Earnings season begins: Bright US prospects, the worry is Europe and China.

As earnings season begins, the prospects for the U.S. are bright, but the worry is Europe and China.

While companies are not required to break down their revenues by region, on average roughly 50 percent of sales from the S&P 500 come from overseas, with about 15 percent from Europe.

U.S.-based companies with significant exposure to Europe include Pall Corp (40 percent of revenues in Europe), Sealed Air (32 percent), Edwards Lifesciences (31 percent), Waters Corp (31 percent), Varian Medical Systems (29 percent) and Microchip Technology (21 percent).

A woman holding an umbrella walks past a KFC restaurant in Shenzhen, China.
Brent Lewin | Bloomberg | Getty Images
A woman holding an umbrella walks past a KFC restaurant in Shenzhen, China.

The concern is that, in addition to weakness in Europe, China will also be soft. In the past, strength in China was enough to offset disappointment in Europe. That may not be the case this time. The World Bank said China growth should moderate to 7.4 percent this year, 7.2 percent in 2015.

That's why there is a lot of interest in Yum Brands, which reports tomorrow and get 53 percent of its revenues from China, only 23 percent from the U.S. Remember, Yum has struggled in China ever since the December 2012 poultry supplier incident. Same store sales have trended down and will likely be down north of 10 percent for Q3. McDonald's also has struggled.

Elsewhere:

1) Brazil election surprise: Brazilian stocks moving this morning to the upside. Aecio Neves received a surprising 35 percent of the vote against the favorite, incumbent Dilma Rousseff. Rousseff pulled 42 percent of the vote, Neves with 34 percent, and Marina Silva only pulled in 21 percent. Neves has promised to be more investor-friendly and loosen the government's grip on the company. The runoff is October 26th.

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2) BHP Billiton is planning to step up iron-ore production, by 30 percent. Welcome to the topsy-turvy, counter-intuitive world of global metals production: Iron ore prices have been plummeting this year, down to $80 a ton. So why ramp up production? Ramping up production would make sense only if costs can be driven down dramatically, and that's exactly what they plan to do. That means firing a lot of people. More talk of driverless trucks and longer hours. They have already said they are aiming to cut unit costs at their Western Australia mine by at least 25 percent. By spending more to produce more, they are talking about driving costs down toward $30 a ton, and eventually move toward $20 a ton (!!).

But if you can make that happen, and you can be profitable well below $80 a ton while others are stuck with higher-cost mines, you will continue to capture a bigger piece of the pie. Rivals Vale and Rio Tinto seem to be pursuing similar strategies. With the supply side increasing, and the demand side (China) moderating, it's a risky strategy.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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