The second quarter earnings season is thus far besting expectations on the top and bottom line. Reassuring forward guidance, coupled with economic data is helping to contribute to an improved global outlook. The combination of solid U.S. housing data and the relief stemming from the European bank stress tests are adding fuel to equity markets. Global indices are advancing on signs the environment is gradually improving. The hope is earnings will solidify the sustainability of the recovery, which has remained a key concern of investors.U.S. equity futures are pointing to a higher open this morning, continuing Monday's momentum.
The earnings continue to hit the wires and outside of the energy sector, the results are outpacing expectations. Industrials continue to upstage analysts with another beat from Lockheed Martin (LMT) andCummins (CMI). Engineering construction giant, Flour Corp (FLR), reported its backlog could hit a record this year on increased demand from the energy sector.
Shifting to the materials sector, U.S. Steel (X) returned to profitability for the first time since Q4 2008. While earnings were a bit light, revenues jumped 20%. The steel giant made note of a gradual and uneven recovery process, which essentially means look for volatile volumes in the quarters ahead. DuPont (DD) came up well ahead of expectations, posting a strong result that included an upside beat and raised forward guidance.
The misses came from Occidental Petroleum (OXY) and BP (BP), which confirmed the replacement of Tony Hayward. As was widely expected, American Bob Dudley will take over as CEO. The company took a $32.2 bln charge in the quarter, which is only the beginning, culminating in a loss of $5.42 per share. A bit of good news for the refining industry was a solid showing from Valero Energy (VLO), where margins fed into earnings growth.
Following an improving report on U.S. home sales, we'll get the read on home prices for the month of May this morning. The S&P/Case-Shiller Home Price Index comes out at 9:00 a.m. ET. The Briefing.com consensus is 4.0% versus the prior reading of 3.8%.
Also out is the potentially market-moving July Consumer Confidence figure at 10:00 a.m. ET. The trend expectation is lower after the preliminary reading of the University of Michigan's Consumer Sentiment index dropped to its lowest level since August 2009. The consensus is for a reading of 51.0, down from the prior reading of 52.9. Any upside will provide a big boost to the market.
Asian trading was mixed with China registering its first down day in six sessions. In Europe, the financial sector is advancing on news that the Basel Committee will scale back many of its proposals to beef up bank capital and liquidity rules.
Treasuries are selling off ahead of a $38 bln 2-year auction today. Yields on the 10-year are now back above the 3% marker -- a sign of improved sentiment. Sovereign and financial CDS spreads in Europe also continue to tighten, reflecting a general sigh of relief. Another indicator is the lack of momentum in gold. Bullion has been hovering around the $1200 level for over a week.
Meanwhile, copper and crude oil are moving higher. Oil is quickly approaching $80 per barrel. Prices were roughly at the same level this time last year. The dollar is trading off just slightly with the pound and the euro both making small gains today. High yielding currencies, like the Australian and New Zealand dollars, are also breaking out to new highs.
(www.briefing.com)
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