Morning Market Update

Bulls Refunding Some of Yesterday’s Rally

The optimism from the $1 trillion euro-area financial rescue package is dissipating as the focus shifts to the difficult fiscal changes that debt-ridden euro-zone nations will have implement to move toward long-term sustainability, and the potential impact on the global economic recovery. Treasuries are higher following yesterday’s losses amid the global equity market rally, ahead of a report on wholesale inventories. In equity news, Priceline.com Inc is down solidly after it missed the Street’s revenue forecasts and issued disappointing guidance, while Fluor Corp also posted revenues that came up short of forecasts. Overseas, Asia finished lower across the board, exacerbated by some mixed economic data out of China, and Europe is lower amid the resurfacing euro-area concerns.

As of 8:53 a.m. ET, the June S&P 500 Index Globex future is 13 points below fair value, the Nasdaq 100 Index is 19 points below fair value, and the DJIA is 105 points below fair value. Crude oil is down $0.90 at $75.90 per barrel, and the Bloomberg gold spot price is up $17.43 at $1,220.53 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.5% at 84.54.

Priceline.com Inc. (PCLN $250) reported 1Q EPS ex-items of $1.70, four cents above the consensus estimate of Wall Street analysts, with revenues increasing 26.5% year-over-year (y/y) to $584 million, short of the $597 million that the Street was anticipating. PCLN said it maintained gross booking growth of over 50% y/y during the quarter, on strong gains in hotel room nights. However, shares are under solid pressure on the revenue performance and as the company issued 2Q guidance that missed analysts’ expectations. PCLN said the Iceland volcano caused widespread disruptions in air travel which resulted in a significant increase in hotel room cancelations, while civil unrest in Thailand has substantially impacted its hotel reservations in the country, which is a key market in Asia. Moreover, the company said the sovereign debt concerns in Europe have resulted in a significant decline in the value if the euro versus the dollar, which adversely impacts its financial results expressed in dollars.

Fluor Corp. (FLR $49) announced 1Q EPS of $0.76, two pennies above the Street’s forecast, but revenues declined 15.5% y/y to $4.9 billion, short of the $5.0 billion that analysts were expecting. The engineering and construction firm said its results were impacted by lower spending by its oil and gas clients, partly offset by growth in its power, government and industrial & infrastructure segments. FLR reaffirmed its full-year EPS guidance. Shares are lower.

Economic calendar remains light

Treasuries are higher in morning trading following solid declines yesterday amid the euro-bailout fueled rally in the global equity markets. The lone release on today’s US economic calendar will come in the form of wholesale inventories, which will be reported after the opening bell and are expected to increase 0.5% in March, following the 0.6% increase in February.

Shine of euro-area rescue dims

Stocks in Europe are solidly lower in afternoon action as the equity markets are paring some of yesterday’s strong gains as the optimism that came from the weekend’s near $1 trillion financial rescue package is being replaced by the reality that tough aggressive austerity measures must be implemented in order to move to sustainable long-term fiscal prosperity. Financials, which led the rally yesterday, are the biggest decliners to pace the decline. However, Germany approved its contribution to the massive bailout package, as Reuters reported that the nation’s Cabinet approved 123 billion euros in loan guarantees to the coordinated euro-area financial rescue.

The weakness across the pond and growing uncertainty surrounding the UK’s election last week that resulted in a “hung Parliament,” which could hamper the policy making process, are overshadowing some upbeat economic reports in Britain and the FTSE 100 Index is declining 1.7%. A report showed UK home prices rose much more than economists’ forecasts, while separate releases revealed a solid 2.0% month-over-month (m/m) gain in March, compared to the 0.3% that was expected, and manufacturing production increased 2.3% m/m versus the 0.4% rise that was anticipated. Other economic reports in Europe consisted of an unrevised increase in German consumer prices for April, while wholesale prices increased more than expected m/m in April, while consumer prices in Sweden came in flat m/m in April.

In equity news, Portugal Telecom (PT $9) is adding to yesterday’s sharp increase, after it received and rejected a of 5.7 billion euro ($7.7 billion) offer to purchase its 50% stake in a venture which controls Brazilian wireless operator Vivo SA (VIV $26), from Telefonica SA (TEF $64).

France’s CAC-40 Index is down 2.2%, Germany’s DAX Index is off 1.2%, Sweden’s OMX Stockholm 30 Index is 1.6% lower, Spain’s IBEX 35 Index is declining 4.9%, Portugal’s PSI 20 Index is 2.7% in the red, and Greece’s Athex Composite Index is decreasing 2.2%.

Asia lower on mixed Chinese data and euro-debt concerns

Stocks in Asia were lower as traders digested a plethora of economic data out of China, while the luster has come off of the euro-debt optimism following yesterday’s steep gains on the massive euro-area bailout package agreement. Stocks in China were lower to lead the decline in the Asia/Pacific region as traders grappled with mixed economic data, as the Shanghai Composite Index dropped 1.9% and Hong Kong’s Hang Seng Index declined 1.4%. Reports showed China’s industrial production rose 17.8% y/y in April, short of the 18.5% gain that was anticipated by economists, but retail sales rose 18.5% y/y in April, topping the 18.2% that was forecasted. However, inflation and loan data dominated China’s economic docket, with gauges of both producer and consumer prices rising more than expected, while new yuan loans jumped to 774 billion, well above the 585 billion yuan forecast. Moreover, fixed asset urban investment rose more than anticipated and housing prices unexpectedly increased, all adding to some uneasiness that further government tightening to try to prevent property speculation and cool off the economy may be in the offing.

Stocks in Japan were lower as the Nikkei 225 Index fell 1.1% amid the aforementioned China data and euro-area uneasiness, which overshadowed yesterday’s narrower-than-expected full-year net loss from Sony Corp. (SNE $34). In other Japanese equity news, Toyota Motor Corp. (TM $77) announced 4Q earnings after today’s closing bell that exceeded analysts’ expectations, but gave cautious guidance for the current fiscal year. Elsewhere, Australia’s S&P/ASX 200 Index dropped 1.1% on the dampened sentiment in Asia, South Korea’s Kospi Index declined 0.4%, Taiwan’s Taiex Index decreased 0.7%, and India’s BSE Sensex 30 Index fell 1.0%.