Morning Update

Bank Earnings and Jobless Claims Easing Lifting Sentiment

Stocks have overcome early pressure and are moving higher in morning action as the Street cheered a much-larger-than-expected drop in jobless claims and a profit report from Dow member JPMorgan Chase that topped analysts' expectations. Overseas, stocks in Asia were mixed as a report showed China's GDP growth slowed more than forecast, while in Europe financials and Nokia's upbeat comments to offset its profit shortfall are helping sweeten sentiment. Treasuries are lower as equities recover after the labor data, and in other economic news, housing starts and building permits fell.

As of 8:52 a.m. ET, the June S&P 500 Index Globex futures contract is 4 points above fair value, the Nasdaq 100 Index is 20 points above fair value, and the DJIA is 23 points above fair value. Crude oil is up $0.68 at $49.93 per barrel, and gold is down $3.30 at $890.20 per ounce.

Dow member JPMorgan Chase (JPM $33) reported 1Q EPS of $0.40, easily topping the Reuters estimate of $0.30, as revenues came in at $26.9 billion. JPM CEO Jamie Dimon said, the firm earned more than $2 billion this quarter, despite extremely high credit costs of $10 billion (including $4 billion added to reserves), largely in card services and retail financial services. He added that the firm achieved record revenue and profit in its investment banking unit, while it benefitted from underlying growth in its retail banking, which included higher mortgage refinancing volumes.

In terms of key financial strength ratios, JPM said its tier-1 capital ratio came in at 9.2%-excluding Troubled Asset Relief Program (TARP) capital from the government-and its tangible common equity compared to risk-weighted assets was 7.2%. JPM's allowance for credit losses was $28 billion and its loan loss coverage ratio stood at 4.53%. Looking ahead, JPM said it is reasonable to expect additional increases to credit reserves if the economic environment worsens, but it is confident that even a highly adverse economic scenario would not compromise its overall strength and stability-or its ability to enhance its franchises.

Housing starts and building permits fall, jobless claims drop

Housing starts and building permits came in lower than expected. Starts in March fell 10.8% to an annual rate of 510,000, below the Bloomberg estimate of 540,000. Building permits also came in lighter than expected as the more forward-looking indicator of homebuilding declined 9% to an annual rate of 513,000, below the forecast of 549,000. Additionally, February's figure for starts was revised lower, while permits were revised higher.

The report may add to the optimism that the headwinds for the housing sector in the form of elevated inventories may be easing, but it suggests that the recent aggressive actions by the Federal Reserve to lower mortgage rates and restore some normalcy to the credit markets-including its campaign to purchase mortgage-backed securities and longer-term Treasuries-has yet to stoke demand enough for home construction to ramp up, signaling the beginning of a recovery in the housing sector.

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Weekly initial jobless claims fell by 53,000 to 610,000, versus last week's figure that was upwardly revised by 9,000 to 663,000. The drop was much lower than the Bloomberg consensus, which called for claims to come in at 660,000. The four-week moving average declined by 8,500 to 651,000, and continuing claims jumped to 6,022,000, versus the forecast of 5,893,000. Despite the much larger-than-expected drop in initial claims, the report marks the eleventh straight week of claims above 600,000. Treasuries are lower following the housing and labor data.

Later today on the economic front, the Philly Fed Manufacturing Index will be released, and is expected to improve from -35.0 in March to -32.0 in April.

Europe riding financials and Nokia higher

Stocks in Europe are trading higher in afternoon action as the financial sector-which led yesterday's solid advance in the US-continues to buoy the major markets overseas and a positive reaction to Nokia's (NOK $13) 1Q profit report, even after its top and bottom line results missed analysts' estimates. The world's largest cell phone maker said net income fell 90% to 122 million euros and sales fell 27% to 9.3 billion euros. Analysts surveyed by Bloomberg had expected the company to report net income of 232 million euros and revenues of 9.8 billion. However, shares are higher after NOK said it can meet its first half profitability forecast and increase its market share. The advance in Europe is happening despite a report that showed euro zone industrial production fell 18.4%, more than the consensus estimate of -18.0%, as manufacturing continued to be stymied by the global recession.

Asia mixed as China's GDP growth slows

Stocks in Asia were mixed as traders continued to grapple with if we have seen the worst of the global recession, while reacting to a report on China's GDP that showed growth slowed at the slowest pace in almost 10 years, according to Bloomberg. China's statistics bureau said that the nation's output grew at 6.1% in 1Q from a year ago, slightly below the 6.2% that economists surveyed by Bloomberg had forecast, on weak exports. However, there were some glimmers of hope that the bottoming of the global slide may be beginning to take form as March showed that urban fixed-asset investment surged and industrial output jumped, adding to evidence the country's 4 trillion yuan ($585 billion) stimulus efforts may be showing their intended impact. Stocks in Japan were mixed as more strength in the yen weighed on export issues, while yesterday's rally in the US helped limit some of the damage. Meanwhile India's BSE Sensex 30 Index fell about 3% amid uncertainty as the country began its nationwide elections today. In equity news, NEC Electronics (NELTY $4) jumped 12% after it said the company is exploring options to improve competitiveness, which may include a merger with privately held Renesas Technology Corp, creating Japan's largest chip maker.