Morning Update

Rally Resumes as Upbeat Earnings are What the Bulls Consume

Stocks remain solidly higher in early action as the optimism from yesterday's rally on upbeat personal consumption data and positive Federal Reserve comments and action is carrying over to today's session. Earnings are also in focus and providing some support, as Exxon Mobil missed profit projections but posted better-than-expected revenues, while Procter & Gamble, Dow Chemical, and Visa all topped the Street's earnings forecasts. Treasuries are mixed after a flood of economic data, which saw jobless claims fall, personal income and spending decline, and the PCE Price Index and the Employment Cost Index post smaller-than-expected increases. Overseas, markets are solidly higher.

As of 8:47 a.m. ET, the June S&P 500 Index Globex futures contract is 10 points above fair value, the Nasdaq 100 Index is 16 points above fair value, and the DJIA is 87 points above fair value. Crude oil is up $0.37 at $51.34 per barrel, and gold is down $16.80 at $883.70 per ounce.

Dow component Exxon Mobil (XOM $68) reported 1Q EPS fell over 50% to $0.92, three cents shy of the Reuters estimate, as revenues fell 45% to $64 billion, which topped analysts' estimates.

Dow member Procter & Gamble (PG $50) posted core fiscal 3Q EPS of $0.86, six cents above the Street's forecast, as revenues fell 8% to $18.4 billion on unfavorable foreign exchange and lower shipment volumes. PG called the economic environment very challenging but said it cut costs and grew organic sales and EPS, while maintaining global value share. PG issued full-year guidance in line with analysts' expectations.

Dow Chemical (DOW $14 1) reported 1Q EPS ex-items of $0.12, much better than the Street's forecast, which called for a $0.20 loss, as cost control actions and price/volume management mitigated a 39% drop in revenues to $9.1 billion. Agricultural science sales improved but its basic plastics and basic chemical units posted declines of 47% and 49%, respectively. Looking head, DOW said there are some signs that the pace of the global economic decline is moderating, but it is not counting on material improvements in economic conditions in the near term.

Visa (V $64) reported adjusted fiscal 2Q EPS of $0.73, well above analysts' expectations of $0.64, as revenues increased 13% to $1.6 billion. The credit card transaction processor said it received contributions across all revenue categories despite the challenging economy as an ongoing secular shift from cash and check to electronic forms of payment continued to benefit the firm. Total transactions increased 9% versus the prior year to $14.9 billion. V reaffirmed its full-year outlook.

Slew of data from the economic docket

Weekly initial jobless claims fell by 14,000 to 631,000, versus last week's figure that was upwardly revised by 5,000 to 645,000. The drop pushed claims below the Bloomberg consensus of 640,000. The four-week moving average declined by 10,750 to 637,250, and continuing claims jumped again, gaining 133,000 to 6,271,000, versus the forecast of 6,200,000. The report marks the thirteenth-straight week of claims above 600,000.

Personal income declined 0.3% in March, versus the Bloomberg estimate of -0.2%, and February was unrevised at -0.2%. Personal spending dropped 0.2% in March, slightly more than the expectation of -0.1%, while February's 0.2% increase was revised higher to 0.4%. The savings rate declined from a downwardly revised 4.0% to 4.2%.

Also, the PCE Price Index, which is released with the income and spending data, rose 0.6% in March, just below the 0.7% forecast, and February's gain was revised slightly lower. The core PCE Price Index, which excludes food and energy, increased 0.2%, on top of expectations of 0.1%. Year-over-year, core prices remained 1.8% higher, in line with the consensus of economists surveyed by Bloomberg.

Elsewhere, the Employment Cost Index increased 0.3% in 1Q, below the estimate of 0.5%. Treasuries are mixed following the plethora of data.

Later today, the Chicago PMI will be released and is expected to increase from 31.4 in March to 35.0 in April.

Europe in the green as favorable earnings and economic news seen

Stocks in Europe are posting sizable gains in afternoon action, led by financials and basic material stocks on better-than-expected earnings from BASF (BASFY $33) and after UK consumer confidence improved to the highest level in a year. Yesterday's rally in the US on much-better-than-expected personal consumption data and following the Federal Reserve's monetary policy announcement that its is maintaining its unconventional monetary policy targets to continue to combat the economic slide, carried over to trading across the pond. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA has posted breaking commentary on the Fed meeting entitled Fed Keeps Foot on the Accelerator, which can be located at www.schwab.com/marketinsight. BASF is up over 8% after the world's largest chemical company reported profits that bested analysts' estimates as the company deployed aggressive cost control measures, such as shuttering plants and reducing its workforce.

Asia jumps, following Wall Street's lead

Stocks in Asia were solidly higher across the board as the rally in the US on upbeat personal consumption data and the Federal Reserve sticking to its monetary policy guns to combat the recession carried over to the region. A couple of key central bank announcements were also in focus as the Bank of Japan left its key lending rate unchanged at 0.1% and the New Zealand central bank cut its main interest rate by 50 basis points to 2.5%. The BoJ added that its GDP will shrink by 3.1% this year, but the regions output will expand 1.2% in the year starting April 2010. Both figures were revised lower, the BoJ's semiannual outlook showed, according to Bloomberg. In other Japanese economic news, the government showed that industrial production doubled the forecast of economists surveyed by Bloomberg, rising for the first time in six months. The New Zealand central bank said that it expects to keep the cash rate at or below the current level through the latter part of 2010, but the cash rate could still move modestly lower over the coming quarters. In equity news, shares of semiconductor equipment maker Tokyo Electron (TOELY $90) gained almost 9% after reporting its profits were much higher than its forecast and Canon (CAJ $30) rose solidly after the world's largest camera maker unexpectedly increased its full-year profit forecast.

Elsewhere, stocks in Taiwan surged almost 7% and was the Asia Pacific region's best performer after China said it will allow companies to invest in businesses of Taiwan as relations between the two nations improve. Shares of Taiwan Semiconductor (TSM $10) posted a respectable gain following the news and after the company posted 1Q profits that topped analysts' estimates.