Morning Update

Extending the Enthusiasm

Stocks are higher in early action, extending the recent rally, which received additional support from yesterday's announcement from the Federal Reserve that it is committed to purchasing over $1 trillion in additional securities to improve credit market conditions. Treasuries are higher, extending yesterday's surge, while jobless claims relatively eased, but remain at elevated levels. On the equity front, Oracle topped earnings forecasts and announced its first quarterly dividend, but FedEx's large profit miss is limiting some of the enthusiasm on the Street. Elsewhere, Dow member Citigroup reported that it may conduct a reverse split. Crude oil and commodity prices are sharply higher on the optimism toward the impact the Fed's actions will have on the global economy. Overseas, markets are mixed as a drop in the dollar versus the yen weighed on Japan.

As of 8:45 a.m. ET, the June S&P 500 Index Globex futures contract is 5 points above fair value, the Nasdaq 100 Index is 8 points above fair value, and the DJIA is 16 points above fair value. Crude oil is up $2.84 to $50.98 per barrel, and gold is up $58.90 at $948.00.

FedEx Corp. (FDX $43) is lower after reporting fiscal 3Q EPS of $0.31, well short of the Reuters estimate of $0.46, as revenues fell 14% to $8.1 billion, which also came in shy of analysts' estimates. The company said operating results decreased significantly in 3Q, as the continued deterioration in global economic conditions led to lower shipment volumes at its express and freight units and a more competitive pricing environment. FDX said revenue declines-due to reduced fuel surcharges and lower shipment weights-were partially offset by stringent cost control efforts and market share gains, including volumes gained from DHL exiting the US domestic package market.

Looking ahead the company said it expects 4Q EPS ex-items to be in the range of $0.45-0.70, assuming continued weak global macroeconomic conditions and stable fuel prices. The Street was looking for the company to post 4Q EPS of $0.72. FDX also announced additional cost-reduction initiatives, including further reduction of personnel and work hours.

Oracle (ORCL $16) reported fiscal 3Q EPS ex-items of $0.35, three cents ahead of the Street's forecast, as revenues gained 2% to $5.5 billion. The business software company said software revenues were up 5%, while software license sales were down 6% due to a stronger dollar. ORCL also declared a quarterly dividend of $0.05 per share, for the first time, and shares are moving higher.

Dow member Citigroup (C $3) announced in a regulatory filing that it may conduct a reverse stock split as part of an exchange offer, which could give the US government an increased stake in the bank. Citi proposed seven possible reverse split ratios and said the split could take place before June 30, 2010. Shares are higher.

Jobless claims decline, Treasuries extending gains

Weekly initial jobless claims declined by 12,000 to 646,000, versus last week's figure that was upwardly revised by 4,000, and below the Bloomberg consensus, which called for claims to come in at 655,000. The four-week moving average rose 3,750 to 654,750, and continuing claims jumped 185,000 to 5,473,000.

Later today on the economic front, the Philly Fed's Business Activity Index for March will be released and a slight improvement from -41.3 to -39.0 is forecast. Also, look for the Leading Index today, which is expected to decline 0.6% in February.

Treasuries are moving higher, extending yesterday's surge that followed the Federal Reserve's stunning announcement that it is committed to purchasing over $1 trillion in additional securities, including buying up to $300 billion of longer-term Treasury securities over the next six months. The actions are aimed at providing further support to mortgage lending and the housing markets, and to improve the conditions in private credit markets. The yield on the 10-year Treasury note is extending yesterday's steep loss, in which it plunged almost 50 basis points to almost 2.50%.

A detailed look at the Fed's announcement yesterday in addition to driving mortgage rates lower, another goal of Treasury purchases is to drive new capital flows into higher-risk assets, and adds to the building case for equities.

Fed actions aiding advance in Europe

Not surprisingly, financials are surging to support an advance in stocks in Europe after the US Federal Reserve's commitment to purchase additional securities to improve the credit markets and help stem the global recession. Also helping amplify the enthusiasm in the financial sector, the UK's second-largest insurer Prudential Plc (PUK $8) is up almost 20% after it reported an operating profit that topped analysts' expectations and announced its CEO will step down. However, despite the rally in commodities and materials following the Fed's announcement, Germany's largest steelmaker Thyssenkrupp (TYEKF $19) is down about 7% after it forecasted a 2Q loss on softer demand, falling prices, and more inventory writedowns.

Asia mixed as some US enthusiasm nixed by stronger yen

Stocks in Asia were mixed as the surprising announcement from the US Federal Reserve helped boost optimism in the financial sector, while strength in the yen-following the dollar's tumble after the Fed's announcement-dampened the mood among companies that rely heavily in sales in the US. In Japan, the Nikkei 225 Index declined 0.3% and the broader Topix Index was nearly unchanged. Elsewhere, the Korean Kospi Index fell 0.7% and China's Shanghai Index advanced 1.9%. The Australian S&P/ASX 200 Index gained almost 1%, led by financials, while the boost in commodity prices on the improved outlook toward the global economy, helped the resource rich nation gain ground. On the equity front Casio Computer (CSIOY $68) fell almost 14% after the company reversed its previous profit outlook for the year ending March 31, to an expectation of a net loss-which would be the first loss in seven years according to Bloomberg. The disappointing guidance from the maker of watches and cameras prompted some analysts to downgrade the company, adding to pressure on the stock.