Today's Morning Report

U.S. Overnight Market Commentary 

Dismal consumer sentiment data and a fall in revenue from GE and two big banks slammed U.S. stocks on Friday, driving down major indexes more than 2%. The slide in the S&P 500 was a decisive break of an 8% rise over the last two weeks as investors lost hope that strong earnings could overcome doubts about the economic outlook. "Economic recoveries rarely go smoothly," said Gail Dudack, chief investment strategist at Dudack Research Group in New York. "They're very sensitive to anything that helps or hurts confidence, on the corporate side and the consumer side." General Electric Co, Bank of America Corp and Citigroup Inc joined the list of major companies that beat Wall Street's expectations, but investors unloaded some shares of all three after the companies reported a drop in quarterly revenue. "The next step for earnings has to be top line or revenues, and revenues slowed down along with the consumer and the economy in the second quarter," Dudack said. Bank of America, the biggest U.S. bank, slid more than 9% and the S&P financial index dropped 4.4% as investors fretted about how banks will make money going forward. The Dow Jones industrial average dropped 261.41 points, or 2.52%, to 10,097.90. The Standard & Poor's 500 Index slid 31.60 points, or 2.88%, to 1,064.88. The Nasdaq Composite Index lost 70.03 points, or 3.11%, to 2,179.05. GE's stock fell 4.6% to US$14.55, while Citigroup lost 6.3% to US$3.90. Bank of America was down 9.2% at US$13.98. For the week, the Dow fell 1%, while the S&P 500 dropped 1.2% and the Nasdaq gave up 0.8%. Weak energy costs pushed consumer prices down for a third straight month in June, U.S. government data showed. That report and the Thomson Reuters/University of Michigan data were the latest in a string of economic indicators showing the pace of the recovery is slowing. Google Inc shares also sagged after the company missed profit expectations for the first time in two years. The stock was down 7% at US$459.61. Among the Nasdaq's other leading decliners, Gilead Sciences Inc tumbled 8.5% to US$31.94 after Jefferies cut its price target on the stock to US$38.00 from US$48.00. The Thomson Reuters/University of Michigan survey of consumers showed U.S. consumer sentiment fell far more than expected to 66.5 in a preliminary July reading, down sharply from 76.0, June's final number. Earlier, the U.S. Labor Department reported the U.S. Consumer Price Index dipped 0.1% in June, which was weaker than the forecast for no change. The S&P's consumer discretionary sector was among the biggest losers; the sector's index fell 3.5%.

Europe’s Overnight Market Commentary

European stocks moved higher at midday on Friday after U.S. bellwethers General Electric Co and Bank of America reinforced a pattern of strong second-quarter earnings. At 1129 GMT, the FTSEurofirst 300 index of top European shares was up 0.4% at 1,037.88 points, having been in negative territory earlier in the session, and on track to record a weekly gain of 1.6%. GE reported a 16.1% rise in second-quarter profit, ending a steak of nine straight quarters of declines. "The good thing is the outcome is consistent with the other results that we have seen this week," said Mike Lenhoff, chief strategist at Brewin Dolphin. "The companies are reporting better-than-expected results, which is very welcome news ... If this is a sign of things to come next week then I would have thought the concerns about a double dip will diminish and this will be good for the markets." Bank of America, the largest U.S. bank by assets, reported higher-than-expected second-quarter profit as credit costs declined for the fourth straight quarter. European banks were mostly higher, with some reversing earlier losses. BNP Paribas, BBVA and UniCredit rose between 1.3% and 1.7%. But the results of stress tests in Europe, due next week, were still worrying investors. "We're ... waiting for the stress tests. Everyone assumes banks are going to pass them, but there's always a risk," said Andy Lynch, fund manager at Schroders. Jean-Claude Juncker, the chairman of euro zone finance ministers, said on Friday the stress tests on the European banks should not reveal any "catastrophes" but the reviews should be tough. Oil major BP rose 3.8% after saying it has capped its leaking well in the Gulf of Mexico. BP said late on Thursday it had stopped the leak with a containment cap installed three days earlier. The stock is still down more than 36% from a peak in mid-April, shortly before the scale and consequences of the leak became known. European airlines moved higher, led by British Airways and easyJet , up 3% and 2.9% respectively in London, after Goldman Sachs raised its estimates for the sector in a bullish review, and upgraded its stance on easyJet.  Burberry shares rose 2.7%, and earlier hit a record high, after the British luxury goods group said it would buy the 50 stores in China currently operated by its franchise partner for £70 million (US$107.5 million). The FTSEurofirst 300, which lost 1.1% on Thursday, is down about 7% since reaching a peak in April, when fears over the euro zone debt crisis escalated. "In the short term the market might go higher, as most results may be better than expected, but as we go into Q3, my fear is that the structural problems are still there, and we have to worry about things like government balance sheets," Lynch of Schroders said.

Sources: AFR, Bloomberg, CBS, CNN, Dow Jones News Wires, Financial Times, Reuters, Pulse and Wall Street Journal.

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Hanuman Investments Pty Limited trading as Hanuman Private Wealth - AFSL No. 313416

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