Morning Update

Markets Poised for a Rebound

Stocks are pointed higher in early action as traders attempt to recover from yesterday's sell-off on concerns over rising Treasury yields. In equity news, Visteon - a US auto parts supplier that was once a part of Ford - has filed for bankruptcy protection, adding to fears that the elimination of one of the big three Detroit auto makers would cause a domino effect of failures throughout the industry. Elsewhere, Costco reported a drop in its quarterly sales and profits and Time Warner announced that it intends to spin off its AOL internet business. Treasuries are higher today, regaining some of yesterday's lost ground, as durable goods orders were much better than expected but March figures were revised significantly lower. A drop in jobless claims was also announced and traders are still waiting on today's new home sales report. Overseas, markets were mixed as European markets were pressured by gloomy equity news while Asian stocks were mostly lower although the weak yen helped Japan book some anemic gains.

As of 8:43 a.m. ET, the June S&P 500 Index Globex futures contract is 3 points above fair value, the Nasdaq 100 Index is 4 points above fair value, and the DJIA is 33 points above fair value. Crude oil is down $0.02 at $63.43 per barrel, and gold is down $0.03 at $949.87 per ounce.

Visteon (VSTN $0.31), the US auto parts supplier that was once a part of Ford (F $5), has filed for Chapter 11 bankruptcy protection, adding to recent fears over what a failure of General Motors (GM $1) could mean for the industry. The Chapter 11 filing yesterday listed $4.6 billion in assets and $5.3 billion in liabilities. Visteon has not reported an annual profit since 2000, the year it was spun off from Ford. In the fourth quarter, VSTN reported a loss of $328 million.

Costco Wholesale Corp (COST $49) announced 3Q earnings of $209.6 million, or $0.48 per share, a drop of 29% relative to last year. Analysts polled by Reuters had been expecting a profit of $0.53 per share for 3Q. Management cautioned that these results included $34 million on a pretax basis in mostly non-cash charges related to a lawsuit settlement over membership renewal policy. Sales were down 5% to $15.8 billion as same-store-sales fell 7%. Costco CFO Richard Galanti commented that results were hampered by "ongoing weakness in sales, particularly sales of higher-ticket, discretionary items."

Time Warner (TWX $23) announced that its board has approved a spin off of its AOL internet division. The separation paves the way for AOL to become an independent, publicly traded company. Time Warner CEO Jeff Bewkes has signaled in the past that a split was likely and the company said last month it expected to spin off all or parts of its internet business in an attempt to focus on its core content businesses.

Durable goods increase more than expected, new home sales still on tap

Durable goods orders increased 1.9% in April, much better than the expected improvement of just 0.5% month-over-month (m/m). However, March data was revised significantly lower, from a previously announced decline of 0.8% to a 2.1% drop. Ex-transportation , orders were also better than expected - rising 0.8% compared to a forecasted decline of 0.3%. March data was negatively revised from a fall of 0.6% to a 2.7% plunge. Consumers and businesses have been cutting back on large purchases in recent months, as they are highly discretionary and may require access to capital to finance.

Initial jobless claims were also issued today with a better-than-expected result of 623,000. The expectation was for claims for the week to fall to 628,000 from a revised 636,000 a week earlier.

New home sales will be released at 10:00 a.m. ET, and are expected to have risen 1.1% for April m/m to an annual rate of 360,000 units, after falling 0.6% in March and rising 8.2% in February. New home sales now account for 7% of the market, down from 16% at the peak, as they have struggled to compete with the steep discounts afforded by foreclosures. In response, homebuilders have significantly cut back on new housing starts, allowing inventory levels of new homes to fall.

Europe seeing red, pressured by grim equity news

European stocks are under pressure in afternoon trading. Most indexes are down approximately 1% as there is little in the way of positive news on the equity front. Man Group (MNGPF $4) is losing ground after the largest publicly traded hedge fund manager said its profit dropped 43% and assets under management declined by a third. Wolseley (WOSCF $20) is down over 10% after the world's largest supplier of heating and plumbing equipment reported a drop in earnings and warned that conditions will not improve this year. "As the market continues to tighten, I really don't see anything positive at all in this calendar year," the company's CEO said. Infineon Technologies (IFNNF $2) is also falling after the Financial Times Deutschland reported that the world's second biggest semiconductor manufacturer has asked the government for 500 million Euros in loan guarantees. Infineon has not yet commented on the matter.

Wall Street sell-off weighs on Asia, Japan supported by weaker yen

Asian markets were mixed with Australia's S&P/ASX 200 Index losing 1.2%, while Japan's Nikkei 225 Index managed to add 0.1% last night. Markets in Hong Kong, China, and Taiwan were closed for a holiday. Australia & New Zealand Bank (ANEWF $12) fell after it sold common shares valued at $1.95 billion. The sale price of the shares was at a 7.5% discount to the previous closing price as the bank is trying to fund its bid for the Asian assets of Royal Bank of Scotland (RBSPF $1). Australian blood plasma manufacturer CSL (CMXHF $25) was under pressure after the US Federal Trade Commission said it intends to block the company's proposed $3.1 billion acquisition of privately-held Talecris Biotherapeutics, claiming the deal would curb competition for medical treatments derived from blood plasma. CSL said it intends to contest the FTC's rejection. Nomura Holdings (NRSCF $7) was also weak after its credit rating was lowered two levels to Baa2 by Moody's. In economic news, Japan's retailers saw sales drop for the eighth straight month, falling 2.9% in April, although that was better than the 3.3% drop that had been expected.