Overnight U.S. Stock News

• June S&Ps this morning are trading +13.20 points on stronger than expected US earnings reports. The US stock market yesterday overcame mid-day weakness to settle mixed (Dow +0.01%, S&P 500 +0.06%, Nasdaq Composite -0.35%).

• Bullish factors for stock prices yesterday included (1) the 2.2% gain in IBM as the world's biggest computer company said Q1 profit climbed to $1.65 a share, topping analysts' estimate of $1.46 a share and raising their 2008 EPS guidance to $8.50 a share from a February projection of $8.25, (2) the 8.6% gain in Altera as the 2nd biggest maker of programmable chips said Q2 sales will rise 1% to 4% to as much as $349.5 million, ahead of analyst projections of $337.1 million, and (3) the 19% surge in MGIC Investment Corp. as the largest US mortgage insurer reported a Q1 loss of 40 cents a share, much narrower than the $1.69 loss expected by analysts.

• Bearish factors for stock prices yesterday included (1) the rise in weekly continuing unemployment claims to a 3-3/4 year high, (2) the unexpected drop in the Apr Philadelphia Fed manufacturing index to a 7-year low, (3) the 3.3% drop in Pfizer to a 10-year low as the world's biggest drug maker said Q1 profit fell 18%, missing analysts' estimates, on generic competition to its cholesterol pill Lipitor and blood pressure drug Norvasc, (4) the 6.1% drop in International Game Technology as the world's largest manufacturer of slot machines reported Q2 profit that dropped more than analysts estimated as casinos delayed purchases amid declining gambling revenue, and (5) the 2.5% drop in Procter & Gamble as the largest US consumer goods producer was downgraded to "hold" from "buy" at Deutsche Bank AG.

• Google (GOOG) surged 17% in after-hours trading yesterday and is up +15.8% this morning in European trading after the owner of the most popular search engine reported Q1 profit of $4.84 a share, handily beating analysts' estimates of $4.52 as international expansion countered a slowdown in US advertising spending. Net sales of $3.7 billion were up 46% y/y and exceeded the analyst consensus of $3.59 billion.

• Citigroup (C) is up 4% in European trading this morning after reporting Q1 revenue of $13.2 billion, which was substantially higher than the analyst consensus of $11.1 billion. However, Citigroup reported a Q1 loss of $5.11 billion or $1.02 per share, which was larger than the analyst consensus for a $4.75 billion loss. Citicorp took $12 billion in asset write-downs and has now reported two consecutive quarters of losses.

• SanDisk (SNDK) is up +2.7% in European trading this morning after the company reported late yesterday that Q1 sales were $850 million, well above the analyst consensus of $813 million.

• E-Trade Financial (ETFC) is up 9% in European trading this morning after reporting a Q1 loss of $91.2 million and forecasting that it will return to profitability this year.

• Caterpillar (CAT) reported Q1 EPS this morning of $1.45 per share, which was substantially above the analyst consensus of $1.33.

Today's U.S. Market Focus

• June 10-year T-notes this morning are trading down -13.5 ticks due to positive net news out of Citigroup and a rally in S&Ps and European stocks. June T-notes yesterday zigzagged lower and closed down -7.5 ticks at a 1-1/2 month low. Bearish factors for T-note prices yesterday included (1) comments from Dallas Fed President Fisher that he is hesitant to lower interest rates further, warning against "inflating" the economy out of the credit crisis, and (2) hawkish comments from ECB Council member Wellink that he sees Euro-Zone inflation "going up monthly" and it should not be taken for granted that slowing growth will have an impact on inflation. Bullish factors for T-note prices yesterday included (1) the rise in weekly continuing unemployment claims to a 3-3/4 year high (+26,000 to 2.984 mln), and (2) the unexpected decline in the Apr Philadelphia Fed manufacturing index (-7.5 to a 7-year low of -24.9 versus expectations of +2.4 to -15.0).

• The dollar is moderately higher today on positive US earnings news and the rally in S&Ps. The dollar/yen is up +0.80 yen and the euro/dollar is down -0.62 cents. The dollar index yesterday overcame early weakness and closed higher. The euro rallied yesterday to an all-time high against the dollar at $1.5983. Bearish factors for the dollar yesterday included (1) the rise in weekly continuing unemployment claims to a 3-3/4 year high, (2) the hawkish comment from ECB Council member Weber that the ECB needs to assess whether current interest rates are high enough to contain "intolerably" high inflation, and (3) the unexpected drop in the Apr Philadelphia Fed manufacturing index to a 7-year low, heightening recession fears. Bullish factors for the dollar yesterday included (1) the comment from Luxembourg Finance Minister Juncker that the euro's recent advance against the dollar isn't "desirable," and (2) the lower than expected Canadian Mar CPI, increasing the odds of a 50 bp interest rate cut by the Bank of Canada next week.

• May crude oil prices this morning are trading -58 cents a barrel and May gasoline is trading -2.78 cents a gallon. May crude oil prices yesterday rallied to an all-time high of $115.54 per barrel before profit taking set in and the contract closed down -$0.07 a barrel. However, May gasoline closed up +1.88 cents a gallon after posting an all-time high of $2.9749 per gallon. Bullish factors for crude oil prices yesterday included (1) carry-over support from Wednesday's unexpected decline in crude oil inventories in the weekly DOE inventory report and (2) the strength in gasoline prices as the refinery capacity rate fell to a 2-1/2 year low of 81.4% because low refinery profit margins are reducing the incentive for refiners to process crude oil into gasoline and other fuels. Bearish factors for crude oil prices yesteday included (1) the rebound in the dollar, and (2) the comment from the OPEC President that the crude oil market is "well supplied" and that crude oil inventories will rise in Q2 as demand drops.

Today's U.S. Earnings Reports

Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): C-Citigroup (BEST earnings consensus -$0.93 per share), SLB-Slumberger (1.12), CAT-Caterpillar (1.33), XRX-Verox (.27), CBH-Commerce Bancorp (.45), MAN-Manpower (.82), WL-Wilmington Trust (.57), TRB-Tribune (n/a), HTLD-Heartland Express (.15), MLAN-Midland (1.11), PRSP-Prosperity Bancshares (.52), ACO-AMCOL International (.37)

Global Financial Calendar