MARKET COMMENT: US Stocks To Open Cautiously Higher, Earnings In Focus

LONDON (Alliance News) - US stocks are set to open cautiously higher Wednesday, boosted by the the lack of consensus among EU leaders to impose sector-wide sanctions on the Russian economy, but muted in trepidation of a raft of corporate earnings.

Currently, the DJIA, the S&P 500, and the Nasdaq Composite all look set to open about 0.1% higher.

Investors have had a mixed reaction to the big technology stock earnings released after the market close Tuesday. Apple shares are 0.5% lower in the pre-market despite beating earnings per share expectations as sales were slightly lighter than expected, while Microsoft shares are about 1.5% higher after it announced its own numbers.

The focus will remain on US earnings, particularly the biotechnology and social media stocks given Fed Chair Janet Yellen's recent comments that valuations in those particular sectors look "stretched." All eyes will be on Facebook the company reports after the US closing bell.

"While the Federal Reserve is perhaps not the best source of equity analysis the comments do highlight the importance of today’s earnings reports from Biogen, Gilead Sciences and Facebook in justifying overall stock market valuations," said CMC Markets market analyst Jasper Lawler.

Pepsico has done what its soft drink rival Coca-Cola failed to do on Tuesday and impressed the market with its second quarter results, announcing earnings per share of USD1.32, ahead of the consensus expectation of USD1.23. Pepsico shares are moving higher in the premarket.

Amid a heightened focus on the airline after it decided to cancel all flights to Tel-Aviv on Tuesday due to a rocket exploding near the airport, Delta Airlines has reported second quarter earnings per share of USD0.94, up from USD0.8 a year earlier.

The US followed Delta's decision with a short-term ban on all flights to Tel-Aviv's Ben Gurion airport, although that didn't stop Secretary of State John Kerry landing there earlier Wednesday to attempt to advance ceasefire talks as the death toll from the conflict nears 650. The longer a flight ban to Tel-Aviv lasts, the greater the pressure on the US to broker a solution, both from the perspective of the economic effect on Israel, and frustrated US-Israelis and influential American Jews. Former New York Mayor Michael Bloombeg issued a statement Wednesday saying, "the flight restrictions are a mistake that hand Hamas an undeserved victory and should be lifted immediately."

US MBS mortgage applications jumped 2.4% in the week ended July 18, after falling 3.6% in the previous week. The only other release of note in the data calendar Wednesday is the eurozone consumer confidence index at 1500 BST, which is expected to remain unchanged in July at negative 7.5.

Ahead of the US opening bell, UK stocks are continuing to trade modestly higher, with the FTSE 100 up 0.2% at 6,806.01, the FTSE 250 up 0.3% at 15,697.82, and the AIM All-share up 0.1% at 773.07.

GlaxoSmithKline has dropped to the bottom of the FTSE 100, down 2.9%, after reporting a drop in first-half pretax profit to GBP1.89 billion from GBP2.70 billion in the previous year. Group revenue was also down to GBP11.17 billion from GBP13.1 billion. Glaxo said that full-year core earnings per share is now expected to be broadly similar to 2013.

Bank of England Governor Mark Carney has been speaking at a business conference in Glasgow ahead of the opening of the Commonwealth Games there, and following the release of the the latest BoE meeting minutes earlier Wednesday. After beginning with a games pun about the UK economy being the current holder of "fastest growing advanced economy in the world title," Carney went on to put the quarterly inflation report, due next month, squarely in focus for central bank watchers.

The BoE chief reiterated his recent message that real wage growth is now the key indicator as to when rates will rise, and that currently there are conflicting messages in the labour market, namely that unemployment is rapidly falling, but wage growth is stagnant.

"A key judgement for the MPC is when and to what extent these developments will translate into real wage growth, and in turn that wage growth into price pressures," Carney said. "Next month's Inflation Report provides the next opportunity to update our thinking on these important questions."

Carney also reiterated that the main risk to the UK economic recovery is an overheating of the housing market and the prospect of UK households indebtedness, which he used as one of the explanations for future rate rises being gradual.


By Jon Darby; jondarby@alliancenews.com; @jondarby100

Copyright 2014 Alliance News Limited. All Rights Reserved.