Morning Update

Economic Concerns Corral the Bulls

Stocks are lower in morning action as economic concerns resurface following yesterday's lowered economic forecast by the Federal Reserve and today's announcement that Standard & Poor's downgraded the UK's credit outlook from "stable" to "negative." A slight decline in jobless claims and another record in continuing claims did little to lift sentiment on the Street. In equity news, Boeing said it is facing pressure but its 787 airliner is on track for its first flight, Hormel Foods Corp. topped earnings expectations, and Network Appliance agreed to acquire Data Domain for about $1.5 billion. Treasuries are modestly higher ahead of a mid-Atlantic manufacturing report and the release of the Leading Economic Indicators Index. Overseas, markets are lower.

As of 8:49 a.m. ET, the June S&P 500 Index Globex futures contract is 9 points below fair value, the Nasdaq 100 Index is 11 points below fair value, and the DJIA is 78 points below fair value. Crude oil is down $1.15 at $60.89 per barrel, and gold is up $1.10 at $938.50 per ounce.

Dow member Boeing (BA $45 ¹) is holding its yearly investor meeting today and the world's number two aircraft maker said it is facing pressure on both sides of business but it will continue to reshape itself and its 787 airliner remains on track for its first flight this quarter. BA's CEO said the company is actively growing its international defense business.

Hormel Foods Corp. (HRL $33) reported fiscal 2Q EPS of $0.59, nine cents ahead of the Reuters estimate, sales during the quarter were $1.6 billion, as revenue growth was flat versus the same period last year. The food company said its grocery products segment delivered increases in sales and profit, with strong sales of canned meats and Mexican products, while its Jennie-O turkey segment continued to rebound, despite difficult market conditions with lower commodity meat prices than last quarter. The company said as a result of its better-than-expected first half, it now anticipates full-year EPS to be in the upper end of its previous guidance of a range between $2.15-2.25. Analysts are expecting HRL to report full-year profits of $2.24 per share.

In M&A news, Network Appliance (NTAP $17) announced that it will acquire all of the outstanding shares of Data Domain (DDUP $18) for $25 per share in cash and stock, valued at approximately $1.5 billion, net of Data Domain's cash. The deal follows NTAP's fiscal 4Q earnings report, in which it posted EPS ex-items of $0.31, versus the Street's consensus of $0.23.

Jobless claims fall

Weekly initial jobless claims (chart) fell by 12,000 to 631,000, versus last week's figure that was upwardly revised by 6,000 to 643,000. The Bloomberg consensus called for claims to reach 625,000. The four-week moving average fell by 3,500 to 628,500, and continuing claims advanced again to another record, rising 75,000 to 6,662,000, versus the forecast of 6,650,000. Treasuries showed little reaction to the jobs data and are slightly higher.

Later today on the economic front, the Philly Fed Manufacturing Index will be released, and is expected to improve from -24.4 in April to -18.0 in May. If the gauge of mid-Atlantic manufacturing activity comes in as expected in May, it will mark the fourth-consecutive month of improvement, strengthening the argument that the worst of the global recession may be in the rear-view mirror. Also, the Leading Economic Indicators Index will hit the Street in morning action, forecast to improve from -0.3% in March to 0.8% in April.

UK outlook downgrade dampens enthusiasm

Stocks in Europe have moved lower in afternoon action, led by a solid decline in London markets after Standard & Poor's lowered its credit outlook on the UK from "stable" to "negative," possibly jeopardizing the country's top-level credit rating. S&P said it revised its outlook on the UK due to its view that, even assuming additional fiscal tightening, the net general government debt burden could approach 100% of GDP and remain near that level in the medium term. Basic materials and financials are leading the decline as the reduced UK outlook is exacerbating economic concerns. However, all was not bad on the economic front as reports showed larger-than-expected improvements in eurozone manufacturing and services PMI's. The favorable gauges of manufacturing and service sector activity helped promote optimism that the worst of the recession may be over, but the disappointing credit outlook downgrade in the UK is curbing any enthusiasm across the pond.

Asia weaker on stronger yen

Stocks in Asia were mostly lower, led by pessimism toward the profit prospects of companies in the region's largest economy, Japan, as continued strength in the yen versus the dollar dampened the outlook for companies that rely heavily on business in the US. Additional pressure came from the sobering economic outlook from yesterday's Federal Reserve's minutes, which highlighted downside risks to economy and showed policy makers downwardly revised their economic forecast. In equity news, shares of Rio Tinto (RTNTF $54) moved higher to limit losses in the region after a newspaper report said Aluminum Corp. of China (ACH $24) may accept a lower stake in the miner to win regulatory approval for an investment and said it is open to letting Rio Tinto sell convertible bonds to other investors. Neither entity involved commented on the report. In other equity news in Asia, Sony (SNE $26) announced that it plans to reduce purchasing costs by about 500 billion yen ($5.3 billion), or 20%, by slashing the number of suppliers from 2,500 to 1,200 by March 2011. Additionally, China's largest computer maker, Lenovo (LNVGY $8) finished lower after posting a larger-than-expected 4Q net loss of $264 million, compared to the Bloomberg forecast of $211 million amid severe weakness in sales in the US and Europe, as the company cut expansion plans. In economic news, a report showed Taiwan's economy contracted at a larger-than-anticipated pace, as its 1Q GDP shrank 10.24% on falling exports and reduced consumer and business spending, versus a -9.26% forecast of economists surveyed by Bloomberg.