Morning Update

Private Sector Payrolls Report Provides Sentiment Support

Stocks are higher in morning action after a much less-than-expected drop in private sector payrolls helped markets reverse course and jump into positive territory as the economic "green shoots" argument is gaining ground. However, traders are treading with some caution ahead of tomorrow's results of the government results of its "stress tests" of the nation's largest banks. In other equity news, Dow member Walt Disney topped the Street's profit forecast and PepsiCo raised its dividend. Treasuries are moving lower as equities overcame early losses following the jobs data, while mortgage applications rose. Overseas, markets are higher.

As of 8:46 a.m. ET, the June S&P 500 Index Globex futures contract is 9 points above fair value, the Nasdaq 100 Index is 12 points above fair value, and the DJIA is 64 points above fair value. Crude oil is up $0.99 at $54.83 per barrel, and gold is up $4.80 at $909.10 per ounce.
Dow member Walt Disney (DIS $23) reported fiscal 2Q EPS ex-items fell by 26% to $0.43, but three cents ahead of the Reuters estimate, as revenues declined 7% to $8.1 billion. The company said it had a difficult 2Q due to the weak economy and other factors. Revenue at its media networks rose 2%, but its parks and resorts and studio entertainment sales fell 12% and 21%, respectively.

PepsiCo (PEP $50) declared a 6% increase in its annual dividend, from $1.70 per share to $1.80 per share. The food conglomerate said the increase reflects the strength of its cash flow and balance sheet.

Private sector jobs fall less than expected

ADP reported that private sector jobs fell 491,000 in April, much less than the Bloomberg estimate of a loss of 645,000 jobs, and March was upwardly revised from -742,000 to -708,000. The ADP report is the first read on employment conditions this week, which will culminate with the labor report from the Bureau of Labor Statistics, which is scheduled for release on Friday and expected to show 610,000 jobs were shed from nonfarm payrolls in April. However, ADP has not been a reliable gauge of the labor report, although adjustments have been made recently. Treasuries gave up early gains following the report and are moving lower.

In other economic news, the US MBA Mortgage Application Index increased 2.0% to 979.7 for the week ended May 1. The Refinance Index rose 1.2% to 5169.3, and the Purchase Index advanced, rising 5.0% to 264.3. The Mortgage Bankers Association (MBA) said the average 30-year fixed loan rose 17 basis points to 4.79%. The report may be welcome news for the housing front as the Purchase Index led the overall increase in applications, suggesting some homebuyers are warming up to the near record low mortgage rates and increasing housing affordability.

Europe higher as earnings and economic data aid sentiment

Stocks in Europe are higher in afternoon action, aided by the upward reversal on Wall Street, and as traders digest a couple of upbeat earnings reports and some relatively favorable economic data. BNP Paribas (BNPQY $28) is up about 7% after France's largest bank reported 1Q profits of 1.56 billion euros ($2.08 billion), which easily topped analysts' forecasts of 784 million euros. Improving credit conditions and growth in earnings at its securities unit helped offset a tripling in provisions for loan losses, according to Bloomberg news. Financials are higher to help the advance across the pond, but traders are treading cautiously as fears mount that some major US banks will need to increase capital to a level that the government deems acceptable, given adverse scenarios that were analyzed in its "stress tests" of the industry. Elsewhere, shares of BMW (BAMXY $12) are moving nicely higher after the luxury car maker reported a 1Q loss that came in smaller than had been expected, amid a reduction in its workforce and production as a result of the global slowdown.

The economic front is offering some relative support following a report that showed eurozone service activity contracted at the slowest pace in since last October, while readings of the UK service sector and consumer confidence both came in much better than economist surveyed by Bloomberg had anticipated. However, trading is being tempered by the aforementioned uncertainty toward the health of the financial sector and ahead of tomorrow's interest rate decisions by the Bank of England and the European Central Bank.

Asia advances without Japan

Stocks in Asia were higher led by some help on the earnings front from the financial sector, which has come under pressure in the US as concerns grew that banks may need more capital. The region received no help from markets in Japan-Asia's largest economy-as they remained closed for a public holiday for a third-straight session. Singapore's second-largest lender, United Overseas Bank (UOVEY $18) jumped 13%, and life insurer Oversea-Chinese Banking Corp. (OVCHF $4) rose almost 5%, after both firms posted 1Q profits that topped analysts' estimates. Meanwhile, the upbeat sentiment in the financial sector helped shares of Australia's largest lender by market value, Westpac Banking Crop. (WBK $73), move higher despite reporting a drop in first half profits that just missed analysts' estimates, suggesting that traders may have been expecting much worse damage to the company's bottom line.