Morning Update

Rally Goes Cold as Profit Harvesting Takes Hold

Stocks are lower in early action as traders take the opportunity to book some profits from another positive week in the equity markets on growing optimism that the worst of the financial meltdown and the recession may be in the rear-view mirror. In equity news, Intel announced that it will issue up to $1 billion in new stock to possibly fund acquisitions, and Johnson Controls reported a new restructuring initiative, including job cuts and plant closings. Treasuries are higher after personal income declined slightly more than expected, while spending rose to match expectations. Overseas, world markets are mixed.

As of 8:48 a.m. ET, the June S&P 500 Index Globex futures contract is 10 points below fair value, the Nasdaq 100 Index is 25 points below fair value, and the DJIA is 93 points below fair value. Crude oil is down $1.09 to $53.25 per barrel, and gold is down $17.50 at $922.50.

Dow member Intel (INTC $16) announced plans in a regulatory filing to offer as much as $1 billion in new stock, "in connection with future acquisitions of other businesses, assets or securities." A company spokesman said INTC does not have anything specific in mind.

Johnson Controls (JCI $13) announced it will cut its workforce and shutter 10 plants as part of a new restructuring campaign as it expects vehicle production this year to be below its December forecast levels. The auto parts maker did not disclose how many jobs will be cut, but it affirmed it expects to return to profitability in 3Q and 4Q.

Income falls but spending rises

Personal income declined 0.2% in February, versus the Bloomberg estimate of -0.1%, and January's unexpected rise was revised from 0.4% to 0.2%. Personal spending rose 0.2% in February, in line with expectations, while January's 0.6% increase was revised higher to 1.0%. The savings rate declined from a downwardly revised 4.4% to 4.2%.

Also, the PCE Price Index, which is released with the income and spending data, rose 1.0% in February, topping the 0.8% forecast, and January was revised slightly higher. The core PCE Price Index, which excludes food and energy, increased 0.2%, matching expectations. Year-over-year, core prices are up 1.8%, higher than the 1.6% economists surveyed by Bloomberg expected. Treasuries showed little reaction to the data and remain modestly higher.

More data on consumer activity is in store later this morning as the economic calendar will yield final University of Michigan consumer sentiment, expected to increase from the preliminary reading of 56.6 to 56.8 in March.

Europe momentum stalls as UK economic activity falls

Stocks in Europe have moved to the downside in afternoon action after 4Q GDP in the UK contracted more than expected, threatening the Bloomberg European 500 Index's bid for a seventh-straight session in the green. Led by a decline in consumer spending and a drop in construction, 4Q UK GDP fell 1.6% versus last quarter and more than the 1.5% decline economists surveyed by Bloomberg had forecast. The Bank of England's chief economist called Britain's economic short-term prospects "bleak."

In equity news, Air France-KLM (AFLYY $10) is under solid pressure after the airline said it will post a loss for the fiscal year ending March 31, and it is in jeopardy of posting a loss for the following year amid the global recession. The world's largest engineering firm, Siemens (SI $61), is solidly in positive territory for a second day in a row after it maintained its full year profit forecast and said earnings at its main divisions will rise at least 10% in the quarter ending in March. Elsewhere, Barclays (BCS $8) is posting a solid gain on a report from the Financial Times that the UK's Financial Services Authority is in the final stages of an extreme stress test on the bank's loan book, and is moving toward the conclusion that the bank does not need to raise fresh capital. Barclays did not comment on the story.

Asia mixed as recent advance pauses

Stocks in Asia were mixed as traders breathed a bit from the recent run up and as strength in technology issues was offset by pressure on utility issues. Japan's Nikkei 225 Index declined 0.1% after the country reported retail sales fell the most in seven years in February, according to Bloomberg, which offset continued strength in export issues and another jump in Japan's largest memory chip maker, Elpida Memory (ELPDF $6). The company received support after reports that shortages of semiconductors could drive up prices per the Financial Times, and after average prices for DRAM chips jumped yesterday. Also, trading in Asia was subdued as gains in property developers and real estate investment trusts (REITs)-following a report from the Nikkei newspaper that the Japanese government is considering a 1 trillion yen ($10 billion) fund to purchase property from REITs-were offset by heavy pressure on utility companies amid speculation that the recent gains in fuel prices might increase costs for the group. Yesterday's advance in commodity prices helped boost mining companies.

Elsewhere, Hong Kong's Hang Seng Index was slightly higher, China's Shanghai Index rose 0.5%, and Australia's S&P/ASX 200 Index rose 0.7%. In New Zealand, the strength in mining companies helped shares gain ground even after a report showed the country's GDP in 4Q shrank the most in 16 years, per Bloomberg, amid home building weakness, falling exports, and reduced business spending. However, the 0.9% contraction in 4Q GDP for New Zealand came in better than economists forecasted.