Today's Morning Report

U.S. Overnight Market Commentary 

U.S. stocks rose, rebounding from the market’s biggest drop this month, as optimism about earnings from technology and energy companies overshadowed a drop in financial shares. Microsoft Corp. climbed 1.4% after UBS AG raised its earnings estimate, citing signs of stronger demand. Halliburton Co. jumped 6% after topping analysts’ earnings and revenue estimates. Bank of America Corp. slumped 2.7% as Goldman Sachs Group Inc. took the shares off its “conviction buy” list, saying low rates may hurt interest income. The S&P 500 rose 0.6% to 1,071.25 as of 4 p.m. in New York. The Dow Jones Industrial Average advanced 56.53 points, or 0.6%, to 10,154.43 today. “The market is focusing on revenue growth this earnings season and, outside of financials, companies seem to be delivering that,” said Mark Freeman, a money manager at Westwood Management Corp. in Dallas, which oversees US$10.5 billion. “It’s really a question of whether the earnings reports can come in strong enough now to support investor confidence.” The S&P 500 gained 4.8% since July 2 on optimism that corporate earnings would signal the economic recovery is sustainable. Of the 24 companies in the S&P 500 that reported from July 12 through the beginning of regular trading this morning, all but three topped earnings-per-share forecasts, according to Bloomberg data. U.S. stocks declined last week following lower-than- estimated revenue at Bank of America, Citigroup Inc. and General Electric Co. and a drop in consumer confidence to the lowest level in a year. Microsoft Corp., which is scheduled to report fourth- quarter results on July 22, gained 1.4% to US$25.23 as UBS AG raised its earnings estimate for the software maker to 47 cents a share from 45 cents for the fiscal fourth quarter. Analysts cited “early signs of enterprise demand returning.” Halliburton rose the most in the S&P 500, rallying 6% to US$29.17 after the company reported an 83% increase in second-quarter profit to US$480 million, or 53 cents a share, as gains in onshore drilling made up for a halt to new wells in the Gulf of Mexico. Earnings from continuing operations were 52 cents a share, topping the average analyst estimate of 37 cents. Revenue was US$4.39 billion, beating the average projection of US$4.09 billion in a Bloomberg survey.

 

Europe’s Overnight Market Commentary

European shares fell on Monday after gloomy U.S. housing data rekindled worries about the pace of economic recovery, more than offsetting positive mergers and acquisitions sentiment, led by International Power. Challenges to economic recovery were reinforced by data showing that U.S. home-builder sentiment fell more-than-expected in July to the lowest level in more than a year after a popular home-buyer tax credit expired in April. The pan-European FTSEurofirst 300 index of top shares closed 0.7% lower at 1,006.26 points. The index has shed around 3.7% since Thursday as disappointing economic data released over the last three sessions heightened jitters over the pace of economic recovery. So far in July the index is still up 1.3%, on track for the first month of gains since March. "If economic data continues to underperform, there is potential for us to slip into a double-dip recession and that is the fear," Joshua Raymond, market strategist at City Index said, adding that low volumes could be exaggerating the market's moves. Optimism over a pickup in M&A activity helped provide some support to the index. International Power surged 10.5% after confirming it has revived talks with France's GDF Suez, which rose 0.7%. In a related M&A move, British engineering company Tomkins soared 27.8% after the firm said it had received a bid approach at 325 pence per share from a consortium of Onex and the Canada Pension Plan. Heavyweight banking stocks were mostly lower, with Irish lenders Bank of Ireland and Allied Irish Banks off 4.4% and 3.5%, respectively, stung by ratings agency Moody's move to downgrade Ireland's sovereign bond rating by one notch to Aa2 earlier on Monday. Meanwhile, the IMF and EU suspended on Saturday a review of Hungary's funding programme, set up in 2008 to save the country from financial meltdown, saying it must take tough action to meet targets for cutting its budget deficit. Hungary's biggest bank OTP and the foreign lenders most geared to the country, Austria's Erste Group Bank and Raiffeisen International, were down 1.1% to 5.6%. Ahead of the outcome of the European banks' stress tests due on Friday, bankers and officials in Greece, Spain and Belgium joined a chorus of countries expecting their banks to pass the stress tests, although doubts linger over whether the health checks are tough or transparent enough. BP shed 4.7% as investors fretted about possible seepage from its capped Gulf of Mexico well, and as speculation grew about assets the company may sell to pay multibillion dollar costs for its oil spill. With the corporate earnings season in full swing in the U.S., investors are expected to scrutinise company results for further direction for equities. After the closing bell, technology bellwether International Business Machines Corp will report results. Among other decliners in Europe, Electrolux fell 7.8% after the world's second-biggest home appliances maker missed earnings forecasts in the second quarter.

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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