Morning Market Update

US GDP Grows Inline With Estimates

Stocks are modestly lower in early trading, showing little reaction to US gross domestic product data that came inline with estimates, while economic news from Japan and Europe weighed on trading in those markets. Earnings news continues to stream in, with better-than-expected profit results reported from Dow components Microsoft Corp and Merck & Co, while Chevron missed earnings estimates. Elsewhere, job website operator Monster Worldwide beat earnings and guided higher, while a string of negative earnings news out of Asia is paring gains in technology shares. Treasuries are mixed.

As of 8:45 a.m. ET, the December S&P 500 Index Globex future is 3 points below fair value, the Nasdaq 100 Index is 4 points below fair value, while the DJIA is 33 points below fair value. Crude oil is down $0.30 at $81.90 per barrel, and the Bloomberg gold spot price is up $4.80 at $1,348.85 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.3% at 77.52.

Dow component Microsoft Corp (MSFT $27) posted 1Q EPS of $0.62 per share, well ahead of the Street’s $0.55 estimate, as revenues rose 25% year-over-year (y/y) to $16.2 billion, above the $15.8 billion consensus forecast, on strong sales of the Windows 7 operating system and Office 2010. Chief Financial Officer Peter Klein on the earnings call said that the business-PC refresh cycle “should continue through at least the remainder of this fiscal year,” which ends in June, and that there was an “accelerated interest in the cloud” during the quarter, which drove a 40% sequential growth in subscriptions to the Azure platform for cloud computing.

Merck & Co (MRK $37), a fellow Dow member, also beat estimates, as 3Q EPS ex-items of $0.85 came in three cents better than the consensus, despite revenues of $11.12 billion falling short of the $11.24 billion forecast. Sales during the quarter were led by a 12% increase in the company’s biggest drug, asthma and allergy treatment Singulair, while cardiovascular drugs Vytorin and Zetia fell 7.6% and rose 1.4% respectively. Meanwhile, the company booked a $950 million reserve during the quarter to cover an anticipated resolution an investigation into the company’s former pain drug Vioxx.

Dow component Chevron Corp (CVX $83) announced 3Q earnings per share of $2.05, below the consensus $2.15 estimate, but revenues of $49.7 billion beat the $49.5 billion forecast. The company noted that they continue to “show gains in upstream production and progress on our downstream restructuring.” Additionally, the company announced that it would begin its share repurchase program during 4Q, after being approved by the Board in July 2010.

Shares of Monster Worldwide (MWW $17) are higher after the company reported a swing back to profitability, with 3Q EPS of $0.05 beating the Street estimate of break-even, as bookings growth excluding the HotJobs acquisition of 26% beat Monster’s prior forecast of 16-21%. The company also gave 4Q EPS guidance of $0.08, above the $0.05 consensus estimate, and increased its full-year bookings guidance ex-HotJobs to 20-21%, up from its prior view of 15-20%, while including the acquisition, bookings will grow 23-24%.

Gross domestic product grows in line with estimates

The first look at 3Q Gross Domestic Product, the broadest measure of economic output, was released this morning and showed a 2.0% annualized rate of growth, compared to the 1.7% increase expected by a survey of economists by Bloomberg, as personal consumption of 2.6% beat the 2.5% estimate.

The GDP Price Index rose 2.3%, above the 1.8% consensus of economists, and the core PCE Index, which excludes food and energy, increased 0.8%, below the 1.0% estimate. Treasuries are mixed after the GDP report.

Later this morning, the economic calendar will yield the final version of the University of Michigan’s Consumer Index for October, expected to be upwardly revised to 68.0 from the initial reading of 67.9, while still lower than the 68.2 mark hit in September.

European shares fall, while economic data weakens

Stocks in Europe remain lower in afternoon action, showing little reaction to the US GDP report. Meanwhile, European economic data was weak, with euro-zone inflation unexpectedly increasing to 1.9% in October, ahead of the 1.8% estimate, and just shy of the 2.0% target of the European Central Bank (ECB). Additionally, euro-zone unemployment rose to a 12-year high of 10.1%, marked on the high end by Spain’s 20.8% jobless rate. Elsewhere, consumer confidence in the UK modestly increased to a -19 reading, despite a decline in the money supply. European countries are fighting slow economic growth and fiscal austerity, manifested by the continued decline in Greek 10-year bonds, the spread of which rose 30 bps to 814 bps above the German 10-year bund.

In equity news, shares of British Airways (BAIRY $22) are lower after posting its first profit in two years on an uptick in travel, but issued a disappointing outlook, noting an uncertain global economic environment, and Total SA (TOT $54) beat estimates, but Sandvik AB (SDVKY $15), the world’s largest maker of metal-cutting tools according to Bloomberg, is lower after missing estimates, and Greek’s Piraeus Bank is declining after announcing a plan to raise capital by issuing shares in January.

The UK FTSE 100 Index is down 0.2%, France’s CAC-40 Index is lower by 0.4%, Germany’s DAX Index is declining 0.1%, Italy’s FTSE MIB Index is falling 0.6%, Spain’s IBEX 35 Index is flat, and Greece’s Athex Composite Index is tumbling 2.0%.

Asia falls on disappointing tech earnings and Japan’s economic slump

Stocks in Asia were generally lower, led by the Nikkei 225 Index falling 1.75% and South Korea’s Kopsi Index declining 1.3% after a string of disappointing earnings and economic data, as well as an increase in the yen weighed on sentiment. In Japan, Sharp Corp (SHCAY $10) fell after cutting its fiscal year profit forecast by 40%, citing a stronger yen and lower panel prices, while South Korea’s Samsung Electronics also noted declines in prices for liquid-crystal panels and computer-memory chips, as well as a strong South Korean won, for a cut in its 4Q earnings, and said it anticipates “severe” competition in TV prices during the year-end season. Meanwhile, Sony Corp (SNE $34) announced an increase in its full-year forecast as sales of gaming consoles rose and costs to build consoles fell, but also noted caution regarding the TV market in North America. In economic news, Japanese industrial production fell 1.9% in September, far worse than the 0.6% decline expected, and deflation worsened, as CPI fell 0.6% month-over-month (m/m) during the month and 1.1% y/y. Additionally, while the jobless rate improved in Japan, household spending was worse than expected.

In China, Hong Kong’s Hang Seng Index and the Shanghai Composite Index both lost 0.5%, on negative earnings announcements from China Life Insurance Co (LFC $65), China Unicom (CHU $14) and the Bank of Communications, which broke a string of profit beats among Chinese banks. China Unicom said that despite adding Apple Inc’s (AAPL $305) iPhone to its lineup, it missed estimates due to the high subsidy it needed to grant to new subscribers using the smartphone. In earnings news from financials, Australia’s Macqaurie Group Ltd (MQBKY $34) and India’s ICICI Bank Ltd (IBN $53) both beat estimates, and the Australian S&P/ASX 200 Index fell 0.5%, while the Indian BSE Sensex 30 rose 0.5%.