The Mortgage Day Ahead: Earnings, Inflation, Manufacturing, Jobless Claims

July 15, 2010 - PRLog -- Stocks have gained more than 7% over the past five trading days, but yesterday the Dow inched up just 0.04% while the S&P 500 fell 0.02%. After a mixed session on Wednesday, equity futures have responded positively to JP Morgan earnings that beat analyst expectations.  

JPMorgan Chase & Co. reported second-quarter 2010 earnings of $4.8 billion, compared with $2.7 billion in the second quarter of 2009. Earnings per share were $1.09, compared with $0.28 in the second quarter of 2009. Consensus estimates called for $0.67 earnings per share. Nonperforming loans were $2.3 billion, down by $1.3 billion from the prior year and $481 million from the prior quarter.

Jamie Dimon, Chairman and Chief Executive Officer, commented on the quarter: "Our net income increased to $4.8 billion, including the benefit from a $1.5 billion reduction of loan loss reserves - which we do not believe represents normal ongoing earnings - partially offset by a charge of $550 million for the U.K. bonus tax."

Ahead of key reports on inflation, manufacturing, and the health of the labor market, Dow futures are up 27 points at 10,333 and S&P 500 futures up 3.00 points to 1,093.75.



The 2-year Treasury note is unchanged at 100-00+ yielding 0.617% and the benchmark 10-year Treasury note is -0-01 at 103-24 yielding 3.055%.



Key Events Today:

8:30 ― The Producer Price Index fell for a second month in May, falling 0.3%. With food and energy prices excluded, prices rose 0.2%. There’s considerable slack in the economy and few are expecting inflation to take off any time soon, but more analysts are concerned about the risk of deflation. In June, headline prices are expected to fall 0.1% as food and energy prices each fell last month. Core prices are set to rise 0.1%.

“Falling prices for fruits, vegetables, and meats should drag the index for food roughly 0.3% lower, said economists at IHS Global Insight. “On the energy front, gasoline, diesel, and fuel oil are all set to ease back in June. . . Durable goods prices should continue their recent gains as businesses invest their cash in capital equipment and software. Recent steep declines in commodity prices should begin to move through the pipeline, with crude and intermediate materials prices declining.”  

8:30 ― The Empire State Manufacturing Index dropped nearly 13 points from 31.9 to 19.1 in May, then edged up to 19.6 in June. In July, the Street looks for a score of just 18 ― well above the zero threshold indicating growth but marking a significant slowdown from the early months of the year.

“While the index is volatile because of the small sample size of the survey (about 100), it is likely that the manufacturing recovery in New York state is losing momentum,” said economists at Nomura.

8:30 ― The first Jobless Claims survey for the month saw initial claims for unemployment benefits fall to a tw0-month low at 454k. For the week ending July 10, economists are expecting 445k new claims, which is below the 450k level that many analysts say is needed to suggest overall job growth. The range of expectations is from 420k to 460k. Meanwhile, the same survey indicates that 4.413 million people continue to receive state benefits as of the week ending June 26.

9:15 ― Industrial Production is set to fall 0.2% in June ― marking the first decline in twelve months ― after the hefty 1.2% leap in May and the 0.7% advance in April. One culprit is vehicle product, which gave a major boost in May but is anticipated to be a drag in June. Electricity productions is expected to remain growing but at a less robust pace in May, while manufacturing was much weaker.

“Nevertheless, IP will remain at a healthy level and one of the highest since November 2008,” said economists at BBVA. “Industrial production, particularly in manufacturing, has been leading the economic recovery and has been a source of job growth. As a result, a slowdown in the pace of expansion could indicate that hiring in the industry could ease as well.”

Economists at IHS Global Insight said the expected pause in June “should only be temporary as July has all the markers of a booming month ― a 100 degree heat wave, some cancelled model-year-changeover shutdowns in autos, plus a return to decent growth in core manufacturing more in line with recent trends.”

10:00 ― Predictions vary widely for the Philadelphia Fed Survey in July. The median estimate looks for a score of 12.0, up four points from the 10-month low of 8.0 in May. Estimates range from 4.1 to 15.0. Even the optimistic guesses are below the levels seen earlier the year. Combining this survey with the Empire Fed index and one doesn’t get a very nice picture of the manufacturing sector.

“We expect the business barometer of the manufacturing sector in the Philadelphia Fed's region to jump to 15.0 in July as payback for the sharp decline in the previous month,” said economists Nomura. “Although manufacturers' sentiment has been improving at a slower pace, the recent variation of the Philadelphia Fed's index was a little choppy and we believe the unexpectedly disappointing headline number in May did not reflect the underlying trend of manufacturing activity.”

Earnings from Google will be released after the closing bell today. Bank of America reports tomorrow. Here is a look at the rest of the S&P earnings calendar.

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