Morning Market Update

Bulls Cheer as Euro Policy Makers Go “Nuclear”

The global equity markets are sharply higher following the announcement that euro-zone officials, along with the IMF, will deploy a financial rescue package of nearly $1 trillion, on top of the 110 billion euro bailout of Greece, cooling euro-zone debt contagion fears and preserving the outlook for the continuation of the global recovery. Treasuries are under pressure on the report and subsequent rally in equities, as well as after the Federal Reserve announced the re-establishment of temporary US dollar liquidity swap facilities. In equity news, Dow member McDonald’s Corp. reported a 4.9% increase in global same-store sales for April, while DISH Network Corp. and Tyson Foods Inc. both exceeded the Street’s profit projections. Overseas, Asia moved solidly higher, while Europe is surging on the improved sentiment.

As of 8:48 a.m. ET, the June S&P 500 Index Globex future is 47 points above fair value, the Nasdaq 100 Index is 79 points above fair value, and the DJIA is 369 points above fair value. Crude oil is up $2.81 at $77.92 per barrel, and the Bloomberg gold spot price is down $14.13 at $1,194.28 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 1.0% at 83.60.

Dow member McDonald’s Corp. (MCD $68) reported global same-store sales—sales at stores open at least thirteen months—for April, which grew 4.9% for the month, led by a 3.8% gain in the US and a 5.3% increase in Europe. MCD said its Asia/Pacific, Middle East and Africa sales increased 3.9%. The company said its US performance was supported by its new McCafe offerings and its all-day, everyday value message, while Europe sales benefitted from growth in France, the UK, Germany and Russia.

DISH Network Corp. (DISH $21) announced 1Q EPS of $0.52, two cents above the consensus forecast of Wall Street analysts, with revenues increasing 5.2% year-over-year (y/y) to $3.1 billion, just above the $3.0 billion that was expected. The satellite TV firm said it added about 237,000 net subscribers during the period.

Tyson Foods Inc. (TSN $19) reported fiscal 2Q EPS ex-items of $0.46, above the $0.35 that the Street had forecasted, with revenues increasing 9.5% y/y to $6.9 billion, compared to the $6.6 billion that analysts had anticipated. The meat producer said all its operating segments were profitable, with its beef and pork above their historical normalized ranges.

Fed re-deploys measures to support the euro-area rescue mission

Treasuries are solidly lower in morning trading as the equity markets surge and the recently built-in flight to safety is being unwound on the news of the near $1 trillion euro-zone financial rescue package. In related news, the Federal Reserve, along with the Bank of Canada, Bank of England, the European Central Bank, and the Swiss National Bank announced the re-establishment of temporary US dollar liquidity swap facilities. The Fed said the action is in response to the re-emergence of strains in US dollar short-term funding markets in Europe and these facilities are designed to help improve liquidity conditions in US dollar funding markets and to prevent the spread of strains to other markets and financial centers. The Fed added that the Bank of Japan will be considering similar measures soon.

There are no major US economic reports scheduled for today and the week will be relatively light as the euro-zone debt crisis continues to command the lion’s share of the attention and as there are few major releases scheduled for the week.

The headlining report will likely be advance retail sales, which will be released on Friday, with the Bloomberg survey of economists forecasting a 0.2% month-over-month (m/m) increase for April, after a jump of 1.6% was seen in March. In last month’s report, a rise was seen in eleven of thirteen categories, led by a 6.7% increase in autos, and building materials gained 3.1%, the most since November 2007.

Friday will also bring another key release in the form of the April reading of industrial production and capacity utilization, which are both expected to improve, after lackluster increases in March. Economists are looking for industrial production to climb 0.6%, versus a 0.1% increase last month, which was mainly due to a 0.2% decline in output for consumer goods and a 6.4% fall in utilities production. Meanwhile, capacity utilization is expected to come in at 73.7%, up from a previous reading of 73.2%.

Other releases on this week’s US economic calendar include wholesale inventories, MBA mortgage applications, the trade balance, the Import Price Index, initial jobless claims, business inventories, and the University of Michigan’s consumer sentiment report.

Europe sharply higher as massive rescue package announced

Stocks in Europe are sharply higher in afternoon action following the 720 billion euro (close to $1 trillion) rescue package that euro-zone officials announced, on top of the 110 billion euro bailout of Greece, aimed at stabilizing the euro-zone financial system and preventing contagion in the region. The package consists of 440 billion euros in guarantees from euro-member states, plus 60 billion euros from the European Commission (EC). Moreover, the International Monetary Fund (IMF) will contribute 220 billion euros to the cause and the European Central Bank has committed to buy euro-zone government bonds to try to provide further stability. Last week, the ECB’s reluctance to announce even the discussion of bond purchased contributed to the steep losses that the global markets posted.

Financials are sharply higher to lead the way, and the euro, which fell to a 14-month low recently versus the dollar is solidly higher on the announcement, but has come off of the best levels of the day. Britain’s FTSE 100 Index is 4.9% higher, France’s CAC-40 Index is up 8.5%, and Germany’s DAX Index is 4.8% in the green. Meanwhile, Spain’s IBEX 35 Index is surging 12.6%, Portugal’s PSI 20 Index is jumping 9.7%, and Greece’s Athex Composite Index is 9.5% to the plus side.

In other economic news, the Bank of England kept its benchmark interest rate unchanged, matching economists’ forecasts, at a record low of 0.5%, and did not change its asset purchase target. Elsewhere, Germany’s trade surplus increased more than economists expected in March and French industrial and manufacturing production both rose by an amount that exceeded economists’ expectations.

Asia rebounds on euro-zone rescue efforts

Stocks in Asia were nicely higher across the board following the euro rescue package announced in Europe, which helped boost optimism about the global recovery. Japan’s Nikkei 225 Index rose 1.6% on the upbeat euro-area sentiment, which is causing to yen to weaken solidly, paring some of its recent surge and ease the pessimism about the impact of the stronger currency on sales of companies that rely heavily on sales outside Japan. Also, the Bank of Japan released its minutes from its last monetary policy meeting, which showed policy makers voted unanimously to keep its benchmark interest rate unchanged at 0.1%. Moreover, the BoJ kept its semi-annual economic outlook unchanged at an unscheduled meeting to discuss the reopening of currency swap agreements with the US.

Meanwhile, the rebound in sentiment toward the global recovery helped the outlook for commodity-related issues, which buoyed the resource rich nation of Australia as S&P/ASX 200 Index jumped 2.7%, despite a report that showed business sentiment deteriorated in April. Also, India’s BSE Sensex 30 Index surged 3.4% to lead the way, and stocks in Hong Kong received a boost, with the Hang Seng Index increasing 2.5%. However, the Shanghai Composite Index showed a relatively muted reaction, rising 0.4% to lag the broad-based advance in the region, after the nation posted an unexpected trade surplus in April, but shrank by 87% y/y per Bloomberg. Rounding out the day, South Korea’s Kospi Index rose 1.8% and Taiwan’s Taiex Index increased 1.3%. In equity news, Sony Corp. (SNE $33) reported a smaller-than-expected full-year loss after today’s closing bell in Asia, aided by cost cuts and gains in its investment portfolio.