Morning Update

Bulls Out of the Stalls Even as 100-year Old Automaker Falls

Stocks are solidly higher in morning action amid upbeat manufacturing data overseas and following an unexpected increase in personal income and a smaller-than-expected decline in personal spending. However, the optimism from the report is being tempered by a slightly hotter-than-expected reading of core inflation. Equity news is being dominated by the widely-expected announcement of the bankruptcy filing by General Motors, marking the third largest in US history. Treasuries are lower after extending losses following the personal income and spending report. The economic calendar will be heavy this week as the ISM Manufacturing is due out later today and traders are awaiting the labor report at the end of the week. Overseas, markets are broadly higher amid strength in commodity-related issues on the improving global economic outlook.

As of 8:49 a.m. ET, the June S&P 500 Index Globex futures contract is 14 points above fair value, the Nasdaq 100 Index is 12 points above fair value, and the DJIA is 117 points above fair value. Crude oil is up $1.41 at $67.72 per barrel, and gold is up $0.70 at $979.50 per ounce.

General Motors (GM $0.80) filed for bankruptcy this morning and is the third-largest in US history and the largest-ever US manufacturing failure, according to Reuters. GM will receive an additional $30 billion in taxpayer funds to aid the restructuring of the 100-year-old automaker and the government plans to convert most of its $50 billion in loans to assume a 60% stake in the company. GM will be put through a "fast-track bankruptcy," which is expected to result in a new company in about 60 to 90 days. The Canadian government will contribute $9.5 billion in aid in exchange for a 12.5% stake in the automaker. GM plans to close 11 facilities and idle another 3 plants.

Following the bankruptcy of GM, two of the "big three" automakers will be in court-ordered restructuring and yesterday a bankruptcy judge approved the sale of nearly all of the US assets of privately-held Chrysler to a group led by Italian automaker Fiat (FIATY $11).

Personal outlays better-than-expected to kick off lengthy economic docket

Personal income unexpectedly rose 0.5% in April, versus the Bloomberg estimate of -0.2%, and March was revised from -0.3% to -0.2%. Personal spending declined 0.1% in April, slightly less than the expectation of -0.2%, while March's 0.2% decline was revised to a 0.3% drop. The savings rate jumped from an upwardly revised 4.5% to 5.7%.

Also, the PCE Price Index, which is released with the income and spending data, rose 0.4% year-over-year in April, in line with the consensus forecast, and March's gain was unrevised at 0.6%. The core PCE Price Index, which excludes food and energy, increased 0.3%, above expectations of 0.2%. Year-over-year, core prices moved 1.9% higher, matching the consensus of economists surveyed by Bloomberg. Treasuries are lower after losing ground following the report.

Key data from the economic calendar for the day is not over as the ISM Manufacturing Index will be released later today and is expected to improve to 42.0 in May from 40.1 in April, indicating a slowing rate of contraction in the economy, and would represent the fifth-straight monthly improvement. The compliment index, the ISM Non-Manufacturing Index, will be reported on Wednesday, and is expected to rise to 45.0 in May from 43.7 in April, and would mark the third-straight monthly improvement. The separation point between contraction and expansion is 50. Non-manufacturing activity represents approximately 76% of the U.S. economy, and services comprise 68% of the index.

Construction spending, will also be released today—forecast to fall 1.5% in April—however, this week's nonfarm payrolls report on Friday may take the lion's share of economic attention, and the expectation is that payrolls fell 521,000 in May, a decrease from the 539,000 level reported in April. The unemployment rate is forecasted to increase to 9.2% from 8.9% in April. The four-week average of initial jobless claims has come down from peak levels, but the impact of the automotive industry’s problems is just starting to come into play, with job losses expected from auto suppliers, dealers and manufacturers.

Other reports that will round out the economic week include, pending home sales tomorrow, and MBA mortgage applications, ADP employment change, and factory orders joining the ISM non-manufacturing report on Wednesday. The second half of the week will have a bias toward the employment sector as nonfarm productivity and unit labor costs, along with weekly initial jobless claims will hit the Street on Thursday, leading up to Friday's labor report.

Basic materials helping Europe advance

Stocks in Europe are moving higher in afternoon action, led by a sharp rally in basic materials after a couple of favorable reports of manufacturing stoked optimism regarding the health of the global economy. Already higher after a third-straight month of expansion in Chinese manufacturing, stocks received further support following a report that eurozone manufacturing improved. Eurozone PMI increased from 40.5 initially reported to 40.7 in May, improving from 36.8 in April—which was the largest increase since the survey started in 1997 per Markit Economics. Oil companies are leading the charge in the commodity arena, as the economic optimism is sweetening the outlook for demand for crude oil, which is trading well above $65 per barrel.

Asia continues to roll

Stocks in Asia were solidly higher across the board, led by strength in commodity-related issues amid a report on manufacturing in China. Optimism that the global economy may be showing signs of recovery, which bodes well for commodity stocks, were boosted after the Chinese Purchasing Managers' Index remained in expansionary territory after slipping slightly from 53.5 in April to 53.1 in May. A reading of 50 is the separation point between expansion and contraction. The index has posted a reading above 50 for the third-straight month, suggesting the $580 billion stimulus package the Chinese government has deployed is gaining traction and helping mend the global economy. China's Shanghai Composite Index jumped 3.4% to lead the way, while the strength in commodity stocks helped Australia's S&P/ASX 200 Index gain 2.0%, even after a report showed that retail sales in the land down under rose less than expected. The global economic optimism helped South Korea's Kospi Index rise 1.4%, offsetting data that showed a larger-than-expected contraction in exports in the region.