Morning Update

Stocks Higher as Traders Mull Trade Data, Earnings

Stocks are higher in early action as investors consider a new report on the US deficit. Federal Reserve Chairman Ben Bernanke spoke last night about the bank stress tests and called the tests "encouraging." Meanwhile, CNBC is reporting that officials in Europe will initiate stress tests of their own for European banks. In equity news, MBIA, Winn-Dixie Stores, and Fluor all beat expectations, while Ford announced that it intends to raise nearly $2 billion of new capital to help fund its retiree health care trust fund. Treasuries are down after data on the US trade balance showed a smaller-than-expected deficit. Overseas, markets are mixed.

As of 8:51 a.m. ET, the June S&P 500 Index Globex futures contract is 6 points above fair value, the Nasdaq 100 Index is 6 points above fair value, and the DJIA is 49 points above fair value. Crude oil is up $1.31 at $59.81 per barrel, and gold is ahead $8.40 at $921.73 per ounce.

MBIA (MBI $7) reported 1Q EPS of $3.34, including a $1.6 billion pretax unrealized gain and a $31.8 billion pretax realized gain, both on insured credit derivatives. This ended a string of five straight quarterly losses for the firm, ahead of the loss of $0.33 that had been expected by analysts polled by Reuters. MBIA, the country's largest bond insurer by outstanding guarantees, said it did not write any new policies during the quarter as a result of downgrades to the company's credit ratings by major ratings agencies in the last year. Management does not expect to write a significant amount of new business until the company's ratings are upgraded, although MBIA's president and CFO Chuck Caplin said the company's balance sheet is strong and the firm has "ample resources to meet all expected obligations" in spite of the tough environment and mortgage-related risks they now face.

Winn-Dixie Stores (WINN $11) released 3Q results showing that EPS grew 10% to $0.30, well above the $0.12 expected by analysts. Sales were up slightly year-over-year to $1.7 billion. WINN reported that same-store sales growth was 0.2% during the quarter, although management pointed out that the timing of the Easter holiday, which was included in the third quarter last year but not this year, held down sales growth. WINN raised its guidance for full year profit from $110-125 million to $145-152 million.

Fluor (FLR $43) published 1Q EPS of $1.12, up 50% year-over-year, and above the Street's expectations of $0.93. Revenues increased 21% to $5.8 billion during the quarter. New projects in the oil and gas segment led to 29% growth in that division, offsetting a 23% decline in global services revenue which was partly caused by delays in plant shutdowns and turnaround orders. Despite the surprisingly strong result, management lowered its full year earnings guidance as new project awards were lower than expected. FLR now expects 2009 EPS to be between $3.80-4.10, down from the previous guidance of $3.90-4.20. This is still higher than the average analyst estimate of $3.76.

Ford (F $6) has announced that it intends to sell 300 million shares of its common stock, $1.8 billion using Ford's last closing price, with the proceeds going partly to help fund its retiree health care trust. Ford, the only US automaker that has not accepted government aid, owes over $6 billion to the health care trust.

Trade Balance in focus

Economic data was released this morning on the trade balance , showing that the US trade deficit increased but less than expected. After declining to the smallest level since late 1999 in February, the trade deficit rose in March for the first time in eight months to $27.6 billion. This was better than the gap of $29 billion that had been forecast by economists surveyed by Bloomberg. Meanwhile, the February data was revised upwards slightly from a gap of $26.0 billion to $26.1 billion. This lower-than-expected result may cause some traders to question the strength of US consumer spending. As the recession worsened in recent months, the deficit had been declining as US consumers tightened their belts and imports fell even faster than exports. However, recent data has shown a pick up in consumer sentiment and economists were expecting this to be reflected in a growing trade deficit.

In other news, Fed Chairman Ben Bernanke discussed the bank stress tests last night, stating that many of the banks are "well ahead" in their plans for raising capital in private markets, reducing the odds that the US government will end up a larger owner of the banks. Bernanke did caution though that it will be "some time" before we know how successful the tests really were. "We hope that in two or three years we will be able to reflect on the banking system's return to health with a sharply diminished reliance on government capital," he said.

Europe announces stress tests of their own

Stocks in Europe are mixed in afternoon trading, with Germany's DAX Index and France's CAC 40 Index higher but the UK's FTSE 100 Index down. CNBC is reporting that the European Union will complete a stress test of its banking sector by September to determine if the sector is adequately capitalized to sustain a continued economic downturn, citing sources within the EU. The tests will not be identical to those recently completed in the US, however, as the EU tests will not single out individual banks but will be more of an aggregated test of the sector as a whole. There are also no plans at present to make the results of the test public after they are completed. In earnings news, InterContinental Hotels Group (ICHGF $10) is moving higher after the owner of the Holiday Inn brand announced 1Q results and said that occupancy rates are showing signs of stabilizing. In economic news, data in the UK showed that manufacturing in the region fell less than expected in March.

Asia mixed on Chinese economic report, earnings in Japan

Stocks in Asia were mixed with Japan lower but Hong Kong's Hang Seng Index and Korea's Kospi Index both moving ahead. In China, economic data was released showing that exports continue to fall due to the global recession, although investment spending surged as a result of government stimulus efforts and robust bank lending. As a result of the falling exports, China's trade surplus fell to $13.1 billion, the lowest level for a non-holiday month in more than two years. In equity news, Bank of America (BAC $13 ¹) sold a 6% stake in China Construction Bank (CICHF $1), the second largest lender in China, for over $7 billion. This is the second sale of a portion of BAC's stake in the bank this year as Bank of America tries to improve its capital position. Japanese investors digested many corporate earnings reports after taking most of last week off for Golden Week holidays. Sumitomo Heavy Industries (SOHVF $4) dropped 9% after the maker of plastic-injection molding gear reported that full year earnings fell 68% and the company said it expects net income to fall another 74% this fiscal year. Mazda Motor (MZDAF $3), Japan's second largest car exporter, also forecast a second straight loss, blaming the stronger yen and the global recession. The company said in a statement today that it expects to lose 50 billion yen ($514 million) in the year ending March 2010, down from the 71.5 billion yen the company lost last year.