Morning Market Update

Stocks Rebounding from Yesterday’s Steep Declines

The US equity markets are higher in early trading, rebounding somewhat from the solid declines that were seen yesterday, with European stocks moving higher on some favorable economic data, which is overshadowing festering eurozone debt worries. Treasuries are lower amid the advance in stocks, ahead of reports on new home sales and regional manufacturing activity. In equity news, Deere & Co increased its quarterly dividend, while AutoZone Inc and GT Solar International Inc both posted better-than-forecasted quarterly results. Elsewhere, overseas, Asian equity markets finished mixed on continued uneasiness regarding the global economy.

As of 8:48 a.m. ET, the June S&P 500 Index Globex future is 5 points above fair value, the Nasdaq 100 Index is 7 points above fair value, and the DJIA is 39 points above fair value. WTI crude oil is $1.75 higher at $99.45 per barrel, and the Bloomberg gold spot price is up $4.05 at $1,521.15 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.2% to 76.01.

Deere & Co. (DE $83) reported that its Board of Directors has approved an increase of the farm and construction machinery’s quarterly dividend by about 17% to $0.41 per share. The company said it remains committed to funding the company’s organic growth while also returning cash directly to shareholders.

AutoZone Inc. (AZO $277) announced fiscal 3Q earnings of $5.29 per share, topping the $4.98 consensus estimate of analysts surveyed by Reuters, with revenues growing 8.6% year-over-year (y/y) to $2.0 billion, above the $1.9 billion that the Street had anticipated. The auto parts retailer posted 5.3% y/y growth in same-store sales—sales for stores open at least one year.

GT Solar International Inc. (SOLR $12) reported fiscal 4Q EPS of $0.41, above the $0.34 that the Street had expected, with revenues increasing 3.3% y/y to $272 million, exceeding the $224 million estimate of analysts. The solar production technology and materials firm also raised its current full-year guidance.

New home sales and regional manufacturing data due out after opening bell

Treasuries are lower in early action amid the modest rebound in equities and as there are no major economic reports scheduled for release today before the opening bell, with the yield on the 2-year note up 1 bp at 0.54%, the yield on the 10-year note 2 bps higher at 3.15%, and the 30-year bond rate gaining 1 bp to 4.28%.

After the opening bell, the economic calendar will yield the release of the Richmond Fed Manufacturing Index, expected to decline from 10 in April to 9 for May, with a reading above zero depicting expansion.

However, the highlight of the economic docket this morning will be the release of the April reading of new home sales, expected to remain unchanged at an annual rate of 300,000 units, after March’s rebound from the record low posted in February. New home sales are considered a timely indicator of conditions in the housing market as it is based on contract signings, but they represent a small portion of total sales in the sector, with existing home sales making up the bulk of the activity. Last week’s data did little to evoke optimism that the key spring selling season is off to a positive start, with May homebuilder sentiment remaining well below a level depicting conditions are good, April building permits and housing starts falling more than expected, and existing home sales decreasing unexpectedly for April. Also, new home sales are likely to remain near record lows as they face intense competition from existing homes on the market, due to the flood of foreclosures and continued tight credit conditions.

Europe higher as commodity stocks rebound but financials lag behind

Stocks in Europe are trading to the upside in afternoon action, led by a rebound in materials and oil & gas issues following yesterday’s steep declines, but gains are being held in check by lingering eurozone debt uneasiness. Commodity prices are moving higher to help support the equity markets, aided by a report that showed business confidence in Germany—Europe’s largest economy—failed to decline as economists forecasted in May, with the Ifo Business Climate remaining at 114.2, compared to the decline to 113.7 that was projected. Moreover, March industrial new orders in the eurozone rose more than expected, and German 1Q GDP was left unrevised at a 1.5% quarter-over-quarter (q/q) rate of expansion, as expected, with exports, capital investment, and government spending rising more than expected, to more than offset softer-than-anticipated construction investment and private consumption. In other economic news, UK retail sales fell for the first time in three months in May but the decline was smaller than economists forecasted, while a separate report showed the UK budget deficit came in above expectations in April, fostering some concerns about the nation being able to achieve its deficit-reduction target for the year. Elsewhere, financials in Europe are under some pressure as concerns about the euro-area debt crisis persist, exacerbated by Moody’s Investors Service warning that a default by Greece could result in credit downgrades in other peripheral eurozone nations.

In equity news, Marks & Spencer Group Plc. (MAKSF $6) is solidly lower after the UK retailer offered a cautious outlook, which is overshadowing its better-than-forecasted full-year earnings, while shares of Renewable Energy Corp. (RNWEY $2) are sharply lower after the company issued disappointing guidance and announced that it will cut output.

The UK FTSE 100 Index is up 0.6%, France’s CAC-40 Index is rising 0.3%, and Germany’s DAX Index is gaining 0.8%. Meanwhile, in the peripheral euro-area, Greece’s Athex Composite Index is gaining 0.6%, Portugal’s PSI 20 Index is down 0.1%, Ireland’s Irish Overall Index is rising 0.3%, and Spain’s IBEX 35 Index is 0.5% higher.

Asia mixed after yesterday’s sell-off

The equity markets in Asia finished mixed as traders continue to grapple with increased global economic uncertainty in the face of the festering euro-area debt crisis as well as signs of slowing growth in China and the US. Japan’s Nikkei 225 Index inched 0.2% higher as the uncertain economic sentiment limited conviction, but shares of Sony Corp. (SNE $27) moved higher to help buoy the index. SNE found support after saying late-yesterday that it expects to post a profit in its current fiscal year despite forecasting a loss for its recently finished fiscal year, due to write-offs stemming from the March earthquake and tsunami and security breaches at its PlayStation online gaming network. Elsewhere, South Korea’s Kospi Index moved 0.3% higher to lead advancers in the region, aided by a rebound in automakers, while Australia’s S&P/ASX 200 Index declined 0.3% on some weakness in banks, due to concerns about the impact of the euro-area debt crisis on its financial sector. Finally, stocks in China diverged, with the Hong Kong Hang Seng Index rising 0.1%, while the Shanghai Composite Index declined 0.3%.