Morning Update

Stocks Lackluster Ahead of Busy Trading Day

Markets are muted in early action, with little new information to trade on today, despite a week full of economic data that was generally better-than-expected, and ahead of what is expected to be a high volume trading day marked by quadruple-witching, when contracts of stock index futures, stock index options, stock options and single stock futures all expire. In US equity news, Palm gave disappointing guidance as the company shipped significantly more smart phones than it sold in the quarter and SunPower Corp announced the conclusion of its internal accounting probe and weaker-than-expected earnings. Treasuries are lower and there are no US economic releases scheduled for today, while markets in Europe are rising led by banking shares and Asia ended higher.

As of 8:44 a.m. ET, the June S&P 500 Index Globex future and the Nasdaq 100 Index are both 1 point above fair value, and the DJIA is 5 points above fair value. Crude oil is down $0.50 at $81.70 per barrel, and the Bloomberg gold spot price is down $5.50 at $1,121.80 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.4% to 80.57.

Palm Inc. (PALM $5) announced a 3Q loss of $0.13 per share on revenue of $349.9 million, after the company a month ago said that its Pre and Pixi smart phones were not selling as well as hoped. Shares are much lower after Palm said the quarter ending May would see sales falling to less than $150 million, much weaker than the $305.8 million consensus estimate. In commenting on the results, management said that 4Q is an “exceptional situation” that will be driven by the need to reduce elevated inventory, as the company shipped 960,000 smart phones in 3Q but only sold 408,000 devices, leaving 552,000 in stores that the company still needs to sell. Management added that the performance was “deeply disappointing” and that the company plans on strengthening its sales and marketing strategies.

Shares of SunPower Corp. (SPWRA $20) are lower after the company announced the conclusion of its internal accounting probe, saying prior results were overstated due to the understatement of expenses in its Philippines operations, and announced disappointing EPS for 4Q. Earnings per share ex-items for 4Q of $0.47 were below the analyst estimate of $0.49, while revenues of $547.9 million were ahead of the $491 million forecast.

No new US economic data today

Treasuries are lower and there are no major US economic releases for the market to digest in trading today.

Economic data this week showed tame readings on inflation, an improvement in jobless claims, a modest increase in industrial production and slightly better-than-expected regional readings on manufacturing activity. As Schwab’s Chief Investment Strategist Liz Ann Sonders’ notes in her article Fed Stands Pat … But for How Much Longer?, “I continue to view the economic recovery as legitimate and more self-sustaining than many believe.” Liz Ann recites a long list of economic releases supporting that view, including several that are inline with the strong recovery seen in 1983, such as the 11-month gain in the Leading Economic Indicators and increase in industrial production, several measures of improvement in the job market and consumer spending.

European shares led higher by financials

Stocks in Europe are rising, led by banking shares, after Lloyds Banking Group PLC (LYG $4), the UK’s biggest mortgage lender according to Bloomberg, said it expects to return to profitability this year due to the combination of better-than-expected trading results and smaller losses for bad loans. Lloyd’s, 41% government-owned, noted “strong” earnings in the first 10 weeks of the year and said it would give an interim trading statement on April 27. In economic news, Germany reported producer price data that was inline with economist forecasts, with PPI flat month-over-month (m/m) and down 2.9% year-over-year (y/y), while Italy reported weaker-than-expected industrial orders, declining 2.8% m/m, versus the estimate that orders would be down 0.2%.

The situation in Greece continues to be fluid, as Greek Prime Minister Papandreou continues to appeal to the European Union to provide a clear mechanism for support for financial help in the case that interest costs do not decline, saying that Greece can’t afford to hold out much longer at current market rates, and while the EU has given verbal guarantees, rates remain elevated ahead of an additional 10 billion euro in bonds that mature on April 20 and May 19. Papandreou said that “We need the strong political support to make these necessary reforms and to make sure that we aren’t going to pay more than necessary.” Yesterday, the Greek Prime Minister hinted that he may go to the International Monetary Fund (IMF) for help if the EU fails to, adding the IMF would not ask for additional austerity moves, as Greece had already made sufficient cuts.

Britain’s FTSE 100 Index is advancing 0.7%, France’s CAC-40 Index is 0.5% higher, and Germany’s DAX Index is up by 0.4%. Elsewhere, Italy’s FTSE MIB Index is rising by 0.8%, Switzerland’s Swiss Market Index is 0.3% higher, and Greece’s Athex Composite Index higher by 0.9%.

Asia rises on yesterday’s bullish US economic news

Stocks in Asia finished higher, led by consumer-related names, on the better-than-expected economic data in the US yesterday, which showed fewer jobless claims and consumer prices unchanged, illustrating the continued expansion in the world’s largest economy and consumer sector. Region-specific data was light, with the only major economic news coming in the form of Tokyo department store sales, down 6.5% year-over-year (y/y), and nationwide department sales down 5.4% (y/y). Elsewhere, Aluminum Corp of China (ACH $27) rose after the company, also known as Chinalco, signed a non-binding accord to acquire a 45% stake in Rio Tinto Group’s (RTP $226) Simandou iron-ore project in Guinea, by funding development over the next two to three years. Real estate developers in Hong Kong were higher, after a report from Centaline Property Agency, one of the city’s largest property agencies according to Bloomberg, reported that luxury home prices in Hong Kong have risen 8.2% this year. Japan’s Nikkei 225 Index rose 0.8%, the Shanghai Composite Index advanced 0.7%, Hong Kong’s Hang Seng Index added 0.1% and South Korea’s Kospi Index increased 0.7%. Elsewhere, Taiwan’s Taiex Index and Australia’s S&P/ASX 200 both rose 0.2% and India’s BSE Sensex 30 Index gained 0.3% to round out the day.