Morning Market Update

Stocks Poised to Advance

After a late-day slide yesterday that saw stocks end in the red, stocks are poised to move higher today, despite an increase in uncertainty after the Japanese prime minister resigned. In economic news, the MBA Mortgage Applications Index rose on demand for refinancing, the pending home sales report is due out later today, and Treasuries are mixed. News out of Asia included steep pay raises for Chinese factory workers at two companies and a subsidy for alternative energy cars in China, while BP Plc continues to be under pressure after the US Justice Department opened a criminal probe. In other equity news, Amgen received FDA approval to market its bone strengthening drug in the US and Canadian Solar is the subject of a subpoena of its sales accounting practices. Overseas, Europe is lower, while Asia finished mixed.

As of 8:50 a.m. ET, the June S&P 500 Index Globex future is 3 points above fair value, the Nasdaq 100 Index is 8 points above fair value, and the DJIA is 26 points above fair value. Crude oil is down $0.41 at $72.17 per barrel, and the Bloomberg gold spot price is down $5.75 at $1,219.90 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.2% at 87.09.

Amgen Inc. (AMGN $53) is moving higher after the company received FDA approval in the US to market its bone-strengthening drug Prolia for postmenopausal women with osteoporosis. Prolia is the first drug likely to be prescribed by primary physicians instead of specialists, and today’s action follows the May 28 approval by European regulators.

Shares of Canadian Solar (CSIQ $10) are lower after the company delayed the release of its 1Q results due to an internal investigation related to a Securities and Exchange Commission subpoena seeking documents related to certain sales transactions in 2009.

Refi applications rise and purchase applications fall, pending home sales out later

The US MBA Mortgage Application Index rose 0.9% last week, after the index, that can be quite volatile on a week-to-week basis, jumped 11.3% in the previous week. The increase came amid a 4.1% decrease in the Purchase Index to the lowest level since April 1997 after gaining 3.3% the week before, and a 2.4% increase in the Refinance Index, which surged 17.0% the prior week. The share of applications filed to refinance rose to the highest level of the year to 73.8% of total applications from 72.2% the previous week. The increase in the overall index came after a 3 basis-point increase in the average 30-year mortgage rate to 4.83%, above the record low of 4.61% reached at the end of March 2009. Treasuries are mixed.

Pending home sales are due out at 10 a.m. EST, and economists are expecting sales to have increased 5.0% in April, after a 5.3% increase in March (economic calendar).

European shares weaken

Stocks in Europe are lower, led by a decline in oil & gas issues as the US Justice Department opened criminal and civil investigations into BP Plc’s (BP $37) Gulf of Mexico oil spill. Elsewhere, shares of Prudential Plc (PUK $17) fell after the company said the collapse of its takeover of the Asian unit of American International Group Inc. (AIG $34) would cost the company about 450 million pounds ($660 million) in break-up fees, underwriting charges and currency hedging costs. Prudential also said it would cancel a $21 billion rights offering in connection with the failed transaction. In other M&A news, shares of Spain’s Telefonica SA (TEF $56) were lower after the company offered to raise its bid for Portugal Telecom SGPS SA’s (PT $11) stake in Brazilian mobile phone operator Vivo by 14% to 6.5 billion euros ($7.9 billion).

In economic news, UK mortgage approvals rose to a four-month high as warmer weather and the ending of a transaction tax on house purchases for some first-time home buyers helped boost demand, and amid a shortage of supply of homes for sale. A measure of producer prices in Europe accelerated to the fastest pace in more than a year in April, by 0.9% month-over-month (m/m) and 2.8% year-over-year (y/y) as a weaker euro raised import prices and energy costs increased.

The UK FTSE 100 Index is 1.1% lower, France’s CAC-40 Index is down 1.4%, Germany’s DAX Index is declining by 0.8%, Italy’s FTSE MIB Index is falling 2.0%, Portugal’s PSI 20 Index is down by 1.1%, while Greece’s Athex Composite Index is increasing 1.4%.

Asian stocks mixed, Japanese prime minster resignation prompts decline in yen

Stocks in Asia were mixed, led by a 1.1% decline in the Nikkei 225 Index and as the yen weakened on increased political uncertainty in Japan after Prime Minister Hatoyama resigned after less than nine months in power as money scandals and a broken campaign promise to remove US troops prompted a decline in confidence among voters and his own party. The move comes ahead of mid-term elections next month for the upper chamber of parliament. The Democratic Party of Japan will choose a new leader June 4, who would become prime minister due to the party’s majority in the lower house of parliament. In equity news, Honda Motors (HMC $30) reopened a parts plant as most employees returned after a walkout that shut down all production for the company in China last week, and the company offered a 24% pay raise, while labor negotiations continued. The call for pay increases is similar to the situation at Hon Hai Precision Industry (HNHPF $8), the assembler of iPhones, also known as Foxconn Technology Group, which today offered to raise pay by at least 30% after a series of suicides plagued the company this year.

Stocks were mixed in China, with the Hong Kong Hang Seng Index down 0.1% and the Shanghai Composite Index up 0.1%, as property developers rose after plunging so far in 2010, while banks declined, led by shares of Bank of China (BACHY $12), which began a 40 billion yuan ($5.9 billion) convertible bond sale, and shares of HSBC Holdings Plc (HBC $46) unit Industrial Bank Co, which fell after resuming trading after a six-day suspension as the bank plans to raise as much as 18 billion yuan in a rights offer. Elsewhere, shares of carmakers rose after the Chinese government announced it would subsidize purchases of alternative-energy cars, providing as much as 50,000 yuan ($7,320) for plug-in hybrid models and 60,000 yuan for cars powered only by batteries.

Meanwhile, Australia’s S&P/ASX 200 Index declined 0.7% despite a report that 1Q GDP rose by 0.5% q/q, inline with expectations, while the 4Q figure was upwardly revised to 1.1%, and the y/y growth rate of 2.7% was above the estimate of 2.5%. The report comes after the Reserve Bank of Australia left its benchmark interest rate unchanged yesterday. India’s BSE Sensex 30 Index rose 1.0%, after Reliance Communications issued a statement saying it had received various proposals from “reputed international telecom companies expressing an interest in acquiring a strategic equity stake.” Elsewhere, Taiwan’s Taiex Index fell 1.3%, Thailand’s Stock Exchange of Thai Index rose 1.2%, and the South Korean market was closed for elections.