Morning Update

Flu Fears has Sentiment Shifting Gears

Stocks are lower in early action as fears about the spread of the swine flu and its potential impact on the recent signs of economic recovery are stymieing sentiment. Treasuries are higher amid the uneasiness regarding the flu, and ahead of a heavy dose of economic reports. Overseas, travel firms and commodity-related issues are weighing in trading. In equity news, Verizon Communications and Corning beat the Street's profit projections, and General Motors announced more restructuring efforts.

As of 8:48 a.m. ET, the June S&P 500 Index Globex futures contract is 14 points below fair value, the Nasdaq 100 Index is 20 points below fair value, and the DJIA is 131 points below fair value. Crude oil is down $2.76 at $48.79 per barrel, and gold is down $5.20 at $908.90 per ounce.

Dow member Verizon Communications (VZ $31) reported 1Q EPS ex-items of $0.63, four cents above the Reuters estimate, and total operating revenues gained 11.6% to $26.6 billion, including results from its acquisition of Alltel Corp. The company said despite the general economic climate, sales remained strong for wireless, FiOS and strategic business services. VZ added 299,000 net new FiOS TV customers and a record 298,000 net new FiOS internet customers, while its wireless unit added 1.3 million net new customer additions, and it said it produced an industry-leading retail postpaid churn of 1.14%.

Corning (GLW $15) announced 1Q EPS ex-items of $0.10, topping the Street's forecast of $0.05, as revenues fell 39% to $989 million. The maker of glass for LCD TVs said it was satisfied to see the continued strength of LCD TV sales worldwide, and pleased to see demand for its glass pick up sooner than it anticipated. Looking ahead, the company said while economic uncertainty remains, it is expecting strong growth in display as its customers continue to ramp their capacity to match end market demand. It expects sequential volumes top be up more than 50%, and it increased its estimate for the 2009 LCD glass market production and now expects LCD TV units to grow 18% this year versus a previous forecast of 9%.

Dow member General Motors (GM $2) reported that it has accelerated its reinvention as a leaner, more viable company and will focus on four core brands of Chevrolet, Cadillac, Buick, and GMC-it will phase out its Pontiac brand by the end of 2010. GM said it will reduce it's total number of assembly, powertrain, and stamping plants in the US to 34 by the end of 2010 and reduce its US hourly employment levels.

Treasuries higher ahead of the economic storm

Treasuries are higher in early action as fears that the spread of the swine flu could impact the global economy are exacerbating sentiment that was dampened by comments from the Director of the White House National Economic Council Lawrence Summers. Summers said the US economy will experience "sharp declines in unemployment for quite some time this year," suggesting the contraction in the economy may continue. There are no major economic reports due out today but this week will have plenty of key releases that are likely grab the lion's share of the Street's attention.

Kicking things off, the S&P/Case-Shiller Home Price Index for February will be released on Tuesday and is expected to fall 18.7% year-over-year (y/y). The index is a three-month rolling average representing 20 major cities, and through January had fallen 29.1% from its peak in 2006. Steeply falling prices brought on by foreclosures have motivated buyers to begin to bargain shop and sales of new and existing homes have begun to stabilize.

Advance Gross Domestic Product, the broadest measure of economic output, for 1Q will be released on Wednesday, and is expected to have fallen an annualized 4.7%, after dropping 6.3% in 4Q. Personal consumption is expected to rise 0.9% after falling 4.3% in 4Q and the GDP Price Index is expected to rise 1.7%, with the core PCE Index, which excludes food and energy, increasing 1.2%.

The Federal Open Market Committee (FOMC) will hold its two day meeting, concluding on Wednesday. With the fed funds rate already targeted to a rate near zero, no action is expected on the targeted interest rate. However, the Fed will likely update the market with regard to the unconventional measures it is taking to stabilize the economy and credit markets. Of particular interest will be any details regarding the status of the Term Asset-backed Securities Loan Facility (TALF), which has gotten off to a slow start. Additionally, investors will be monitoring progress on the Fed's purchases of mortgage-backed securities and Treasuries.

The ISM Manufacturing Index will be released Friday, and is expected to improve to 38.3 in April from 36.3 in March, according to a survey of economists by Bloomberg. The separation point between contraction and expansion is 50, and the improvement expected in the index would indicate the economy contracting at a slower pace.

Other reports that will be released this week include, consumer confidence on Tuesday, personal income and spending, the core PCE Price Index, the Employment Cost Index, and weekly initial jobless claims on Thursday, and final University of Michigan Consumer Sentiment Index and factory orders on Friday.

Flu fears pressure Europe

Stocks in Europe are under pressure in afternoon action as the World Health Organization declared the outbreak of the swine flu a "public health emergency of international concern." Commodity-related issues are lower amid concerns that the impact of the outbreak could stymie some of the recent improvement in the global economy. Also, travel companies are being pressured as world nations take precautionary measures in an attempt to prevent the spreading of the flu and cases are beginning to be reported in regions around the world. However, shares of pharmaceutical firms are one of the lone sectors in the green as authorities seek out treatments for the disease. Shares of Roche Holdings (RHHBY $30) are higher after it said it has ample supply of the Tamiflu treatment that can reduce symptoms of the flu, while GlaxoSmithKline (GSK $29) is also gaining ground after it said it is it is producing its Relenza flu treatment at "full capacity."

Japan gains as rest of Asia wanes

Stocks in Asia were mostly lower as concerns about the swine flu's impact on the economy dampened sentiment and weighed on travel-related firms. However, stocks in Japan managed to post gains despite the aforementioned fears and in the face of the Japanese government downwardly revising it forecast for economic growth. The Cabinet Office cut its forecast for growth of the economy from a previous prediction of zero growth to a 3.3% decline on weakness in exports and amid sharp declines in corporate spending. M&A activity helped buoy the markets in Japan, highlighted by the agreement between NEC Electronics (NELTY $6) and Renesas Technology Corp. to merge, creating the world's third largest chipmaker. In other equity news in the region, the world's largest bank by market value, Industrial & Commercial Bank of China (IDCBY $28), reported 1Q profits rose about 6% on record credit growth and lower loan loss provisions.