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Markets Trading Lower

The domestic equity markets are trading lower in early action, despite some gains for oil prices, coming off a resilient session yesterday though traders may be treading lightly ahead of tomorrow’s highly anticipated monetary policy decision from the European Central Bank (ECB). The ECB is expected to deploy expanded asset purchases to include government bonds. Meanwhile, earnings reports are ramping up, with Dow member IBM topping the Street’s profit forecasts but missing on revenues and offering a disappointing outlook. In other earnings news, Netflix exceeded analysts’ profit projections as streaming subscribers topped estimates and Dow component UnitedHealth Group bested the Street’s quarterly expectations and issued upbeat revenue guidance. Treasuries are mixed following a divergent read on domestic housing construction and another jump in weekly U.S. mortgage applications. Elsewhere, gold is higher, while the U.S. dollar is lower. Overseas, Asian stocks finished mostly higher, though Japanese stocks lost ground on the heels of an unchanged monetary policy decision from the Bank of Japan, while European equities are mixed in cautious trading ahead of the ECB’s decision.

As of 8:49 a.m. ET, the March S&P 500 Index future is 3 points below fair value, the DJIA future is 50 points below fair value, and the Nasdaq 100 Index is 6 points south of fair value. WTI crude oil is rising $0.82 to $47.29 per barrel, Brent crude oil is gaining $0.98 to $48.97 per barrel, and gold is trading $8.40 higher at $1,302.60 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is down 0.5% to 92.58.

Dow member International Business Machines Corp. (IBM $157) reported 4Q earnings-per-share (EPS) ex-items of $5.81, above the $5.44 consensus estimate of analysts surveyed by FactSet, as revenues dropped 12.0% year-over-year (y/y) to $24.1 billion, below the $24.9 billion that the Street had anticipated. The company issued full-year 2015 earnings guidance that missed analysts’ expectations.

Netflix Inc. (NFLX $349) posted 4Q EPS of $0.72, excluding a $0.63 per share benefit from a tax accrual release related to a resolution of a tax audit, well above the $0.45 that the Street had anticipated. Revenues grew 26.3% y/y to $1.5 billion, roughly inline with analysts’ estimates, as its domestic and international streaming net subscriber additions topped both the Street’s expectations and the company’s guidance. However, NFLX did issue a 1Q EPS outlook that was shy of analysts’ forecasts.

Dow component UnitedHealth Group Inc. (UNH $106) announced 4Q profits of $1.55 per share, versus the $1.50 that the Street had projected, with revenues rising 7.4% y/y to $33.4 billion, compared to the $33.2 billion that analysts were anticipating. UNH issued full-year revenue guidance that was mostly above expectations.

Housing construction mixed, while mortgage applications jump again

Housing starts for December came in above forecasts, rising 4.4% month-over-month (m/m) to an annual pace of 1,089,000 units, compared to the 1,040,000 unit rate that economists surveyed by Bloomberg had called for. Also, November’s starts were upwardly revised to an annual pace of 1,043,000, from the 1,028,000 rate initially reported. However, building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, came in south of expectations, declining 1.9% m/m in December to an annual rate of 1,032,000, after November’s upward revision to a 1,052,000 rate—from a pace of 1,035,000 units that was originally reported. Economists had expected permits for December to come in at an annual pace of 1,060,000 units.

The MBA Mortgage Application Index jumped 14.2% last week, after surging by 49.1% in the previous week. The third-straight sizeable weekly increase came as a 22.3% jump in the Refinance Index more than offset a 2.5% decline for the Purchase Index, with the average 30-year mortgage rate falling 9 basis points (bps) to 3.80%. It is not uncommon for the data around the holidays to be volatile, per Bloomberg.

Treasuries are mixed in early action, with the yield on the 2-year note declining 8 bps to 0.46%, the yield on the 10-year note dropping 11 bps to 1.79%, and the 30-year bond rate falling 10 bps to 2.40%.

Europe mixed ahead of ECB decision 

The European equity markets are diverging in afternoon action, with traders likely treading cautiously ahead of tomorrow’s monetary policy decision by the European Central Bank (ECB), with expectations running high that the central bank will unveil expanded asset purchases to include sovereign debt. Markets are expecting more forceful action in early 2015. Those high expectations for the ECB could end in disappointment for European stock investors if the bank takes a more moderate course or fails to give sufficient details at the January 22 policy meeting. Disappointment could also cause the euro to rise relative to the U.S. dollar. Conversely, if the ECB follows through with large-scale purchases, European stocks could get a short-term boost, and the euro could fall versus the dollar.

Elsewhere, Swiss stocks are seeing heavy pressure after recovering the past couple sessions from last week’s sharp sell-off that ensued after the Swiss National Bank abandoned its currency peg against the euro, ahead of tomorrow’s ECB monetary policy decision. Meanwhile, the Bank of England released the minutes from its policy meeting earlier this month, in which it left its benchmark interest rate at a record low of 0.50%. The BoE’s minutes showed policymakers were unanimous in their decision to keep interest rates unchanged, with the two that voted for an increase in the previous meetings saying a rate hike could apply further downside pressure on inflation, which is already below the BoE’s target. In equity news, shares of ASML Holding NV (ASML $104) are moving nicely higher, after the Dutch chipmaker forecasted stronger-than-expected earnings and announced a new 1 billion-euro share repurchase program. In other economic news, U.K. jobless claims fell more than expected in December, and the nation’s unemployment rate dropped more than expected to 5.8%.

The U.K. FTSE 100 Index is up 0.7%, Germany’s DAX Index is declining 0.5%, France’s CAC-40 Index is decreasing 0.4%, Italy’s FTSE MIB Index is dipping 0.1%, Spain’s IBEX 35 Index is dropping 0.6%, and Switzerland’s Swiss Market Index is falling 2.0%.

Asia mostly higher as Chinese stocks continue to rebound after Monday’s drop

Stocks in Asia finished mostly higher following yesterday’s resiliency in the U.S. and the gains in Europe yesterday, with sentiment being buoyed by continued expectations that the European Central Bank will unveil further stimulus measures following its meeting tomorrow. China’s Shanghai Composite Index rallied 4.7%, led by financials, which rebounded from the sharp losses seen to begin the week as regulators tightened margin lending standards. The Hong Kong Hang Seng Index gained 1.7%, with sentiment also being supported from yesterday’s slightly stronger-than-expected 4Q GDP growth. Elsewhere, Australia’s S&P/ASX 200 Index gained 1.6%, with resource-related stocks pacing the advance on the heels of the recent rally in gold prices, while a report showing the country’s consumer confidence improved underpinned the positive mood. Meanwhile, South Korea’s Kospi Index moved 0.2% higher, while India’s S&P BSE Sensex 30 Index traded 0.4% to the upside. However, Japan’s Nikkei 225 Index declined 0.5%, with the yen strengthening to weigh on export-related stocks in the wake of the Bank of Japan’s monetary policy decision, where it maintained its highly-accommodative stance and cut its core consumer price inflation forecasts.