Morning Update

Near the Flatline as Traders Digest Earnings and Economic Data

Stocks are nearly unchanged in morning action, as traders grapple with concerns that the recent optimism regarding the possible recovery in the economy may be a bit overstated, and some key profit and economic reports. The bulls are showing some relative resiliency in the face of a larger-than-expected drop in weekly initial jobless claims and another record in continuing claims for unemployment insurance. On the equity front, Dow member Wal-Mart reported earnings that were in line with analysts' estimates, Kohl's topped the Street's profit estimate, and MBIA is being sued by a group of banks on charges that it illegally restructured its operations. Treasuries moved higher after the jobs data, while inflation at the wholesale level came in slightly higher. Overseas, markets are mostly lower.

As of 8:50 a.m. ET, the June S&P 500 Index Globex futures contract is 1 point above fair value, the Nasdaq 100 Index is 11 points above fair value, and the DJIA is 11 points above fair value. Crude oil is down $0.92 at $57.10 per barrel, and gold is down $0.60 at $925.30 per ounce.

Dow member Wal-Mart (WMT $50) reported 1Q EPS of $0.77, in line with the Reuters estimate, as revenues dipped 0.6% to $93.5 billion. The world's largest retailer said its results were achieved in the face of a "very challenging global economy," and it is pleased to report that its fiscal year is off to a very good start as a result of the increasing shift to value. The company's CEO Mike Duke added that when economic conditions improve, the company believes customers who shop Wal-Mart today will stay with it, because of the business improvements it is making. Looking ahead, WMT issued a 2Q EPS outlook that matched the Street's expectations, saying that its guidance takes into account the company's strong underlying performance and the difficult economic environment.

Kohl's (KSS $42) posted 1Q EPS of $0.45, one penny ahead of the consensus estimate, as revenues increased 0.4% to $3.6 billion and same-store sales decreased 4.2% for the quarter. The clothing retailer said it gained market share and its merchandise margins improved through strong inventory management, while it also managed expenses well. KSS said it continues to expect 2009 to be challenging and it remains conservative in its sales expectations, inventory levels and expenses. The company raised its profit guidance for the full-year to $2.19-2.42 per share, from its initial guidance of $2.00-2.30 per share.

Shares of monline insurer MBIA (MBI $6) are under pressure after a group of major banks have filed a lawsuit against the company on charges that it illegally restructured its operations by moving $5 billion of assets out of a key unit leaving the unit "effectively insolvent." The group of 20 financial firms is seeking to ensure that MBIA pays valid claims on insurance it issued on defaulting bonds. A spokesman for MBIA declined to comment on the lawsuit, which was filed yesterday in New York Supreme Court.

Jobless claims rise, inflation at the wholesale level slightly higher

Wekly initial jobless claims (chart) rose by 32,000 to 637,000, versus last week's figure that was upwardly revised by 4,000 to 605,000. The increase in claims was above the Bloomberg consensus of 610,000. The four-week moving average increased by 6,000 to 630,500, and continuing claims jumped again to another record, rising 202,000 to 6,560,000, versus the forecast of 6,400,000.

The Producer Price Index (chart) rose 0.3% in April, more than an expected reading of 0.2%, according to Bloomberg. The core rate, which removes food and energy, gained 0.1%, in line with the consensus estimate. Year-over-year (y/y), the headline rate is down 3.7%, and the core rate dipped lower from 3.8% y/y to 3.4%. Treasuries moved higher in reaction to the jobs and inflation data.

Lackluster action across the pond

Stocks in Europe are under modest pressure as traders take a breather following the recent market rally, taking the time to assess the health of the economy to try to determine whether or not more adversity lies ahead for the global economy. Profit taking in oil and gas and basic materials is leading the decline in the eurozone as resurfacing caution about the health of the economy is clouding on the visibility of stocks that typically strive in a recovery in economic activity. In equity news, shares of BT Group (BT $14) are lower after the UK's largest phone company slashed its dividend by 59% and announced that it will cut 15,000 jobs, which accompanied its announcement of a 4Q loss of 977 million pounds ($1.48 billion).

Asia falls on weak data and strong yen

Stocks in Asia were solidly lower across the board after the disappointing US retail sales data yesterday carried over to the region, stoking concerns about the sustainability of the recent market rally and the recovery in the global economy. The Nikkei 225 Index fell 2.6% and the broader Topix Index declined 2.9% as Japanese stocks were also dealt a double blow with the yen continuing to strengthen versus the dollar, dampening the outlook for profits in export issues that rely heavily on sales in the US. Australia's S&P/ASX 200 Index was the biggest loser in the region after shares of Rio Tinto (RTNTF $54) fell almost 12% after the Daily Telegraph reported that the world's third largest miner may abandon a $7.6 billion investment deal with Aluminum Corp. of China (ACH $22) and could opt to conduct a discounted share sale. None of the parties involved commented on the report. Also, weighing on trading in the land down under, Leighton Holdings (LGTHF $14) fell almost 8% after the largest builder in Australia slashed its full-year net profit forecast. Elsewhere, following the close of trading in Japan, Sony Corp. (SNE $26) forecasted its second-straight full-year loss on price cuts for its cameras and Bravia TVs and pressure on sales from the firming of the yen.

will be four reasons the current deflationary environment will likely persist at least as long as the recession. To learn more, please Also scheduled to be released tomorrow and continuing claims, with both forecast to have risen. Jobless claims are expected to have risen to 610,000 from 601, 000. Similarly, continuing claims are projected to have risen from 6,351,000 to 6,400,000.