Morning Market Update

Morning Gains as Euro-zone Debt Fear Tame

The equity markets are posting modest gains in morning trading as some favorable earnings and economic data out of Europe, along with austerity measures announced by Spain, are helping soothe some of the debt fears in the region to help sentiment. Treasuries are lower on the advance in stocks and following a rise in mortgage applications, which are helping offset a report showing the US trade deficit widened. In equity news, Dow member Walt Disney Co, Macy’s Inc, and Electronic Arts Inc all topped the Street’s profit projections, while the Wall Street Journal reported that Morgan Stanley is under Federal investigation regarding mortgage derivatives. Overseas, Asia finished mixed, while Europe is mostly higher.

As of 8:50 a.m. ET, the June S&P 500 Index Globex future is 4 points above fair value, the Nasdaq 100 Index is 6 points above fair value, and the DJIA is 33 points above fair value. Crude oil is up $0.02 at $76.39 per barrel, and the Bloomberg gold spot price is up $4.03 at $1,236.90 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.2% at 84.60.

Dow member Walt Disney Co. (DIS $36) reported fiscal 2Q EPS ex-items of $0.48, three cents above the consensus estimate of Wall Street analysts, with revenues increasing 6% year-over-year (y/y) to $8.6 billion, besting the $8.4 billion Street forecast. The company said the “incredible” box office performance of Disney’s Alice in Wonderland aided results, but some analysts are expressing some disappointment in the company’s 6% y/y revenue growth in its media networks unit.

Macy’s Inc. (M $24) reported 1Q EPS of $0.05, one penny above the Street’s forecast, with revenues increasing 7.2% y/y to $5.6 billion, slightly above the $5.5 billion that analysts were forecasting. Same-store sales—sales at store open at least a year—rose 5.5% y/y.

Morgan Stanley (MS $28) is under pressure in morning action after the Wall Street Journal reported that Federal prosecutors are investigating whether the financial firm misled investors about mortgage-derivatives, according to people familiar with the matter. The company’s CEO said the he was not aware of any Federal investigation and it “has not been contacted by the Justice Department about any transactions that were raised in the Wall Street Journal article, and we have no knowledge whatsoever of a Justice Department investigation.”

Electronic Arts Inc. (ERTS $19) announced fiscal 4Q EPS ex-items of $0.07, to cents above the Street’s estimate, with revenues rising 40% y/y to $850 million, above the $839 million that analysts were anticipating. The video game maker said its Battlefield: Bad Company 2 title outperformed to help drive results, and it affirmed its 1Q and full-year 2011 guidance.

Trade deficit widens, mortgage applications rise

The trade deficit (chart) widened from a slightly smaller-than-initially reported $39.4 billion in February to $40.4 billion in March, versus the Bloomberg estimate calling for the deficit to increase to $40.5 billion. Treasuries remain lower following the trade report.

In other economic news, the US MBA Mortgage Application Index rose 3.9% last week, after the index that can be quite volatile on a week-to-week basis, advanced 4.0% in the previous week. The increase came amid a 14.8% jump in the Refinance Index, which offset a 9.5% drop in the Purchase Index. Moreover, the increase in the overall index came on a 6 basis-point decrease in the average 30-year mortgage rate, which declined to 4.96%, remaining above the record low of 4.61% that was reached at the end of March 2009.

Europe higher amid flood of upbeat economic and equity news

Stocks in Europe are mostly higher in afternoon action, led by a plethora of favorable earnings reports and some stronger-than-expected economic data. Financials are higher to contribute to the advance, led by a strong gain from the largest Dutch financial services company ING Groep (ING $9), which posted a better-than-forecasted 1Q net profit, and on a solid increase in shares of Europe’s largest insurer, Allianz SE (AZSEY $10), after it almost quadrupled its 1Q earnings. In other equity news, A.P. Moeller-Maersk, the owner of the world’s largest container-shipping line, according to Bloomberg, reported 1Q profits that topped forecasts and boosted its full-year guidance, and Deutsche Telekom (DT $11) is moving to the upside after it reiterated its 2010 outlook following its 1Q results that matched analysts’ expectations.

The economic front is also contributing to the improved sentiment today, with German, Italian, and euro-zone 1Q GDP reports all expanded more than economists’ expectations, while France’s 1Q GDP increased by a smaller amount than forecasted and Spain’s 1Q contracted by a slightly smaller pace than anticipated. In other economic news, euro-zone industrial production rose more than expected in March and the UK’s jobless claims fell by a larger amount than forecasted.

In political news in the UK, following yesterday’s resignation by Prime Minister Gordon Brown, which ended a thirteen year run for the Labour Party, Conservative Party leader David Cameron took over as Prime Minister and said he planned on forming a coalition government with the Liberal Democratic Party, per Reuters. The coalition could help unlock the “hung Parliament” that resulted from last week’s election, helping the nation’s fiscal policy making process. In other euro-zone fiscal policy news, Spain’s Prime Minister said the country will implement austerity measures, including public spending and civil service wage cuts, aimed at reducing the country’s budget deficit to 6% of its GDP in 2011, from 11.2% in 2009.

The UK FTSE 100 Index is 0.4% higher, France’s CAC-40 Index is up 0.8%, Germany’s DAX Index is advancing 1.9% higher, Spain’s IBEX 35 Index is gaining 0.9%, and Italy’s FTSE MIB Index is 0.5% in the green. Elsewhere, Portugal’s PSI 20 Index is up 2.6% and Greece’s Athex Composite Index is advancing 1.1%.

Asia mixed in lackluster session

Stocks in Asia were mixed, following the lead in the US markets yesterday, as traders continued to grapple with the euro-zone debt crisis and continued concerns that the Chinese government may move to tighten monetary policy in its attempt to cool excess liquidity and stem property speculation, exacerbated by yesterday’s hotter-than-expected inflation and yuan loan growth reports. However, despite the worries out of China, both the Shanghai Composite and the Hong Kong Hang Seng Indexes rebounded from yesterday’s slide, rising 0.3%. The Nikkei 225 Index declined 0.2%, while the broader Topix Index increased 0.1%. The Japanese auto sector remained in focus on the equity front with Toyota Motor Corp. (TM $77) gaining ground after its better-than-expected 4Q profit report, which offset its cautious outlook, and the nation’s largest light-duty truck maker Isuzu Motors Ltd. (ISUZY $32) posting a solid gain after it offered a favorable outlook, saying it expects full-year net income to double. Moreover, after today’s closing bell in Asia, Nissan Motor Co. Ltd (NSANY $16) posted a narrowed 4Q loss and said its full-year profit will more than triple this year. In Japanese economic news, the country’s preliminary Leading Index rose from 98.4 in February to 102.8 in March, matching economists’ forecasts.

In other economic news in the region, South Korea’s unemployment rate dipped from 3.8% in March to 3.7% in April, and separately, the nation’s central bank left its benchmark interest rate unchanged at 2.0%. The South Korean Kospi Index declined 0.4%. Elsewhere, Australia’s S&P/ASX 200 Index rose 0.6%, despite a report that showed home loans fell more than expected, and India’s BSE Sensex 30 Index rose 0.3%, even after a report showed the nation’s industrial production rose at a smaller pace than expected.