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Markets Trading Modestly Lower In Early Action

February 25, 2015
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The U.S. equity markets are trading modestly lower in early action, with the Street digesting a plethora of earnings reports, with Target’s upbeat quarterly results overshadowing some cautious guidance, while Hewlett-Packard issued a profit warning due to the U.S. dollar’s strength. Lowe’s Companies posted favorable 4Q results and guidance, while Dollar Tree topped earnings expectations but offered a disappointing outlook. Treasuries are lower as Federal Reserve Chairwoman Janet Yellen will continue her Congressional testimony, while U.S. mortgage applications fell and new home sales are due out after the opening bell. Gold and crude oil prices are higher, while the U.S. dollar is lower. Overseas, Asian stocks finished mixed despite an upbeat read on Chinese manufacturing activity, while European equities are mostly lower following some mixed earnings reports in the region.

As of 8:51 a.m. ET, the March S&P 500 Index future is 1 point below fair value, the DJIA future is 3 points below fair value, and the Nasdaq 100 Index is 8 points south of fair value. WTI crude oil is rising $0.34 to $49.62 per barrel, Brent crude oil is increasing $0.65 to $59.31 per barrel, and gold is trading $6.26 higher at $1,206.79 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is down 0.2% to 94.28.

Hewlett-Packard Co. (HPQ $38) warned the negative impact of the U.S. dollar’s strength will be significantly greater than anticipated, issuing softer-than-expected 2Q and full-year earnings-per-share (EPS) guidance. The outlook came even as its fiscal 1Q EPS of $0.92 topped the FactSet estimate by a penny, while revenues of $26.8 billion fell 5.0% year-over-year (y/y), short of the $27.4 billion expectation.

Target Corp’s (TGT $77) 4Q adjusted EPS of $1.50, topped the $1.46 estimate, while revenue growth of 4.1% y/y to $21.8 billion, compared to expectations of $21.7 billion. Same-store sales rose 3.8% y/y, versus the 3.0% growth that was anticipated. 1Q EPS guidance had a midpoint that was below forecasts.

Lowe’s Companies Inc. (LOW $75) posted a three-cent 4Q EPS beat of $0.46, on revenues of $12.5 billion, which grew 7.6% y/y and topped the $12.3 billion forecast. Same-store sales rose 7.3%, above the 5.2% expectation. Full-year EPS, revenue and same-store sales guidance also exceeded estimates.

Dollar Tree Inc’s (DLTR $77) 4Q EPS ex-items of $1.16 exceeded estimates by two cents, while a 10.8% y/y increase in revenues roughly matched expectations, and same-store sales growth of 5.5% topped the estimated 5.0% rise. Full-year EPS guidance missed forecasts, while its revenue guidance was mostly below projections.

Mortgage applications decline ahead of more housing data

The MBA Mortgage Application Index declined 3.5% last week, after dropping by 13.2% in the previous week. The decrease came as a 7.5% fall in the Refinance Index more than offset a 4.6% rise for the Purchase Index, with the average 30-year mortgage rate increasing 6 basis points (bps) to 3.99%.

Treasuries are lower in early action, with the yield on the 2-year note rising 2 bps to 0.61%, while the yields on the 10-year note and the 30-year bond are ticking 1 bp higher to 1.99% and 2.60%, respectively.

After the opening bell, the domestic economic calendar will yield the release of new home sales, projected to decline 2.3% month-over-month (m/m) in January to an annual rate of 470,000 units.

Finally, Federal Reserve Chairwoman Janet Yellen will continue her semi-annual economic and monetary policy testimony on Capitol Hill in front of the House Financial Services Committee, though her prepared remarks are not expected to differ from what she delivered to the Senate yesterday. Yellen provided an upbeat assessment of the U.S. economy but did not offer any new time frame for the beginning of interest rate hikes, but her Q&A session will likely be closely eyed. We expect the Fed to hike short-term rates later this year but the pace and magnitude is likely to be slower and lower than in past cycles.

Europe mostly lower on mixed global earnings reports

The European equity markets are trading mostly lower in afternoon action, despite a reprieve from Greek debt concerns after the nation was awarded a conditional extension of its bailout aid yesterday, while traders are sifting through some mixed global earnings reports. The markets may also be anticipating the second day of Congressional testimony by the U.S. Fed’s Janet Yellen later today. Shares of AXA SA (AXAHY $24) are trading nicely higher after France’s largest lender, per Bloomberg, posted a solid increase in earnings and announced plans to raise its dividend. However, Weir Group PLC. (WEIGY $14) is falling sharply after the Scottish oil & gas engineering firm warned of lower profitability on the drop in oil prices, after posting softer-than-expected earnings. In economic news, French consumer confidence improved more than expected in February.

The U.K. FTSE 100 Index is down 0.3%, Germany’s DAX Index and Switzerland’s Swiss Market Index are dipping 0.1%, France’s CAC-40 Index is declining 0.2%, Spain’s IBEX 35 Index is flat, and Italy’s FTSE MIB Index is trading 0.7% lower.

Asia mixed as mainland Chinese markets return to action

Stocks in Asia finished mixed, with mainland Chinese markets returning to action following a week-long New Year holiday break, with traders digesting an unchanged stance by U.S. Fed Chair Yellen, while an upbeat Chinese manufacturing report and the approved Greek aid extension failed to spark sentiment. China’s Shanghai Composite Index declined 0.6%, despite HSBC’s preliminary Manufacturing PMI Index improving to 50.1 in February, from 49.7 in January, and compared to the 49.5 reading that economists had projected. Hong Kong’s Hang Seng Index ticked 0.1% higher after the nation reported 2.3% y/y growth in 4Q GDP, as expected, but a deceleration from the 2.9% expansion posted in the previous year. Japan’s Nikkei 225 Index dipped 0.1%, with the yen gaining some ground against the U.S. dollar as the Fed’s Yellen stayed the course on monetary policy in the U.S. Australia’s S&P/ASX 200 Index rose 0.3% on strength in consumer goods and basic materials stocks, while South Korea’s Kospi Index advanced 0.7%, led by commodity-related issues. India’s S&P BSE Sensex 30 Index finished flat on the day.

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