Morning Update

Markets Breathe Sigh of Relief on Greece

Stocks are higher as concerns about the debt in Greece ease after collateral rules were extended and Germany’s Merkel said she would recommend aid in an emergency situation, strengthening the euro against the US dollar. US jobless claims came in lower than expected and Treasuries are higher. Fed Chair Ben Bernanke is set to testify before Congress later today to discuss the exit strategy for monetary policy. In earnings news, Best Buy reported strong earnings, ConAgra Foods beat the Street, and Red Hat announced results higher than analyst forecasts. European shares are rising on the Greek news, while Asia was mixed, led by concerns in China.

As of 8:47 a.m. ET, the June S&P 500 Index Globex future 6 points above fair value, the Nasdaq 100 Index is 10 points above fair value, and the DJIA is 44 points above fair value. Crude oil is up $0.31 at $80.92 per barrel, and the Bloomberg gold spot price is up $6.75 at $1,093.40 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.1% to 81.73.

Best Buy (BBY $44) shares are higher after the company reported 4Q earnings of $1.82 per share on $16.55 billion in revenues, beating Street estimates of $1.79 per share in earnings and $16.0 billion in sales. The company’s guidance is also higher than analyst forecasts, with fiscal 2011 EPS of $3.45-3.60, versus the Street at $3.34. Sales growth of 12% year-over-year (y/y) was driven by a comparable store sales gain of 7.0%, an increase in the average ticket, low double-digit growth in notebook computers and high single-digit sales in flat-panel televisions, as well as low double-digit growth in mobile phones. The company believes it grew market share domestically by 260 bps y/y.

ConAgra Foods Inc (CAG $26) announced 3Q EPS of $0.51, above the analyst estimate of $0.44, on revenue of $3.1 billion, lower than the $3.15 billion estimate. Sales at the consumer-foods unit, CAG’s largest, rose 2.2% amid strong performance for Banquet, Chef Boyardee and Hunt’s brands.

Red Hat (RHT $30) reported 4Q EPS of $0.17 on a comparable basis with the $0.16 consensus estimate, as revenue grew 18% y/y to $195.9 million, higher than the $193 million forecast. The company said that new subscriptions were up 21% and that renewals were strong, and that it was benefitting from government demand. RHT also announced a new share repurchase program of up to $300 million.

Jobless claims ease and Bernanke set to discuss exit policy before Congress

On the jobs front, weekly initial jobless claims declined by 14,000 to 442,000, versus last week's figure which was revised lower by 1,000 to 456,000, and compared to the consensus, which called for claims to decline to 450,000. The four-week moving average, a less volatile measure than weekly claims, declined by 11,000 to 453,750, and continuing claims fell by 54,000 to 4,648,000, and the prior estimate was revised higher, while the forecast was for 4,562,000 in continuing claims.

Federal Reserve Chair Ben Bernanke is scheduled to testify before the House Financial Services Committee at 10 a.m. ET today on the strategy for exiting monetary policy.

Europe advances as Greek concerns ease and positive consumer spending reports

European markets are higher after Germany backed a Greek rescue proposal, emergency European Central Bank (ECB) collateral rules were extended and several companies reported earnings that were better than expected. German Chancellor Angela Merkel said she’ll recommend to European Union (EU) leaders when they meet today that she supports loans from the International Monetary Fund (IMF), and that a last resort would be when a euro-area county’s “access to financial markets is exhausted,” wherein emergency aid would include “joint bilateral measures in the euro zone.” Merkel said, “A good European is not necessarily one who rushes to assist,” and that, “A good European is one who abides by the European treaties and national law and thus sees to it that the euro zone’s stability isn’t harmed.” She also called for tougher penalties on future deficit “trickery,” referring to the misrepresentation of prior Greek government statistics. ECB President Trichet reversed his previous stance by saying the bank will extend emergency collateral rules beyond 2010, which were set to return to a minimum credit rating of BBB- at the end of this year, and that the bank will introduce a “graded haircut schedule” in January, allowing it to charge banks more for lower-rated collateral they submit in return for ECB loans.

Strong consumer spending news was reported in the form of UK retail sales jumping 2.1% m/m, higher than the 0.8% forecast, and the UK’s second largest clothing retailer Next Plc reported earnings that topped analyst estimates, while also increasing its dividend. Elsewhere, German consumer confidence held steady in April, ending five months of declines.

Britain’s FTSE 100 Index is rising 0.5%, while France’s CAC-40 Index, Germany’s DAX Index and Greece’s Athex Composite Index are advancing 0.8%.

Asia mixed, Chinese shares lead to downside

Stocks in Asia were mixed, with Japan’s Nikkei 225 Index 0.1% higher as the yen weakened to a two-month low against the US dollar, aiding the prospects for exporters in the nation, while Chinese shares slumped on continued concerns about moves to tighten policy and slow growth and several companies issued disappointing earnings results. Li & Fung Ltd (LFUGY $5), the biggest supplier of consumer goods to companies such as Wal-Mart Stores and derives 64% of its revenues from the US, reported sales that fell 6%, the first drop since the company’s IPO in 1992, and net income that missed consensus estimates, resulting in a slew of analyst downgrades. In an interview, management said that, “The consumer demand recovery is still anemic, it’s not a strong recovery,” adding that “Consumers are not really very positive as yet.” Meanwhile, China Unicom (CHU $12), China’s number two mobile-phone company, fell after the company’s earnings fell short of forecasts, on increased spending for high-speed services and a lack of a one-time gain.

Shares in Chinese companies also fell as the National Business Daily reported that new lending in the first half of March was 400 billion yuan, hitting shares of banks as the rate of lending remains high and brings concerns that credit policy needs to tighten further. Additionally, the prospect of rising trade tensions are on investors minds, after the Chinese Minister of Commerce told reporters during a trip to Washington to meet with officials and lawmakers that, “The Chinese government will not succumb to foreign pressure” to adjust the currency, known equally as the yuan and renminbi, and added that, “To force the appreciation” would be “counterproductive.”

The Shanghai Composite Index fell 1.2%, while Hong Kong’s Hang Seng Index decreased 1.1%, Australia’s S&P/ASX 200 lost 0.1%, while South Korea’s Kospi Index rose 0.4% and India’s BSE Sensex 30 Index advanced 0.6%.