Morning Update

Nearly Flat as Earnings Help Stocks Battle Back

Stocks are near the unchanged mark in early action after overcoming early pressure on a plethora of key earnings reports. Dow members Citigroup and General Electric both posted better-than-expected results, while the world's largest internet search firm Google, topped earnings expectations but revenues were down versus last quarter and it offered cautious commentary. Treasuries are lower ahead of a key reading on consumer sentiment and overseas, markets are mostly higher.

As of 8:52 a.m. ET, the June S&P 500 Index Globex futures contract is 1 point below fair value, the Nasdaq 100 Index is 4 points below fair value, and the DJIA is 10 points below fair value. Crude oil is up $0.46 at $50.44 per barrel, and gold is down $9.10 at $870.70 per ounce.

Dow member Citigroup (C $4) is higher after the company posted a smaller-than-expected 1Q loss of $0.18 per share, compared to the Reuters estimate, which called for a $0.30 per share loss for the quarter. C said that total revenues were up 99% to $24.8 billion versus the same period last year, with sequential improvement across all regions. The company said its net interest margin increased 50 basis points to 3.30% compared to 1Q last year and 8 bps versus last quarter, and operating expenses were down by $3.7 billion, or 23%. Its teir-1 capital ratio-a key measure of financial strength-improved from 7.7% in 1Q 2008 to 11.8%. C said the quarterly results was its best since 2Q 2007 and it has taken steps to strengthen its position further, by lowering risk by reducing the problem legacy assets that have caused many of its losses. The company added that it continued to extend significant amounts of credit to US consumers and continued to focus on supporting the US housing market.

Fellow Dow component General Electric (GE $12 ¹) reported 1Q EPS declined 40% to $0.26, five cents above the Street's expectations, as revenues fell 9% to $38.4 billion. The company said industrial sales were down 1%, its financial services revenues fell 20%, while energy infrastructure profits grew by 19% and its technology infrastructure earnings gained 6%. GE said its capital finance unit extended $69 billion of new credit in 1Q, and it earned $1.1 billion and remains on track for a profitable 2009. GE said the results do not include any impact from newly issued mark-to-market accounting rules, which it is implementing in 2Q.

Google (GOOG $389) posted 1Q EPS ex-items of $5.16, topping analysts' estimates of $4.93, as revenues increased 6% to $5.5 billion versus last year, but down 3% versus 4Q. The number one internet search engine said its site revenues fell 3% sequentially to $3.7 billion-67% of total revenues. GOOG said its paid clicks increased about 3% versus last quarter, and its traffic acquisition costs-portion of revenues shared with its partners-fell almost 3%. "We're still basically in uncharted territory," GOOG's CEO said on a conference call. Adding that, "Google is absolutely feeling the impact. Users are still searching but they're buying less. Ultimately, what that really means is the ads are converting less." Shares are lower.

Consumer sentiment set to be released

Treasuries are lower as the Street awaits the latest reading on the mentality of the consumer in April as later today, the economic calendar will yield preliminary University of Michigan consumer sentiment, expected to increase from 57.3 in March to 58.5 in April. The expected improvement in consumer sentiment illustrates the apparent shift from uncertainty regarding the depth and duration of the global recession to cautiously broaching the idea that the worst of the recession may be behind us.

Bank profits and higher chip prices boost Europe

Stocks in Europe are higher in afternoon action as financials continue to build momentum and soothe fears about the crisis in the sector. The sweetened sentiment toward the group was supported by Citigroup's better-than-expected earnings, which complemented Goldman Sachs' (GS $121) upbeat results on Monday and yesterday's favorable report from Dow member JPMorgan Chase (JPM $33). Also, chipmakers are helping lead the advance amid a jump in DRAM chip prices and a smaller-than-expected operating loss from Toshiba Corp. (TOSBF $3) in Japan. The solid advance across the pond is overshadowing disappointing sales results from Europe's largest retailer Carrefour (CRERY $8) and the region's biggest hotel firm Accor (ACRFY $9). Carrefour is down about 2% after it reported its first drop in quarterly sales in six years, according to Bloomberg, and it said it expected no improvement of the "tough" market conditions in 2Q. Meanwhile, Accor also said it sees no improvement in 2Q for the lodging market after posting a 9.6% slide in 1Q sales as the global recession stymied demand for traveling.

Japan rallies but China posts a negative tally

Stocks in Asia were mostly higher, led by Japan, as the optimism from the solid advance in the US yesterday on upbeat earnings from JPMorgan Chase was amplified by an upbeat profit report from Toshiba Corp. Japan's largest semiconductor advanced 4.4% after it said its operating loss was 250 billion yen ($2.5 billion) for the year ended March 31, which was 11% smaller than analysts had expected. The narrower-than-expected loss was attributed to higher-than-expected sales for its memory and processor chips as prices have surged-led by flash memory prices or chips used in MP3 players and digital cameras, which have jumped 75% since the company's last earnings guidance, according to Bloomberg. Japan's Nikkei 225 Index rose 1.7% and the broader Topix Index gained 1.6%. In other equity news, Nintendo (NTDOY $36) fell 6.6% after a research firm said March sales of the company's Wii video game console fell 17% to 601,000 versus a year ago-marking the first decline for the popular console in 14 months. Elsewhere, markets across Asia were modestly higher, but China's Shanghai Composite fell 1.2% as commodity-related issues fell on weakness in raw material prices and after Premier Wen Jiabao told a news agency that the financial crisis is still deepening and the rebound in industrial output growth lacks momentum.