Morning Update

Bulls Set to Tee Up Rally Day

News from the banking sector that is better than expected and reports of a stimulus plan in Japan are bolstering markets globally. Wells Fargo pre-announced results that easily exceeded expectations, and the New York Times is reporting that all 19 banks will pass the stress tests being conducted by the government. Reports of a $154 billion stimulus package in Japan is adding to the bullish action and aiding commodity shares. March same-store-sales are being reported by retailers today, and while Dow component Wal-Mart reported disappointing results for March, it said the quarter is still on track and Target reported better-than-expected comp store sales. Jobless claims fell and were lower than expected. Treasuries are lower. Overseas markets are higher.

As of 8:46 a.m. ET, the June S&P 500 Index Globex futures contract is 20 points above fair value, the Nasdaq 100 Index is 20 points above fair value, and the DJIA is 144 points above fair value. Crude oil is up $1.62 to $51.00 per barrel, and gold is down $2.18 at $878.33 per ounce.

The New York Times is reporting that regulators say all 19 banks will pass the stress tests, although some still may require more aid. Quoting officials involved in the examinations, they say this is a test a bank simply cannot fail, if the examiners determine that a bank needs "exceptional assistance," the government will provide it. There is said to be a wide range of results among the institutions.

Wells Fargo (WFC $19) is surging after reporting preliminary earnings per share of $0.55, much higher than the Street estimate of $0.23. They said total revenue is expected to be $20 billion, which includes another quarter of double-digit growth at legacy Wells Fargo, which is expected to be up 16%. They said the Wachovia acquisition is exceeding expectations. CEO Stumpf said they expect operating margins to be at the top of their peer group, noting a consolidated net interest margin of 4.1%. Combined net charge-offs are expected to be $3.3 billion, compared to 4Q of $2.8 billion at legacy WFC and $3.3 billion at legacy Wachovia. CFO Atkins noted business momentum in their traditional banking business, as well as "strong capital markets activities and exceptionally strong mortgage banking results - $100 billion in mortgage originations, with a 41% increase in the unclosed application pipeline to $100 billion at quarter-end."

Dow member Wal-Mart (WMT $53) reported February same-store sales rose 1.4%% ex-fuel, lower than the Street estimate of 3.1%. The world's largest retailer said they expect their April ending quarter to post same-store sales at the high end of 1-3% and EPS at the high end of the $0.72-77 guidance given in February. Analysts are expecting $0.76 EPS for 1Q. The company noted the Easter shift lowered the average ticket during the month, but that given initial strength of sales this week, they expect strong performance in April.

Costco (COST $48) reported a 5% decline in same-store sales for March, including a 2% drop in U.S. outlets, lower than the analyst estimate of a 1.7% drop. Target(TGT $38) reported February same-store sales fell 6.3% versus an expected 7% decline and said April same-store-sales would be flat versus a year ago. The company said that electronic sales were a source of strength and that sporting goods were weak.

Berkshire Hathaway (BRK.A $88,960) had its Aaa rating cut to Aa2 by Moody's due to the impact of falling equity markets and a weakened economy on the company's capital. Last month Fitch lowered Berkshire's rating, citing concerns on the company's stock holdings and exposure to several long-term derivative contracts. In late March S&P revised their outlook to negative from stable, but retained its AAA rating.

Jobless claims fell

Weekly initial jobless claims fell by 20,000 to 654,000, versus last week's figure that was upwardly revised by 5,000 to 674,000. The report was better than the Bloomberg consensus, which called for claims to come in at 660,000. The four-week moving average fell by 750 to 657,250, and continuing claims jumped to 5,840,000, versus the forecast of 5,800,000. The report marks the tenth straight week of claims above 600,000. Treasuries are lower.

European shares higher on government stimulus actions globally

Markets in Europe are maintaining gains after the Bank of England (BoE) kept its benchmark interest rate unchanged at 0.5%, as expected, on reports of a Japanese stimulus plan and an article saying U.S. banks will pass the stress tests they are undergoing. The BoE also agreed to continue the three-month program to purchase 75 billion pounds ($110 billion) in assets to stimulate the economy. U.K. producer prices rose 2% in March, the slowest annual pace in 20 months, and follows the BoE's expectation that the inflation rate would fall to 0.3% in 2011. ING Groep(ING $7) is higher after it said it expects to sell between 10-15 businesses leading to proceeds of 6-8 billion euros ($8-11 billion). Hypo Real Estate Holding (HREHY $2) surged after the German government offered to acquire all the outstanding shares of the company at a 16% premium to yesterday's close.

Asia surges on reports of Japanese stimulus plan and U.S. banks to pass stress tests

Stocks in Asia were much higher in trading, on news out of Japan that included improving machinery orders and reports of a 15.4 trillion yen ($154 billion) stimulus package, and the Nikkei 225 Index rose 3.7%. The Japanese stimulus package, which would represent 3% of nominal GDP, will include investments in ports and roads, according to a document obtained by Bloomberg. Japanese machinery orders rose 1.4% in February from January, much higher than the estimate of a 6.9% drop, and was the first gain in five months. Bank shares rose on reports U.S. banks will pass the stress tests and a report in a Nikkei newspaper that the Japanese government is considering a 50 trillion yen share-purchase program to revive the equity market. The exception to the positive banking news was a report from Sumitomo Mitsui Financial Group (SMFJY $4) that they had a loss of 390 billion yen for the year ended March 31, versus analyst estimates of a profit, on bad loans and losses in equity holdings, and the bank also announced it would sell shares and cut its dividend to shore up capital. Sharp (SHCAY $8) was higher, erasing yesterday's loss, after the company accelerated the start of a factory, saying that demand is expected to increase. The Hang Seng Index rose 3.0%, led by the bullish banking news, as well as news that Chinese lending is beating targets. Citic Pacific (CTPCY $6) rallied 12% after resuming trading after being suspended since April 3, when police raided the company in an investigation of suspected false statements and a conspiracy to defraud.