Morning Update

In Green Despite a Slightly Bigger Decline in GDP Seen

Stocks are higher in early action as the recent momentum continues to build on optimism the worst of the financial crisis and economic downturn may be behind us. The upbeat sentiment early on comes despite another increase in jobless claims and a slight downward revision to final 4Q GDP. Better-than-expected profits at Best Buy and ConAgra are also helping aid the backdrop. The Street is also awaiting US Treasury Secretary Geithner's testimony to the House Financial Services Committee on financial market regulation. Treasuries are mixed, and overseas, Asia finished higher, while Europe is nearly unchanged.

As of 8:51 a.m. ET, the June S&P 500 Index Globex futures contract is 6 points above fair value, the Nasdaq 100 Index is 14 points above fair value, and the DJIA is 47 points above fair value. Crude oil is up $1.21 to $53.98 per barrel, and gold is up $8.20 at $944.00.

Best Buy (BBY $33) reported 4Q EPS ex-items of $1.61, easily topping the Reuters estimate of $1.40, as revenues rose almost 10% to $14.7 billion. However, excluding the inclusion of Europe and foreign exchange effects, the company posted a 2% decline in revenue versus last year. The electronics retailer said it prepared for reduced consumer spending and it was pleased when the quarter finished stronger than it began. BBY said its gross profit rate increased due to sales of higher margin mobile phones in Europe and gross profit growth in several key categories, particularly home theater and computing. The gross profit improvement was partially offset by an unfavorable shift to notebook computers, which carry a lower gross profit rate. Also helping the company, it lowered its spending in discretionary areas and met its expectations for cost reductions in the period. BBY issued fiscal 2010 EPS guidance above analysts' estimates.

ConAgra (CAG $16) reported fiscal 3Q EPS ex-items of $0.40, four cents above the Street's estimate, as revenues came in at $3.1 billion. The packaged food company benefitted from price increases that improved its consumer foods profits. CAG reaffirmed its full-year profit guidance.

Jobless claims rise, final read on 2008 output revised slightly lower

Weekly initial jobless claims rose by 8,000 to 652,000, versus last week's figure that was downwardly revised by 2,000, and above the Bloomberg consensus, which called for claims to come in at 650,000. The four-week moving average declined 1,000 to 649,000, and continuing claims jumped 118,000 to 5,556,000, versus the forecast of 5,475,000.

Final 4Q Gross Domestic Product, the broadest measure of economic output, was revised from the preliminary report of a 6.2% annualized rate of decline to a 6.3% drop, smaller than the Bloomberg forecast of a 6.6% decline. Personal consumption was left unchanged at -4.3%, just above the expectation of -4.4%. GDP benefitted from a rise in inventories, in the first reading, but stockpiles were revised lower for a second time to add to the slightly larger decline in output.

The GDP price Index was left unchanged at 0.5%, in line with the forecast. The core PCE Index, which excludes food and energy, was up 0.9%, above the estimate of 0.8%. The rate continues to sit below the Fed's implied target of 1-2%. Treasuries are mixed.

Later today, US Treasury Secretary Timothy Geithner will testify to the House Financial Services Committee on financial market regulation. The testimony will begin at 10 a.m. ET and Geithner is expected discuss his proposed legislation for resolution authority-granting additional tools to address systemically significant financial institutions that fall outside the existing resolution regime under the FDIC. The Treasury said the proposal would fill a significant void in the current financial services regulatory structure and is one piece of a comprehensive regulatory reform strategy that will mitigate systemic risk, enhance consumer and investor protection, while eliminating gaps in the regulatory structure. Geithner has been in the spotlight recently, highlighted by his details of his plan to relieve toxic assets from bank balance sheets on Monday, which sparked a sharp rally in equities.

Europe flat on UK data and strength in financials

Stocks in Europe are nearly unchanged in afternoon action as solid gains in financials are being offset by a dismal reading on retail sales in the UK. Financials are being supported by a 10% gain in shares of Man Group (MNGPF $3)-the world's largest publicly traded hedge fund per Bloomberg-after it said pretax profit will be $1.2 billion, topping the $1.1 billion analysts had forecast. The company also said it will cut its workforce by about 15% as its aforementioned pretax profit forecast is about 43% lower than last year. Basic materials and consumer goods issues are also helping offset the pessimism that is stemming from the economic front in London.

UK retail sales fell 1.9% in February-almost five times larger than the economists per Bloomberg forecasted-the Office of National Statistics reported. The drop in sales was the largest drop since last June as weakness was seen in all categories, with food sales dropping 0.3% and non-food sales declining 3.2% in the face of mounting job losses in the severe recession.

Asian shares continue advance

Stocks in Asia were solidly higher, extending recent momentum as yesterday's upbeat durable goods orders and new home sales data in the US, which led to some late-day resiliency on Wall Street, promoted optimism in the region. A better-than-expected profit report from Hong Kong conglomerate Hutchison Whampoa (HUWHY $27) helped the Hang Seng Index gain 3.6%. Hutchison rose 3.3% after reporting net income fell 42% to HK$17.7 billion ($2.28 billion), but narrower losses at its mobile phone unit helped it beat analysts' estimates that called for the firm to report net income of HK$ 14.3 billion. Elsewhere, Elpida Memory (ELPDF $6) jumped 18% after it said two subsidiaries plan to raise 45.8 billion yen ($468 million) by issuing new stock-helping the company increase its asset level above the level where banks have the option to demand early repayment of loans. Japan's Nikkei 225 Index gained 1.8%, China's Shanghai Index jumped 3.1%, and South Korea's Kospit Index increased 1.2%.