By Alexis Xydias
Jan. 20 (Bloomberg) -- U.S. stock-index futures retreated before earnings reports from Morgan Stanley and Bank of America Corp. and amid concern China, the engine of the global recovery, may move to cool its economy.
Morgan Stanley slid 2.3 percent in European trading while Bank of America, the largest U.S. lender, retreated 1 percent. International Business Machines Corp. dropped 1.8 percent after reporting fourth-quarter results after the close of trading yesterday. Humana Inc. climbed 0.8 percent after the Republican party won a Senate seat in Massachusetts, imperiling health-care legislation in Congress.
Futures on the Standard & Poor’s 500 Index expiring in March slipped 0.5 percent to 1,140.5 as of 6:32 a.m. in New York. Dow Jones Industrial Average futures dropped 0.4 percent to 10,625 and Nasdaq-100 Index futures slid 0.5 percent to 1,880.5.
The earnings season in the U.S. gathers pace this week, with more than 60 companies in the S&P 500 scheduled to report quarterly results. The benchmark index is valued at 25 times its companies’ profits, the highest level since 2002, following a 70 percent jump since March. Stocks fell in Asia and Europe today after Chinese regulators told some of the nation’s banks to limit lending.
“Expect earnings to grab the headlines today, but the focus is also on what China is doing,” said Angus Campbell, head of sales at Capital Spreads in London. “It looks like the Chinese are starting to place some constraints on liquidity, which may put a cap on their expanding economy but also have a larger effect on global growth.”
China Lending
China will restrict overall credit growth in the nation to 7.5 trillion yuan ($1.1 trillion) this year, banking regulator Liu Mingkang said. Some lenders were asked to rein in credit because they failed to meet regulatory requirements including those for capital, Liu, chairman of the China Banking Regulatory Commission, said in an interview today in Hong Kong. New loans in the first 10 days of this year were “relatively high,” he told the Asian Financial Forum.
Reports on construction and producer prices today will provide the latest indications of the state of the U.S. economy. Housing starts were probably little changed in December as rising foreclosures and inclement weather kept builders at bay, economists said before a report today, economists said before a Commerce Department release due at 8:30 a.m. in Washington.
Ground may have been broken on 572,000 houses at an annual rate compared with 574,000 in November, according to the median estimate of 70 economists surveyed by Bloomberg News. Permits, a sign of future construction, may also have dropped.
Inflation Report
A separate report from the Labor Department, also scheduled for 8:30 a.m., may confirm inflation slowed in December. Wholesale costs were unchanged last month after jumping 1.8 percent in November, according to the survey median. Excluding food and energy, the producer-price index may have climbed 0.1 percent following a 0.5 percent November increase.
Morgan Stanley fell 2.3 percent to $30.46 in Frankfurt. The bank headed by John Mack is expected to say before U.S. markets open today that it earned $621 million, or 42 cents a share, from a loss a year earlier, according to the average of 10 analysts’ estimates.
Bank of America dropped 1 percent to $16.16. The bank may report its third loss in the past five quarters as its new chief executive officer tallies costs from consumer loan defaults and repaying bailout funds. Analysts’ estimates of a potential loss for the quarter range as high as $4.9 billion by Sanford C. Bernstein’s John MacDonald.
‘Disappointing’
The bank’s largest rival, JPMorgan Chase & Co., last week called its own fourth quarter “a little disappointing.” Wells Fargo & Co., one of the two biggest U.S. home lenders in 2009, may report its fourth straight quarter of improved results as the economy expanded and pressure to build reserves abated, according to another survey of analysts. The shares were little changed at $28.23 in Europe.
The bank probably swung to a fourth-quarter profit of $1.62 billion, from a loss of $2.55 billion a year earlier, according to the average estimate of analysts surveyed by Bloomberg.
IBM declined 1.8 percent to $131.76, also in Germany. The world’s largest computer-services company reported after U.S. trading ended yesterday that fourth-quarter business-consulting revenue declined while saying 2010 profit will top its earlier target.
Sales of business services, which include consulting, fell 2.8 percent to $4.58 billion, the company said. Profit in 2010 will be at least $11 a share. IBM set a goal in May 2007 for earnings of $10 to $11 this year.
Kraft Foods Inc. fell 0.8 percent to $29.18. The company had its credit rating cut at Fitch Ratings Ltd. after it yesterday agreed to buy Cadbury Plc for 11.9 billion pounds ($19.5 billion).
Republican Victory
U.S. stocks rose yesterday as health companies rallied on speculation Republicans may block an industry overhaul and technology companies gained on earnings optimism. Republican Scott Brown’s victory in the race for the U.S. Senate seat in Massachusetts was confirmed after U.S. markets closed yesterday.
The result increases the Republican party’s Senate numbers to 41, enough members to block votes on an overhaul of the U.S. health-care system, President Barack Obama’s top legislative goal.
Humana, the managed health-care company whose 7.1 percent gain yesterday was the biggest advance in the S&P 500 Health Care Index, climbed 0.8 percent to $52.35 in Frankfurt.
To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.
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