Morning Update

The Momentum Carries Over

Stocks are higher in morning action as optimism in the early stages of 2Q earnings season is building on last week's steep gains in the major markets. A full slate of major earnings reports are set to hit the Street this week, along with Federal Reserve Chairman Ben Bernanke's semi-annual testimony on Capitol Hill, which will likely go a long way in determining if the rally will last. This week's economic calendar is relatively light and will likely take a back seat to traders' scrutiny of corporate bottomlines, but today's release of the Index of Leading Economic Indicators and Thursday's existing home sales are poised to grab some attention. In equity news, CIT Group is reported to have reached a $3 billion rescue financing agreement, and Johnson Controls and Halliburton both topped earnings estimates. Treasuries are lower as equities advance and overseas, markets are higher.

As of 8:52 a.m. ET, the September S&P 500 Index Globex futures contract is 5 points above fair value, the Nasdaq 100 Index is 5 points above fair value, and the DJIA is 39 points above fair value. Crude oil is up $0.60 at $64.16 per barrel, and gold is up $15.83 at $953.33 per ounce.

CNBC is reporting that CIT Group (CIT $0.70 1) reached an agreement with bondholders on Sunday night for $3 billion in rescue financing, citing sources familiar with the talks—helping the firm stave off having to file for Chapter 11 bankruptcy protection. The report said the liquidity facility carries a 2.5 year term and portions will be available immediately. CIT has not confirmed the report.

Johnson Controls (JCI $22) reported fiscal 3Q EPS ex-items of $0.25, above the Reuters estimate of $0.19, as revenues fell almost 30% to $7.0 billion. The automobile products and services firm said cost improvement initiatives undertook this year are providing expected benefits, helping it return to solid profitability despite very challenging conditions in most of its global markets. JCI said it believes it is well positioned to further increase its profitability in 4Q and into 2010.

Halliburton (HAL $21) reported 2Q EPS ex-items of $0.30, four cents above the Street's forecast, as revenues declined about 10% to $3.5 billion. The energy company said revenue for most of its product service lines fell, primarily based on a reduction in North American rig count leading to lower pricing and demand for products and services. "Weak global demand and volatility in the commodity markets continue to weigh on the oilfield services industry," HAL added. HAL said it maintained its operating margins outside of North America as it rationalized its costs to offset pricing pressures.

Leading Index set to kick off the week

Treasuries are lower in morning action as traders await the week's first economic report with the latest reading on the Index of Leading Economic Indicators, which is due out later today and expected to increase for a third-straight month, advancing 0.5% in June, on top of May's 1.2% gain. The Conference Board's Index of Leading Economic Indicators (LEI) index rose in April and May; and the strengths among the components exceeded the weaknesses in both months. This index is comprised of 10 individual components (all of which are now either stable of improving), and the indicator has had a strong track record in identifying ends of previous recessions. They add that rebounds in leading indicators suggest that the recession might, technically, already be over. However, the combination of the worst financial crisis since the Great Depression and bruised consumers will likely keep a lid on growth in the long term, and could imply the risk of a W-shaped recovery (back-to-back recessions like in the early-1980s).

The economic week will be relatively light with Thursday's release of existing home sales likely taking the lion's share of the Street's attention. Existing homes sales are forecast to post the third monthly month-over-month gain in June, rising 1.3% to an annual rate of 4.83 million units . The National Association of Realtors (NAR) said that existing home sales would be higher, but contracts have fallen through due to appraisals coming in at lower prices, as recent transactions, dominated by distressed sales, were used to model prices.

Other report due out this week include, Wednesday's report on MBA mortgage applications, weekly initial jobless claims on Thursday, and Friday's final read of the University of Michigan's Consumer Sentiment Index.

Although this week's earnings calendar will yield several major corporate profit reports, which is likely to be the main focal point of the Street this week, Federal Reserve Chairman Ben Bernanke's semi-annual monetary policy report before the House Financial Services Committee tomorrow has the potential to grab some attention from traders. Comments about an exit strategy from the massive amount of stimulus measures in the system will be closely scrutinized. Going forward, we see growing risks that maintaining those measures for too long, or implementing new ones, could create an economy overly dependent on the government.

Europe continuing a streak to start the week

Stocks in Europe are higher in afternoon action and are in the green for the sixth-consecutive session, led by basic materials and financials. Materials issues are finding support as the recent uptick in optimism about the recovery of the global economy amid the solid start to earnings season is continuing to buoy stocks across the pond. Financials are also helping keep the winning streak alive, supported by the report that CIT Group reached a financing agreement and following a report from the Sunday Times that Lloyds Banking Group (LYG $4) may post a first-half profit as the UK lender, with the British government being its largest shareholder, benefited from accounting rules that permitted write-downs of sub-prime investments. The report did not cite where it got the information and Lloyds did not comment on the report. However, shares of Volkswagen (VLKAY $70) are down solidly after a media report suggested a merger with luxury car maker Porsche (POAHY $7) could be delayed. Neither firm commented on the report.

Asia shares solidly higher, Japan sits session out

Stocks in Asia were solidly higher across the board, led by commodity-related issues as last week's strong momentum—supported by the upbeat start to 2Q earnings season—continued, lifting optimism about the health of the global economy. Hong Kong's Hang Seng Index posted the largest gain, rising 3.7% on strength in insurers after regulators offered favorable data regarding the profitability of the sector. The advance in commodity stocks helped boost the resource-rich nation of Australia, as its S&P/ASX 200 Index gained 1.4%. Elsewhere, China's Shanghai Composite Index rose 2.4%, while India's BSE Sensex 30 Index gained 3.0%, helped by a 15% jump in shares of Tata Consultancy Services after it reported quarterly profits jumped 23% to top analysts' estimates, and its CEO said the company is seeing increased demand from financial clients. Markets in Japan were closed today for a holiday.