Morning Update

End of May Poised to End With Gains

Stocks are higher in morning action, despite paring gains after the first revision of US 1Q GDP, which showed output contracted more than anticipated. Optimism overseas from several upbeat economic reports is helping support economic sentiment on the Street. In equity news, Dell Inc. reported 1Q EPS that topped the Street's estimates, while Tiffany & Co. missed the Street's forecasts. Treasuries are higher after seeing some demand following the GDP report. Overseas, markets are higher.

As of 8:49 a.m. ET, the June S&P 500 Index Globex futures contract is 4 points above fair value, the Nasdaq 100 Index is 3 points above fair value, and the DJIA is 31 points above fair value. Crude oil is up $0.95 at $66.03 per barrel, and gold is up $13.30 at $974.80 per ounce.

Dell Inc. (DELL $11) reported 1Q EPS ex-items of $0.24, one penny ahead of the Reuters estimate, as revenues fell 23% to $12.3 billion versus last year. The computer manufacturer said it drove solid cash flow in a challenging demand environment as it focused on operating efficiency and cost management. Dell said signals about the demand environment are mixed, but it is preparing for what it believes will be a powerful replacement cycle, with virtualization and managed services playing larger roles. Looking ahead, the company said indicators of global IT demand remain mixed, and the broader environment is still challenging, but it is focused in customer requirements and internal operating efficiency and costs. On a conference call with analysts, Dell's chief financial officer said the company does not believe there is enough momentum to call a bottom.

Upscale jeweler and retailer Tiffany & Co. (TIF $28) reported 1Q EPS fell 60% to $0.20, one penny shy of the Street's forecast, as revenues dropped 22% to $523 million and same-store sales fell 21% for the quarter. TIF said despite reduced consumer demand in the luxury sector, it is, and is projected to remain, solidly profitable and will generate substantial cash from operations. The company said it is now one month into its 2Q and, although it is still too early to draw any conclusions, it is seeing a lessening rate of year-over-year total sales decline. TIF reaffirmed its full-year EPS outlook.

Another look at 1Q output revised higher but less than expected

Preliminary Gross Domestic Product (chart), the broadest measure of economic output, fell at an annualized rate of 5.7% in 1Q, a larger contraction than the Bloomberg forecast of a 5.5% decline, but an improvement from the 6.1% decline in the initial reading of output for the first quarter of the year. Personal consumption rose 1.5%, following a 2.2% advance initially reported, and lower than the 2.0% that was expected. GDP was negatively impacted by a drop in exports and business investment spending, which fell 28.7% and 36.9%, respectively, however these figures were both revised slightly better. Business inventories fell $91.4 billion after falling $25.8 billion last quarter, subtracting 2.34 percentage points from overall GDP. Real final sales, which exclude changes in inventory, remained at a decline of 3.4%.

The GDP Price Index rose 2.8%, compared to a gain of 2.9% which was previously reported and forecasted to remain. The core PCE Index, which excludes food and energy, increased 1.5%, in line with the estimate, and the rate sits between the Fed’s implied target of 1-2%.Treasuries moved higher following the report.

Later today, the economic calendar will yield the final reading of the University of Michigan's Consumer Sentiment Index for May, expected to improve modestly from an initial read of 67.9 to 68.0, and the Chicago Purchasing Managers Index, forecast to rise slightly from 40.1 in April to 42.0 in May.

Europe on the offensive as economic reports look impressive

Stocks in Europe are solidly higher across the board on continued economic optimism following the upbeat reports in Asia, which are complimenting a favorable reading on the UK housing market. The Nationwide Building Society said today that home prices in the UK unexpectedly increased, rising 1.2% compared to the expectation of economists surveyed by Bloomberg that called for prices to fall by 0.9%. This was the largest gain since 2006 and Nationwide said a lack of supply of properties for sale on the market may help explain the increase in prices, but it cautioned that although the short-term trend has improved, it is still too early to say the market is turning definitively. Like in Asia, the economic optimism is boosting shares of commodity-related issues, which typically benefit from the increased demand for materials as the global economy heats up. In equity news, the upbeat economic sentiment is not helping shares of Italian automaker Fiat (FIATY $11), which are under pressure after it appeared to be pulling out of the negotiations to purchase General Motors' (GM $1) European subsidiary Opel.

Economic data drives Asian advance

Stocks in Asia were broadly higher amid optimism about the health of the economy in the Asian regions following a couple of favorable key reports out of Japan and India. The Nikkei 225 Index rose 0.8% after Japan's industrial production for April jumped at a higher rate than anticipated, rising 5.2% versus the expectation that production in the world's second-largest economy would grow by 3.3%. A rebound in exports helped support the better-than-expected reading and companies added to the optimism as they said they intend on boosting output in May and June. Additionally, India's BSE Sensex 30 Index gained 2.3% after a report showed the Asian nation's economy grew by 5.8% in 1Q, topping the consensus of economists surveyed by Bloomberg, which called for a 5.0% rate of growth. The report showed India's stronger-than-expected economic growth was led by government spending and construction. Resource-related stocks helped lead the advance in Asia on the optimism about economic growth in the region, helping Australia's S&P/ASX 200 Index gain 1.7%, while China's markets were closed for a national holiday.