Morning Market Update

Stocks See Red with Eye on the Fed

The global equity markets are being pressured by weakness in commodity prices as the US dollar is gaining ground as traders are expressing some uncertainty in regard to whether the US Federal Reserve will deliver enough stimulus measures that have been factored into the markets at its meeting next week. Also, a mixed US durable goods report is adding to the uneasiness in early action. Treasuries are mixed after paring early losses following the durable goods data, and ahead of the release of new home sales. The focus on the Fed and economic front is overshadowing earnings news that includes Dow member Procter & Gamble Co, Comcast Corp and ConocoPhilips all topping the Street’s profit expectations, while Sprint Nextel Corp posted a wider-than-anticipated loss. Overseas, Asia was mostly lower on the weakness in materials, while Europe is mixed on diverging earnings reports and the aforementioned uncertainty toward the Fed.

As of 8:46 a.m. ET, the December S&P 500 Index Globex future is 6 points below fair value, the Nasdaq 100 Index is 9 points below fair value, while the DJIA is 43 points below fair value. Crude oil is down $0.78 at $81.77 per barrel, and the Bloomberg gold spot price is down $12.20 at $1,328.25 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.3% at 77.89

Dow member Procter & Gamble Co. (PG $63) reported fiscal 1Q EPS of $1.02, compared to the $1.00 consensus estimate of analysts surveyed by Bloomberg, with revenues increasing 2.0% year-over-year (y/y) to $20.1 billion, versus the $20.2 billion that had been expected. The consumer products conglomerate said it saw broad-based volume growth, and organic sales, which exclude the impact of acquisitions, divestitures and foreign exchange, rose by 4% y/y. PG said pricing reduced net sales by 1%, while geographic and product mix reduced sales by 2%, and unfavorable foreign exchange negatively impacted sales by 3%. The company added that the gross margin contracted 70 basis points due mainly to higher commodity costs. PG offered full-year and 2Q EPS guidance that was roughly inline with the Street’s forecast.

Comcast Corp. (CMCSA $20) announced 3Q EPS ex-items of $0.32, two cents above the Street’s expectation, and revenues rose 7% y/y to $9.5%, slightly above the $9.4 billion that analysts were anticipating. The cable television firm said its results were driven by overall customer growth, a robust advertising market and continued strength in business services.

ConocoPhillips (COP $61) achieved 3Q EPS of ex-items of $1.50, compared to the $1.45 that analysts were anticipating. The company said production from its exploration and production segment declined from 1.79 million barrels of oil equivalent per day to 1.72 million barrels, due to “normal field declines,” primarily in North America and Europe, as well as asset dispositions.

Sprint Nextel Corp. (S $5) reported a 3Q net loss of $0.30 per share, a larger shortfall than the loss of $0.28 per share that analysts had expected, with revenues increasing 1% y/y to $8.2 billion, topping the $8.0 billion that the Street was looking for. The phone service provider said it achieved its best total company wireless subscriber net additions since 2006, adding 644,000 subscribers driven by positive net postpaid—customers under contract, which are highly coveted in the industry—subscriber growth. S also said it had the best y/y improvement in postpaid customer churn in five years and demand for smartphones “remained strong.”

Durable goods orders mixed, mortgage applications rise, new home sales on deck

Durable goods orders (chart) rose 3.3% month-over-month (m/m) in September, better than the 2.0% increase that was expected by economists surveyed by Bloomberg, while August’s figure was favorably revised from a 1.3% drop to a decline of 1.0%. Ex-transportation, orders unexpectedly fell, dropping by 0.8%, compared to the expectation of a 0.5% increase, and August was adjusted from a 2.0% increase to an advance of 1.9%. Non-defense capital goods excluding aircraft, considered a good proxy for business spending also surprisingly slipped, falling by 0.6% in September, compared to the 0.8% increase that was anticipated, and after jumping by an upwardly revised 4.8% in August. Treasuries are mixed, paring losses following the report.

In other economic news, the MBA Mortgage Application Index rose 3.2% last week, after the index that can be quite volatile on a week-to-week basis, fell 10.5% in the previous week. The increase came as the Refinance Index gained 3.0%, joining a 3.9% advance in the Purchase Index. The upward move in the overall index came amid a 9 basis point drop in the average 30-year mortgage rate to 4.25%, just above the record low of 4.21% on October 8.

Later this morning, new home sales will be released, expected to show a 4.2% m/m increase in September to an annual rate of 300,000 units, after coming in at a 288,000 unit rate in the prior two months (economic calendar). New home sales are considered a more timely indicator of conditions in the housing market than existing home sales, which rose a better-than-expected 10.0% m/m when released Monday.

Europe mixed on divergent earnings reports

Stocks in Europe are mixed in afternoon action as financials are gaining ground as shares of Deutsche Bank AG (DB $57) are solidly higher after Germany’s largest bank posted 3Q earnings that exceeded analysts’ forecasts. However, technology shares are under pressure to stymie the advance in Europe, as shares of SAP AG (SAP $54) are solidly lower after the world’s largest business-management software maker reported 3Q profits that missed analysts’ forecasts. Also, materials are one of the worst performers as continued strength in the US dollar is pressuring commodity prices, amid concerns surfacing that the US Federal Reserve’s highly-anticipated stimulus efforts expected to be announced next week will come up short of what has already been priced into the markets.

In economic news across the pond, France’s consumer spending jumped much more than economists had forecasted m/m in September, and Germany’s consumer prices rose 0.1% m/m in October, which was inline with expectations. On a y/y basis, German consumer prices are up 1.3% as anticipated.

The FTSE 100 Index is down 0.5%, France’s CAC-40 Index is flat, and Germany’s DAX Index is gaining 0.1%.

Asia mostly lower amid caution toward the US

Stocks in Asia were mostly lower as traders treaded cautiously ahead of the US Federal Reserve’s monetary policy meeting and mid-term elections next week, with uncertainty regarding the size of the highly-expected stimulus efforts by the Fed hampering conviction. Also, earnings are beginning to fly in Asia and the results have been met with a mixed response. Australia’s S&P/ASX 200 Index declined 0.9% on weakness in mining issues on lower commodity prices, and exacerbated by a profit forecast by MacArthur Coal Ltd. (MACDY $25) that came up short of some analysts’ expectations. The weakness in the resource group overshadowed a steep rise in earnings and upbeat outlook by National Australia Bank (NABZY $24). However, stocks in Japan managed to avoid the broad-based decline in the region, with the Nikkei 225 Index increasing 0.1%, led by export issues as the Japanese yen weakened for the second-straight session, coming further off of the fifteen-year high is reached compared to the US dollar. After the closing bell in Japanese trading, the world’s largest camera maker, per Bloomberg, Canon Inc. (CAJ $46) reported a sharp jump in profits that exceeded expectations and raised its full-year earnings forecast.

Elsewhere, South Korea’s Kospi Index declined 0.5% after the nation’s 3Q GDP decelerated to half of 2Q’s rate, expanding 0.7% quarter-over-quarter (q/q), and compared to the 0.8% growth that economists had expected. Meanwhile, China’s Shanghai Composite Index fell 1.5% and Hong Kong’s Hang Seng Index dropped 1.9% to lead the way ahead of some major earnings reports in the region this week. In other economic news in Asia, Australia’s consumer prices rose by a smaller amount than anticipated in 3Q, and a gauge of Japanese small business confidence deteriorated in October.