Morning Update

Resting After the Rally

Stocks are under some pressure in morning action as traders take a breather following yesterday's sharp advance on a plethora of upbeat economic data, which overshadowed General Motors' announcement of the third largest bankruptcy in US history. Treasuries are rebounding from the sharp declines amid the rally in equities yesterday and ahead of today's release of pending home sales. Crude oil prices—which have jumped recently amid the improving economic backdrop—are lower, but remain well above $65 per barrel. In equity news, Morgan Stanley, JPMorgan Chase, and American Express announced that they will tap the equity markets in hopes to gain approval to pay back funds it received from the government's Troubled Asset Relief Program (TARP). Elsewhere, Cardinal Health raised its dividend, while Pfizer discontinued a trial for a treatment for advanced breast cancer. Overseas, markets are succumbing to profit taking as well.

As of 8:42 a.m. ET, the June S&P 500 Index Globex futures contract is 5 points below fair value, the Nasdaq 100 Index is 10 points below fair value, and the DJIA is 50 points below fair value. Crude oil is down $0.77 at $67.81 per barrel, and gold is up $1.60 at $981.60 per ounce.

In order to satisfy a supervisory condition to pay back the government loans that it received from the TARP, Morgan Stanley (MS $30) announced that it plans to raise $2.2 billion in common equity. MS said, while approval for repayment has not been granted, it believes that upon completion of this capital raise it will have satisfied the criteria for fully redeeming the TARP preferred capital and expects to redeem it before the end of June. Additionally, Dow members JPMorgan Chase (JPM $36) and American Express (AXP $26 ¹) reported plans to raise $5 billion and $500 million in common equity, respectively, to comply with the TARP repayment prerequisite that company's demonstrate access to the equity capital markets.

Cardinal Health (CAH $37) announced a 25% increase in its regular quarterly dividend to $0.175 per share, or $0.70 per share on an annualized basis. CAH said the company's focus on dividend expansion creates a predictable and disciplined use of cash to drive shareholder returns and signals confidence and strength in the cash generated by its businesses.

Dow member Pfizer (PFE $15) announced the discontinuation of the Phase 3 study of a first-line treatment of patients with advanced breast cancer. The Independent Data Monitoring Committee found that PFE's SUTENT plus paclitaxel would be unable to meet the primary endpoint of superior progression-free survival compared to an alternative treatment.

Treasuries rebounding ahead of housing report

Treasuries are higher—gaining back some of yesterday's steep losses—as traders await the release of pending home sales later today and the gauge of the pipeline of existing home sales is forecast to increase 0.5% in April after advancing 3.2% in March (economic calendar). Sales of new and existing homes have stabilized during the past few months as new homebuyers are out bargain hunting. The stabilization in sales is due, in large part, to housing affordability at a near-40-year high and home-purchase tax credits. However, they caution that while existing home inventories are off their peak levels, they will likely renew an upward trajectory, as foreclosure moratoriums and legislative mandated delays have ended and unemployment continues to rise.

Europe lower as a bank share sale and unemployment data offset auto advance

Stocks in Europe are trading modestly lower in afternoon action as traders look to book profits, amid a sharp decline in a London bank, which is being somewhat offset by sharp advance in the auto sector. Shares of Barclays (BCS $21) are down about 13% after its investors from Abu Dhabi said they plan to sell 4.12 billion pounds ($6.8 billion) of shares that they bought last year to help the British bank avoid governmental assistance. Elsewhere, shares of Volkswagen (VLKAY $65) are up about 13% after fellow German automaker Porsche (POAHY $7) said integration with Volkswagen is "the best industrial solution for all sides," soothing some concerns that a combination of the two automakers may be in jeopardy. In other equity news, Europe's largest discount airline, Ryanair Holdings (RYAAY $30) is under pressure after it reported its first annual loss. The economic front is offering little help after the unemployment rate in the eurozone rose from 8.9% in March to 9.2% in April, topping the consensus of economists surveyed by Bloomberg, which called for the unemployment rate to increase to 9.1%.

Asian advance takes a breather

Stocks in Asia were mixed as yesterday's upbeat economic data in the US were offset by more geopolitical concerns regarding North Korea's nuclear ambitions and as traders took the opportunity to harvest gains following the recent run-up in the region on optimism that the global economy is showing some signs of life. Japan's Nikkei 225 Index rose 0.1%, while Hong Kong's Hang Seng Index moved the most, falling 2.6%, but Australian shares managed to gain solid ground, with the S&P/ASX 200 Index rose 1.6%, as Australia's central bank left its key interest rate unchanged at 3.0% and suggested it stands ready to lower rates if economic conditions warrant monetary policy action. In equity news, shares of Industrial & Commercial Bank of China (IDCBY $33) were lower to weigh on stocks in Hong Kong after Goldman Sachs (GS $144) sold about $1.91 billion, or a 0.9% stake in the Chinese bank, to help boost capital in hopes of paying back the US government the TARP loan it received.