Morning Update

Weakness to Start Week

Stocks are poised to open lower to kick off the week as financials are weighing on sentiment overseas to offset a $41 billion merger between Dow member Merck & Co. and fellow drug maker Schering-Plough. In other equity news, McDonald's reported February same-store sales grew even after last year had one extra day of sales. Treasuries are nearly unchanged in early action as the economic front will be void of any major reports today, but the Street is awaiting Thursday's data on the health of the retail sector.

As of 8:40 a.m. ET, the March S&P 500 Index Globex futures contract is 5 points below fair value, the Nasdaq 100 Index is 3 points below fair value, and the DJIA is 55 points below fair value. Crude oil is up $0.07 to $45.59 per barrel, and gold is down $6.70 at $936.00.

Dow member Merck & Co. (MRK $23) and fellow drug maker Schering-Plough (SGP $23) announced that they have approved a definitive merger agreement in a stock and cash transaction. The combined firm will be called Merck, and SGP shareholders will receive 0.5767 shares of the new company and $10.50 per share in cash, totaling about $23.61 per share or about $41.1 billion, based on Friday's closing price. The deal will combine the two firms that make cholesterol drugs Zetia and Vytorin. Shares of MRK are lower, while SGP is gaining ground.

Dow component McDonald's (MCD $52) reported global same-store sales rose 1.4% in February, while excluding an extra day last year due to leap year, global comparable sales rose 5.4%. Sales in the US rose 6.8%-after adjusting for the calendar shift-on strength in its chicken line-up, beverages, and its breakfast menu. In Europe, adjusted sales gained 4%, and the Asia/Pacific segment advanced 4.1%, excluding the extra day last year. The world's largest fast-food chain said the company's results reflect the ongoing appeal of its combination of convenience, value and variety.

Retail data waits in the wing

Treasuries are near the unchanged mark as there are no major economic reports due out today, and traders are awaiting this week's report on business activity in the retail sector. Advance retail sales for February will be released Thursday, and the expectation from the Bloomberg survey of economists is that sales fell 0.5%, after rising 1.0% in January. Ex-autos, sales are expected to have decreased 0.1%. The January increase was a surprise, but likely was due to the pronounced weakness in December, followed by a smaller-than-usual seasonal drop in sales in January. Same-store sales reports last week also showed an increase in February, and while the growth could be positive for economic growth, it is likely unsustainable due to shrinking consumer confidence and a deteriorating labor market.

Consumers are saving more to reduce debt, rebuild their retirement accounts, and increase their emergency savings to protect themselves in case of future job loss. After years of decline, the personal savings rate increased to 5.0% in January 2009-the highest rate in the past five years.

However, the 60-year average for the savings rate is 7%, suggesting the retrenchment is not close to peaking, and the trade-off for higher savings is a reduction in consumer spending. With consumers comprising nearly 70% of GDP, a slowdown in consumer spending further threatens economic growth.

Other releases on the economic calendar this week include wholesale inventories on Tuesday, weekly MBA mortgage applications on Wednesday, weekly initial jobless claims and business inventories on Thursday, and the trade balance, the Import Price Index, and University of Michigan consumer sentiment survey on Friday.

Also, traders may allocate some attention to Federal Reserve Chairman Ben Bernanke's speech tomorrow in front of the Council on Foreign Relations on "Financial Reform to Address Systemic Risk." Bernanke will speak at 8:30 a.m. ET.

Financials hold Europe under fire

Stocks in Europe are being weighed down in afternoon action by more worries about the financial sector. Shares of HSBC (HBC $26) are down almost 10% as traders continue to apply pressure on the financial firm amid fears that the financial crisis will hamper its bottom line. Today's losses follow last week's sharp decline after HSBC announced the UK's largest rights offering-about $17 billion-in order to boost its capital position. Credit Suisse (CS $20) is lower after it announced that its chairman will relinquish his role with the firm and will be appointed to chairman of the board of reinsurer Swiss Re (SWCEY $10). Shares of Swiss Re are also in the red. Elsewhere, Barclays (BCS $10) is solidly lower after the Financial Times reported the firm said it would talk to UK Treasury officials regarding participation in the government's asset protection program. The announcement of the merger between Merck and Schering Plough is helping boost drug stocks and is limiting the losses in European action.

Japan hits 26-year low

Stocks in Asia were lower as financial fears continued to pressure sentiment. Hong Kong's Hang Seng Index led the decline, falling 4.8%, and Japan's Nikkei 225 broke through its October low to finish at the lowest level in 26 years. Adding pessimism to trading in Japan, the country reported the widest-ever current account deficit as the first deficit since 1996 came courtesy of a sharp contraction in exports due to the struggling global economy and a stronger yen. However, Korea's Kospi Index and Australia's S&P/ASX 200 Index managed to escape the fray to close up 1.6% and 0.3%, respectively. The equity front offered no support with Shinsei Bank (SKLKY $2) falling 8.8% as traders reacted to Friday's announcement that it will issue an unspecified amount of preferred shares in an attempt to raise capital. Additionally, Sumco (SUOPY $26) was 12% lower after the world's second largest maker of silicon wafers, on softening demand, forecasted a first-half loss.