Morning Update

Stocks Poised for Positive Start to the Week

Stocks are higher in early action as a positive manufacturing report in China, which fueled a strong rally in Asia, is helping improve sentiment on the Street and further the argument that the worst of the global recession may be in the rearview mirror. In equity news, the Financial Times reported that Bank of America and Citigroup are both looking to raise $10 billion in fresh capital, and Sprint Nextel posted an unexpected profit for 1Q. Treasuries are higher ahead of reports on housing and construction, which will kick off a busy economic week, culminating with Friday's labor report. Overseas, Europe is also gaining ground.

As of 8:45 a.m. ET, the June S&P 500 Index Globex futures contract is 4 points above fair value, the Nasdaq 100 Index is 8 points above fair value, and the DJIA is 35 points above fair value. Crude oil is down $0.49 at $52.71 per barrel, and gold is up $3.20 at $891.40 per ounce.

The Financial Times is reporting that Dow members Bank of America (BAC $9 ¹) and Citigroup (C $3) each are looking to raise more than $10 billion in fresh capital after preliminary findings revealed that the banks could need the capital if the economy worsens, people familiar with the matter said. Neither firm commented on the matter. The report also said at least two other lenders will attempt to convince the Treasury and the Federal Reserve that the findings of their stress tests were too pessimistic.

The final results of the U.S. government stress test of the 19 U.S. banks with assets greater than $100 billion will be released on Thursday, postponed from the an initial release date slated for today. Preliminary results were given to the banks privately on April 24, and the Fed released a white paper saying that most banks currently have capital levels well in excess of the amount required to be well capitalized. However, regulators said they believe "it is prudent for large bank holding companies to hold additional capital to provide a buffer against higher losses than generally expected, and still remain sufficiently capitalized" over the next two years and be able to lend if such losses materialize. It is unclear whether the Fed will release results on an individual or aggregate level for the banks, and buzz about the details have added volatility to markets in recent weeks.

Sprint Nextel (S $5) reported adjusted 1Q EPS of $0.03, versus the Reuters estimate, which called for a loss of $0.04 per share for the quarter. Revenues fell 12% to $8.2 billion, but the company said, driven by the success of its monthly unlimited plan, it achieved the largest sequential improvement in overall gross customer additions and net additions in Sprint Nextel's history.

Housing and construction set to kick off week

Treasuries are higher ahead of a busy week for the economic calendar. Later today, the economic data will consist of reports on housing and building activity with the releases of pending home sales and construction spending, expected to be flat and decline by 1.7%, respectively.

The ISM Non-Manufacturing Index for April will be released Wednesday, and the expectation is a reading of 42.0, from March's 40.8. The separation point between contraction and expansion is a reading of 50. The report will complement the 40.1 reading on the ISM Manufacturing Index released on Friday, which showed the economy continues to decline, but the pace of decline has slowed.

Nonfarm payrolls will be released on Friday, and are expected to have fallen by 606,000 positions in April after falling 663,000 in March. The unemployment rate is expected to rise to 8.9% in April from 8.5% in March. However, unlike the unemployment rate, which is a lagging indicator-typically peaking about seven months after recessions have ended historically-initial jobless claims is a leading indicator and the four-week average of initial jobless claims have been declining. And a key leading indicator of claims is layoff announcements, which have been falling. If the improvement in claims is sustained, it could be a precursor to a better economy, as peaks in claims have tended to mark the end of recessions historically.

Other releases on the economic calendar this week include MBA Mortgage Applications and the ADP Employment Change on Wednesday, nonfarm productivity and unit labor costs, initial jobless claims, and consumer credit on Thursday, with wholesale inventories joining the labor report to round out the week on Friday.

Also, Federal Reserve Chairman Ben Bernanke will provide testimony before the Joint Economic Committee on Tuesday at 10 a.m. ET. Bernanke will discuss the economic outlook.

Europe advancing despite some disappointing data

Stocks in Europe are moving higher in afternoon action as markets are showing some resiliency after the European Union cut its forecast for eurozone GDP and retail sales in Germany-Europe's largest economy-unexpectedly fell. The EU downwardly revised its forecast for a contraction in eurozone output from 1.9% to 4.0% for 2009, adding that the region's budget deficit will increase to 6.5% of output next year, and unemployment will rise to 11.5%. Industrials and basic materials are leading the way, as a favorable reading of manufacturing activity in China, which helped fuel an advance in Asia, is contributing to the optimism across the pond. Also, a slight increase in eurozone PMI Index is also supporting sentiment. In equity news, Italian automaker Fiat (FIATY $10) is nicely higher after it said it is considering a merger of automobile units following a purchase of General Motors' (GM $2) European unit, which it said it would be interested in acquiring after it announced that it purchased a stake in privately held and now bankrupt US automaker Chrysler.

Asia jumps but Japanese markets sit out the session

Stocks in Asia posted sharp gains to start out the week, as optimism about the recovery in the global recession buoyed sentiment, aided by a favorable manufacturing report in China and the creation of an Asian foreign currency pool. China's CLSA Purchasing Manager's Index rose from 44.8 in March to 50.1 in April-moving slightly into a level that depicts expansion as a reading of 50 is the separation point between expansion and contraction. The Chinese government's stimulus efforts and strength in exports supported the improvement in the gauge of manufacturing activity. Also helping sweeten sentiment, The Association of Southeast Asian Nations, in cooperation with Japan, China, and South Korea announced that they will start a $120 billion foreign-currency reserve pool to help provide support to the recovery efforts in the Asian markets. The equity front is offering some support as chipmaker Taiwan Semiconductor (TSM $11) posted a strong advance after it reported better-than-expected earnings and said sales this quarter would top analysts' estimates. Rio Tinto (RTP $172) moved higher after the Aluminum Corp of China (ACH $20) stuck by its planned $19.5 billion investment in RTP, saying that it has not received any official request to change the original investment, so it is proceeding with it. Markets in Japan were closed and will not resume trading until Thursday due to the celebration of multiple holidays, but Hong Kong's Hang Seng Index gained 5.5%, South Korea's Kospi Index rose 2.1%, while a 5.6% jump in Taiwan shares helped lead the way as Goldman Sachs raised its recommendation on equities in the region to an "overweight."