Q profits, as a decline in its wealth management revenue on lower client activity and a q/q drop in revenues at its fixed income, currencies & commodities unit are more than offsetting its bottom line results. Also, shares of ArcelorMittal (MT $35) are under heavy pressure after the world’s largest steelmaker issued 4Q earnings guidance that missed analysts’ forecasts on expected higher input prices and “muted” demand. The disappointing guidance accompanied MT’s 3Q profit report that matched expectations.

The economic front is doing little to help limit losses in Europe as a gauge of consumer confidence in Germany—Europe’s largest economy—unexpectedly remained flat compared to expectations of an increase for the month of November. The disappointing data is more than offsetting the UK 3Q GDP report, which showed output rose 0.8% q/q, after expanding 1.2% in 2Q, and compared to the 0.4% growth that was anticipated. Compared to last year, the UK’s 3Q GDP was 2.8% higher, topping the 2.4% increase that had been expected. In other economic news, Germany’s import prices rose more than expected, consumer confidence in France and Italy both unexpectedly improved, Sweden’s trade surplus expanded and the nation’s producer prices unexpectedly increased. On the monetary policy front in the region, Sweden’s central bank increased its benchmark interest rate by 25 basis points to 1.00% as expected.

The UK FTSE 100 Index and France’s CAC-40 Index are 0.8% lower, Germany’s DAX Index and Sweden’s OMX Stockholm 30 Index are declining 0.3%, while Italy’s FTSE MIB Index is down 0.4%.

Asia mixed ahead of key earnings and continued strength in yen

Stocks in Asia finished mixed with the Japanese yen continuing to push higher versus most major currencies and near a new fifteen-year high versus the US dollar, which dampened the outlook for profits of export issues. However, the yen has moved below the flatline as the US dollar has strengthened following the close of the equity markets in Asia. The Japanese Nikkei 225 Index slipped 0.3% amid the uneasiness toward the yen and ahead of some key earnings reports in the region this week. Stocks in China were also lower, with the Hong Kong Hang Seng Index declining 0.1% and the Shanghai Composite Index decreasing 0.3%. A sharp decline in shares of Chinese automaker BYD Co. Ltd. (BYDDY $74) after it reported a worse-than-expected 3Q earnings report pressured the markets, along with a larger-than-anticipated widening of the Hong Kong trade deficit as exports and imports both came in below expectations. Meanwhile, Australia’s S&P/ASX 200 Index declined 0.5% led by a steep decline in shares of Australia’s main stock exchange, ASX Ltd. (ASXFY $37), amid some caution about Singapore Exchange Ltd’s. (SPXCF $7) agreement to acquire ASX for A$8.4 billion ($8.3 billion), as it is subject to approval by government regulators. Also, ASX found pressure as several analysts expressed concern about the rationale of the merger. However, shares of South Korea’s Kospi Index rose 0.2% and Taiwan’s Taiex Index gained 0.4% to round out the day in Asia.