Morning Update

Sentiment Continues to be Taxed

Stocks are under pressure in early action after yesterday's solid decline, despite an unexpected drop in inflation at the consumer level and a much better-than-expected improvement in the Empire Manufacturing Index. Comments from the CEO of Wal-Mart that a lot of stress remains in the economy is offsetting Intel's better-than-expected profit report and upbeat PC comments, as well as Procter & Gamble's increased dividend. Overseas, markets are mostly lower and banks are pressuring Europe after UBS posted a loss and cut more of its workforce. Treasuries are mixed, showing little reaction to the inflation and manufacturing data, but more reports are set to be released later today.

As of 8:46 a.m. ET, the June S&P 500 Index Globex futures contract is 1 point below fair value, the Nasdaq 100 Index is 11 points below fair value, and the DJIA is 15 points below fair value. Crude oil is up $0.34 at $49.75 per barrel, and gold is down $2.40 at $889.60 per ounce.

Dow member Intel (INTC $16) reported 1Q EPS fell 56% versus a year ago to $0.11, but well above the $0.03 that analysts surveyed by Reuters expected, as revenues fell 26% to $7.1 billion. The company said its gross margin fell seven percentage points due to higher factory underutilization charges and startup costs. Also, INTC said average selling price for all microprocessors was flat compared to last quarter, and microprocessor units were lower versus 4Q. However, the company's CEO said, "We believe PC sales bottomed out during the first quarter and that the industry is returning to normal seasonal patterns." Looking ahead, the company said due to continued economic uncertainty and limited visibility, it is not providing 2Q revenue guidance, but for internal purposes, it is currently planning for revenue approximately flat versus 1Q.

Dow Component Procter & Gamble (PG $47) announced that its Board of Directors declared an increase in its quarterly dividend from $0.40 per common share to $0.44, representing a 10% increase.

Fellow Dow member Wal-Mart (WMT $51) is under pressure after the company's CEO, Mike Duke, told NBC's "Today Show" that there is "still a lot of stress" in the economy and that it is not a "V" recession, where we are just going to bounce out and come back.

CPI softens to kick off the heavy economic day

After a 3% drop in energy prices, the Consumer Price Index fell 0.1% in March, compared to the Bloomberg forecast that called for a 0.1% gain. The core rate, which strips out food and energy, was up 0.2%, topping the forecast of 0.1%. Year-over-year (y/y), core inflation remained at 1.8%, while the headline rate fell from 0.2% to -0.4%.

The first reading on activity in the month of April, the Empire Manufacturing Index, a measure of manufacturing in New York, improved from -38.23 to -14.65, much better than the estimate of -35.00. However, the index remains at a level indicating contraction as a reading of zero suggests conditions are neither contracting nor expanding. Treasuries are mixed and showed little reaction to the consumer inflation and manufacturing data.

In other economic news, the US MBA Mortgage Application Index fell 11% to 1113.2 for the week ended April 10, failing to gain ground for a sixth-straight week. The Refinance Index dropped 10.9% to 6071.7, and the Purchase Index also declined, falling 11.3% to 264.1. The Mortgage Bankers Association (MBA) said the average 30-year fixed loan dipped from 4.73% the week before to 4.70%, and the MBA noted that the lack of an adjustment for the Easter/Passover weekend may have contributed to the decline in applications.

Industrial production and capacity utilization will be reported later in the morning, and industrial production is expected to decline 0.9% in March, and capacity utilization is expected to decline to 69.6%. The economic data will continue to fly throughout today's session as we will get a report on sentiment among homebuilders in afternoon action with the National Association of Home Builders Index of builder confidence, expected to tick higher from 9 in March to 10 in April-a reading below 50 means most respondents view conditions as poor. The homebuilder sentiment gauge will be followed by the release of the Fed's Beige Book-a report from the Federal Reserve districts across the nation on business activity.

Europe bogged down by banks

Stocks in Europe are lower in afternoon action as financials are applying pressure to sentiment across the pond, exacerbated by UBS' (UBS $11) 1Q loss and announcement that it will cut another 11% of its staff. Switzerland's largest bank said writedowns and outflows of 23 billion francs ($20.1 billion) in client assets from its wealth management unit led to the loss and that its "outlook remains cautious and we face many uncertainties." Elsewhere, basic materials are also under pressure as the world's number-three mining firm, Rio Tinto (RTP $146), is lower after announcing that iron ore output fell 15% in 1Q amid slumping demand from steelmakers and stymied deliveries from its Australian mines due to floods.

Asia mostly lower on stronger yen and disappointing data

Stocks in Asia were mostly lower, led by a solid loss in Japan as traders reacted to yesterday's disappointing retail sales data in the US and as exporters came under pressure after the yen strengthened. Japan's Nikkei 225 Index lost 1.1%, and the broader Topix Index fell about 1% as the yen posted solid gains versus the dollar, weighing on the outlook for sales of export issues that rely heavily on sales in the US. Also, the unexpected fall in US retail sales yesterday dampened hopes that the possible recovery in the global recession may not be as far along as some had forecasted. However, Hong Kong's Hang Seng Index and China's Shanghai Composite Index managed to eke out gains to buck today's downward trend.

In equity news, Komatsu (KMTUY $52) fell almost 6% after the world's second-largest maker of earthmoving equipment announced that it will shutter two plants amid the global decline. India's second-largest software services provider, Infosys Technologies (INFY $29) declined almost 3% after guiding that annual sales with drop for the first time as demand for outsourcing slowed amid the global slowdown, while Japan's largest supermarket operator Aeon (AONNY $7) rose over 5% after it said it expects to return to profit this fiscal year, which began in February.