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25Oct2016 Pre-Market Commentary: Wall Street Pensive Awaiting Corporate Earnings And Economic News

Written by Gary

US stock index futures were little changed today (SPY +0.1%) as investors await earnings reports from a host of companies, including Apple. General Motors Co reported much higher-than-expected third-quarter earnings on strong North American truck and SUV sales, blowing past fears that a U.S. market slowdown would dent profitability.


Here is the current market situation from CNN Money

European markets are mixed today. The DAX is up 0.78% while the CAC 40 gains 0.46%. The FTSE 100 is off 0.05%.

What Is Moving the Markets

Here are the headlines moving the markets.

Stock futures flat as investors assess earnings; Apple eyed

(Reuters) - U.S. stock index futures were little changed on Tuesday as investors await earnings reports from a host of companies, including Apple.

AT&T, Time Warner shares dip with worries about deal clearance

(Reuters) - Wall Street signaled skepticism on Monday that AT&T Inc would secure the government approvals needed to carry out its planned $85.4 billion acquisition of Time Warner Inc, with shares of both companies falling as analysts scrutinized the deal.

General Motors third-quarter earnings widely beat expectations

DETROIT (Reuters) - General Motors Co reported much higher-than-expected third-quarter earnings on strong North American truck and SUV sales, blowing past fears that a U.S. market slowdown would dent profitability.

Post-it maker 3M trims forecasts for second time

(Reuters) - 3M Co , the maker of Scotch tape and Post-it notes, trimmed its full-year revenue and earnings forecasts for the second time as it struggles with slowing sales in emerging markets.

Lockheed Martin's quarterly profit handily beats estimates

(Reuters) - Lockheed Martin Corp , Pentagon's No. 1 weapons supplier, reported a quarterly profit that handily beat analysts' expectations, as sales of its Sikorsky helicopters pushed total revenue up 14.8 percent.

Wallonia premier says region not opposed to EU-Canada free trade deal

PARIS (Reuters) - Wallonia premier Paul Magnette said the Belgian region was not opposed to a planned EU-Canada free trade deal in itself but that an arbitration scheme needed to be dropped and public services protected.

Caterpillar posts lower earnings, cuts 2016 outlook

(Reuters) - Caterpillar Inc on Tuesday reported a sharply lower third-quarter profit after global economic weakness and an abundance of available used equipment slowed sales of its new machinery.

BlackBerry launches its third Android-based phone

TORONTO (Reuters) - BlackBerry Ltd launched its third Android-based phone on Tuesday, opting to price the device cheaper than competing products like Apple Inc's iPhone 7 and Android-maker Alphabet Inc's Pixel.

ChemChina ready for concessions to clinch delayed Syngenta deal in 2017: source

BEIJING/ZURICH (Reuters) - State-owned Chinese chemicals group ChemChina is ready to offer more concessions to win European Union antitrust approval for its $43 billion bid for Swiss pesticide and seed group Syngenta, a source with direct knowledge of the process said.

Caterpillar Warns Of "Economic Weakness Throughout Much Of The World", Cuts Guidance

As we previewed yesterday when we showed that for 46 consecutive months industrial bellwether Caterpillar has failed to post a retail sales increase...

... it should probably not come as a surprise that moments ago CAT not only badly missed revenues, reporting $9.2 billion well below the $9.80 billion expected (courtesy of the usual non-GAAP fudging, CAT managed to "boost" its EPS enough to beat estimates, reporting adjusted earnings of $0.85, above the $0.76 consensus), but it also once again slashed full year guidance, now expecting revenue of $39 billion, and EPS of $3.25 per share excluding restructuring costs, down from the guidance of $40.0 to $40.5 billion and EPS of $3.55 provided just three months ago.

But it was outgoing CEO Doug Oberhelman's commentary in the release that was more troubling, to wit:

"Economic weakness throughout much of the world persists and, as a result, most of our end markets remain challenged. In North America, the market has an abundance of used construction equipment, rail customers have a substantial number of idle locomotives, and around the world there are a significant number of idle mining trucks."

"While we are seeing early signals of improvement in some areas, we continue to face a number of challenges. We remain cautious as we look ahead to 2017, but are hopeful as the year unfolds we will begin to see more positive momentum. Whether or not that happens, we are continuing to prepare for a better future. ...

Largest Dow Component 3M Reports In Line Earnings, Cuts Top End Of Guidance

In what has so far been the busiest day for earnings in the third quarter reporting season, where we got earnings misses from the likes of Eli Lilly (EPS $0.88, Exp. $0.98) and revenue misses from CAT ($9.16bn vs $9.8bn) as well as beats from Merck (EPS $1.07, Exp. $0.98) and GM ($1.72, Exp. $1.44), much of the early attention today was focused on 3M - at least before AAPL's report after the close - as the conglomerate is the largest component of the Dow Jones.

The company reported in line earnings, with Q3 EPS beating expectations of $2.14 by one cent, with revenues of $7.71 printing on top of consensus estimates as industrials segment sales rose 1% in U.S. The company also reported slightly disappointing capital expenditures of $347 mm vs est. $357 million, and a 3Q operating margin of 24.7%.

And while the current quarter data was good, 3M confirmed a recurring trend observed among other reporting companies, namely skepticism about the future, when it trimmed the upper end of its full year EPS guidance:

For full-year 2016, 3M updated its forecast for earnings per share to be in the range of $8.15 to $8.20 versus a prior range of $8.15 to $8.30. The company now expects organic local-currency sales growth to be approximately flat versus a previous range of 0 to 1 percent. 3M also updated its tax rate to be approximately 29 percent versus a prior range of 29.0 to 29.5 percent. Lastly, the company continues to expect free cash flow conversion in the range of 95 to 105 percent.

It is this caution about the future that prompted JPM strategists Emmanuel Cau, Mislav Matejka to write in an novernight note that "while we believe that corporates will likely deliver their typical beats of heavily reduced estimates, we think that they will fail to drive upgrades for 4Q and for next year."

Frontrunning: October 25



Hilsenrath: Fed's Task Ahead: How Best to Signal Year-End Rate Move (WSJ)

Fed Inclined to Raise Rates If Next President Pumps Up Budget (BBG)

World stocks, commodities climb as economic confidence lifts (Reuters)

Ahead of earnings: Apple Boosted by IPhone 7 Demand, Slowing Pace of Sales Decline (BBG)

Campaigns Brace for Election-Day Legal Battles (WSJ)

Philippines Duterte tells U.S. to forget about defense deal 'if I stay longer' (Reuters)

China's Aggressive New Deal Makers: $199 Billion This Year and Counting (WSJ)

Inside Trump Tower, the Skyscraper Where Trump Is Already King (BBG)

On the ballot: two clashing visions of how America will powers its cars, homes (Reuters)

Sunni Arabs forced to leave Kirkuk after Islamic State attack, residents say (Reuters)

Xiaomi Goes Upmarket With New Devices to Arrest Sales Slide (

Online Brokers Can't Catch Up by Teaming Up

By acquiring rival Scottrade, TD Ameritrade can achieve needed economies of scale. But its fundamental challenges remain.

Italy's Most Troubled Bank Offers Little to New Investors

The rehabilitation of Monte dei Paschi di Siena looks unexciting even if things go well.

Amorepacific Looks Good Despite China's Tourism Makeover

As South Korean stocks linked to Chinese tourists fall on concerns of a curb from Beijing, companies with strong brand recognition among China's consumers such as Amorepacific would be good bets for bargain hunters.

North Korean coal windfall boosts nuclear advance

North Korean coal prices have surged by 40% in value recently, boosting funds for Pyongyang's advancing nuclear program and undermining U.S.-led efforts to force it into talks by choking its finances.

The Tell: One chart shows which sectors do best, and worst, when inflation expectations rise

Some economists and investors are convinced inflation is finally ready for a resurgence. This chart shows which sectors tend to best—and worst—when inflation expectations start to rise.

Metals Stocks: Gold steadies as dollar's advance pauses at 8-month high

Gold futures snapped back with Tuesday gains after hitting their lowest level in about a week in the previous session, as the dollar stalled at multimonth highs.

Earnings Summary for Today

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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