U.S. Market Update

Dow +48 S&P +4 NASDAQ +6.5

US indices opened not far above Monday's lows on this the first day of the second quarter, while the G20 gather in London and protesters riot in the streets. But equities are rallying with enthusiasm in early trading this morning after February pending home sales rebounded strongly from January's record low and the March ISM reading showed manufacturing activity contracted by a bit less than anticipated. Note that the ISM new orders component was much better than prior, with inventories seen falling. Various commentators have offered doom and gloom this morning, including Fed Governor Fisher, who warned the Q1 contraction in GDP may be worse than Q4's decline, and Harvard Economist Feldstein, who said the economy is getting worse. The FDIC's Bair is not among them, boosting financial names after saying she was cautiously optimistic about the US banking sector.

With the G20 summit about to get underway in London, recent economic data from around the globe confirms that the politicians in attendance are under great pressure to do something about the world economy. China's March manufacturing PMI declined again, casting further doubt on whether the country can power any kind of economic recovery. In Japan the quarterly Tankan was dismal, showing that economic conditions remain severe. German retail sales were worse than expected. European PMI reading remained at or near all-time lows and Euro Zone unemployment climbed to its highest level since May 2006, at 8.5%. The US ADP employment change data registered its largest decline since the inception of the series back in 2001. One European currency dealer commented that the current G20 conference could be among the three most important summits of all time, just behind the Plaza and Louvre Accords in the 1980. However it's worth keeping in mind that the latter left their marks with substantive agreements while this conference is likely to be marred by discord and naked self interest.

Both the Fed and BOE purchased government notes as part of their quantitative easing schemes. GILT prices moved sharply higher after a relatively low bid-to-cover ratio in the reverse auction of £3.5B 2014-2019 paper. Treasury prices have also climbed higher after the NY Fed bought $6B with a bid-to-cover ratio of 2.82, also below the average of the first three reverse auctions. The US benchmark yield is trading around 2.6% while the long bond offers closer to 3.5%. The yield on the Bund has also moved lower, below 3% after sources indicated the ECB is considering unconventional quantitative measures in the coming weeks. Reminder the ECB is expected to cut by another 50 basis points at tomorrow's meeting.

Energy prices remain to the downside following weekly inventory data from the DOE. Distillate stockpiles grew when a decline was expected, and demand dropped off in the latest week indicating the economic weakness continues to weigh on the complex. May crude remains near a 1-week low below $50.

Today's early rebound in the Indices has been led by the financials. Trades seem to be buying these names ahead of tomorrow's FASB meeting and official vote on possible changes to the way mark-to-market accounting is implemented. The XLF is up more than 2% after opening down closer to 3%.

In other equity news, consumer-oriented names Sealy and Borders Group both offered surprising positive quarterly reports yesterday after the close. Sealy reported a modest Q1 profit, while analysts had expected a small loss, earning the company an upgrade at Raymond James. Borders beat Q4 estimates by a healthy margin, although sales remain very depressed on a y/y basis. Shares of ZZ are up 54% early on, while BGP is up 20% and headed higher. Education company Apollo Group managed to beat earnings and revenue estimates, but negative comments on debt from the CEO and a Baird downgrade are weighing on the name, with shares of APOL-12%. Shares of Sonic Automotive are hurting, down more than 45% after reporting a big Q4 loss and refraining from offering any guidance for 2009. Biopharma firm Celgene warned that it would barely achieve its 2009 guidance; shares of CELG-14% are down sharply in early trading.

In currencies, dealers were eyeing key EUR/USD hourly support at the 1.3130 level, where the pair was trading prior to the Fed's quantitative easing announcement on March 18. This level also corresponds to the 100-day moving average. The pair was seen consolidating in a 1.3130 top 1.3330 ahead of the ECB rate decision and G20 summit. Chatter has been circulating that the ECB is planning an additional rate cut of up to 50bps and considering some unconventional quantitative measures in the coming weeks.