Morning Update

Stocks Looking for New Highs for 2009 as the Week Unwinds

Already sitting near the highest levels of the year, stocks are higher in morning action in the final trading session of the week. Today is quadruple witching day—where four key equity contracts in the futures and options markets expire—so action could be more volatile than usual. In equity news, Palm reported a smaller-than-expected 1Q loss and larger-than-anticipated revenues, but offered disappointing 2Q revenue guidance, and Texas Instruments raised its dividend. Treasuries are lower as there are no major economic reports set to be released today. Overseas, markets are mostly lower.

As of 8:48 a.m. ET, the December S&P 500 Index Globex future is 4 points above fair value, the DJIA is 38 points on top of fair value, and the Nasdaq 100 Index is 5 points above fair value. Crude oil is lower by $0.49 at $71.98 per barrel, and the Bloomberg gold spot price is up $0.90 at $1,014.50 per ounce.

Mobile device maker Palm (PALM $14) reported a fiscal 1Q net loss ex-items of $0.10 per share, much smaller than the $0.25 per share loss that analysts had expected, as adjusted revenues came in at $360.7 million, well above the $289.1 million forecast. The company said it is making “significant” progress with its transformation and it is launching more Palm webOS products with more carriers and turning its sights toward growth. Palm issued 2Q revenue guidance that came in below the Street’s expectations and said it expects full-year revenue to be inline with analysts’ forecasts. Separately, the company announced that it intends to offer approximately 16 million shares of common stock and plans to use the net proceeds for working capital and general corporate purposes.

Texas Instruments (TXN $24) reported that it plans to raise its quarterly cash dividend by one penny to $0.12 per share. This is the sixth consecutive year the company has increased its dividend.

Treasuries lower as economic docket is dormant

Treasuries are lower in morning action as there are no major economic reports scheduled for release today. However, this week we have seen yields on the short-to-mid end of the curve move somewhat higher as there have been several encouraging reports from the economic front. We saw producer and consumer prices excluding food and energy—key gauges of inflation the Federal Reserve looks at—remain benign and roughly inline with expectations, retail sales increase much higher than expected, industrial production post growth for a second-straight month, and business activity in the mid-Atlantic and New York region show continued momentum.

Europe being pressured by commodities

Stocks in Europe are modestly lower in afternoon action as strength in healthcare issues are being offset by weakness in mining and energy issues as the momentum in key metals and crude oil prices has stalled. In equity news, shares of Lloyds Banking Group (LYG $7) are under pressure after the UK’s largest mortgage lender announced that it is in talks with British regulators to change the terms that would allow the financial firm to enter the government’s asset-insurance program, which included possible alternatives. Lloyds agreed in March to put 260 billion pounds into the program. A source told Reuters that the Financial Services Authority had set tougher-than-expected capital conditions on Lloyds’ potential exit from the insurance program, making an exit less likely.

Asia comes under pressure after US markets take a breather

Stocks in Asia were mostly lower following yesterday’s modest declines on Wall Street, led by weakness in commodity issues. Japan’s Nikkei 225 index 0.7%, paced by a 27% decline in shares of Aiful Corp. (AIFLY $0.50) after a spokesman for the consumer lender said the company is seeking to delay debt repayments on 280 billion yen ($3 billion) as it has had trouble accessing the credit markets. Japan’s Financial Services Minister said he will try to determine if the problems accessing the credit markets facing Aiful are company specific or industry wide. Trading in Japan may have been exaggerated by the lack of conviction as the financial markets will take the next few trading sessions off in observance of a national holiday. Meanwhile, Hong Kong’s Hang Seng Index declined 0.7%, on concerns in the financial sector after the nation’s central bank noted that “intense price competition” among lenders may threaten profits and increase risk. Elsewhere, China’s Shanghai Composite Index was the largest loser in the region, falling 3.2%, and Australia’s S&P/ASX 200 Index fell 0.5%, while South Korea’s Kospi Index managed to finish in the green, rising 0.3%, on strength in oil & gas and healthcare issues.