Morning Update

Earnings Hit Street as Bulls Fail to Retreat

Stocks are posting modest gains in early action as the Street continues to be inundated with more reports from the profit front, while awaiting key reports on manufacturing and consumer sentiment from the economic calendar. Chevron and MasterCard both beat earnings expectations, Fortune Brands matched, while MetLife fell short on the top and bottom lines. Financials are gaining some of the Street's attention as the government's stress test results are reported to be delayed from Monday to sometime next week. Treasuries are lower ahead of the releases of the ISM Manufacturing Index, factory orders, and the University of Michigan's Consumer Sentiment Index. Overseas, markets are mostly higher in subdued action as several markets are closed for holidays.

As of 8:44 a.m. ET, the June S&P 500 Index Globex futures contract is 3 points above fair value, the Nasdaq 100 Index is 5 points above fair value, and the DJIA is 15 points above fair value. Crude oil is up $0.28 at $51.40 per barrel, and gold is down $8.80 at $882.40 per ounce.

Dow member Chevron (CVX $66) reported 1Q EPS of $0.92, topping the Reuters estimate of $0.81, as revenues fell 46% to $35 billion-reflecting lower prices for refined products and crude oil. The company said oil production and refinery inputs were both higher than a year ago and operating expenses came in lower, but upstream earnings declined sharply on lower prices for crude oil and natural gas.

MasterCard (MA $183) reported 1Q EPS of $2.80, above analysts' forecast of $2.62, as revenues declined 2.2% to $1.2 billion. The credit card transaction processor said gross dollar and purchase volumes were up 0.3% versus last year and its "considerable cost reduction actions" allowed it to deliver a strong operating margin as it took important steps to align its operations with the challenging economic times.

MetLife (MET $30) reported 1Q operating EPS of $0.20, short of the Street's expectation, which called for the company to post earnings of $0.34, as revenues fell 12% to $10.2 billion, also short of analysts' expectations. The company said it had strong premium, fees and other revenue in the challenging economic environment. But its operating earnings were negatively impacted by a decline in net investment income and lower equity markets, which pressured earnings in its annuity and variable life business.

Fortune Brands (FO $39) posted 1Q EPS ex-items of $0.30, in line with the Street's forecast, as revenues fell 20% to $1.4 billion. The parent of Titleist and Jim Beam said the decline in sales reflected the impact of the challenging economic environment and adverse foreign exchange, but higher operating income and lower cost structures tempered the impact of the sustained US housing downturn and the global recession. The company reaffirmed its full year 2009 earnings target.

Treasuries see red as economic data lies ahead

Treasuries are lower in early action as traders await some key reports on the economic calendar later today. The ISM Manufacturing Index will be released and is expected to improve to 38.4 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 is contracting at a slower pace, and would be the fourth-straight monthly improvement.

Other releases due out later today include factory orders, which are expected to have fallen 0.6% in March after rising 1.8% in April, and University of Michigan consumer sentiment, which is expected to be 61.9 in April, unchanged from March.

UK flat but most European markets are closed

Due to the May Day holiday, most markets in Europe were closed, but stocks in the UK are trading near the unchanged mark in subdued action. Financials are under pressure on uneasiness about the possibility that the US government could delay its stress test results, which were slated to be released on Monday. However, there were some reports from the economic front as the UK PMI Manufacturing Index rose more than expected, rising from 39.5 in March to 42.9 in April, compared to the 40.0 consensus of economists surveyed by Bloomberg. The reading still depicts contraction in manufacturing activity-as a reading above 50 signals expansion-but it suggests that the rate of contraction slowed, adding to the argument that we may be seeing the beginnings of a recovery in the global economy. However, a report from the Bank of England showed that mortgage approvals, although rising to a ten-month high, still fell short of economists' expectations.

Japan advances in light session

Stocks in Japan were higher in light action as several markets, including China, Hong Kong and South Korea, were closed. Japan's Nikkei 225 Index rose 1.7% and the broader Topix Index gained 1.1% as M&A, earnings, and economic news were in focus. Sumitomo Mitsui Financial Group (SMFJY $3) agreed to purchase the Japanese securities units of Dow member Citigroup (C $3) for about 545 billion yen ($5.5 billion), according to Bloomberg news. The deal will help boost Citigroup's capital and comes as it and other major US banks have been put through the government's stress tests to determine the financial strength of the entities in the financial sector. In other equity news, shares of Fujitsu (FJTSY $22) were up about 18% after the computer services company said it expects to return to profit, while Mitsubishi UFJ (MTU $5) posted an unexpected full-year loss on bad loan losses and depreciation in its stock holdings. The economic front yielded a mixed picture as China's PMI Manufacturing Index improved from 52.4 in March to 53.5 in April, but the jobless rate in Japan rose more than expected, moving from 4.4% in February to 4.8% in March, versus the consensus that called for the rate to increase to 4.6%. Trading was also limited ahead of the Golden Week holidays in Japan, which will close markets for several sessions next week.