Morning Update

Stocks Pick Up Where Last Week Left Off

Stocks are higher in early action as optimism that the worst in financial markets and the global recession may be beginning to move into the rear view mirror is helping stocks gain ground for a fifth-straight session. Events and news over the weekend are providing the main source of the sweetened sentiment on the Street as G-20 finance ministers vowed coordinated and sustained efforts to attack the problem assets dragging down banks, Fed Chief Ben Bernanke said the recession could end later this year, and US Treasury Secretary Timothy Geithner said he will soon provide details of his plan to help banks rid toxic assets from their balance sheets. Equity news is fairly light as MGM Mirage is reported to be looking to restructure loan agreements, while overseas, Barclays said it has had a "strong start to 2009" and said it has held discussions over the possible sale of its exchange traded funds (ETF) unit, iShares. Treasuries are lower amid the upbeat mood on the Street, while the Empire Manufacturing Index fell more than expected. Overseas, world markets are higher.

As of 8:39 a.m. ET, the June S&P 500 Index Globex futures contract is up 9 points above fair value, the Nasdaq 100 Index is 6 points above fair value, and the DJIA is 60 points above fair value. Crude oil is down $1.57 to $44.68 per barrel, and gold is down $5.20 at $924.90.

MGM Mirage (MGM $4) is reported to be looking to restructure some lending terms on its unsecured debt to avoid breaching credit agreements, which could lead to possible default, and is in talks with banks to pledge casinos as loan collateral, a person with knowledge of the discussions told Bloomberg. MGM said in an emailed response that talks with its financial partners are ongoing and it is evaluating every possible option.

NY manufacturing falls, production and utilization on tap

The first reading on activity in the month of March, the Empire Manufacturing Index, a measure of manufacturing in New York, unexpectedly fell from -34.65 to -38.23, versus the estimate of -30.80. A reading of zero suggests conditions are neither contracting nor expanding. Treasuries are lower amid the eased fears toward financials and of the depth and duration of the global recession.

Industrial production and capacity utilization will be reported later in the morning, and industrial production is expected to decline 1.3% in February, and capacity utilization is expected to be 71.0%. In response to slower consumer and business spending, manufacturers have been working down inventory levels to conserve cash, and are ordering fewer replacement goods. Also, we will get a report on sentiment among homebuilders in afternoon action with the National Association of Home Builders Index of builder confidence, expected to remain at 9-a reading below 50 means most respondents view conditions as poor.

Housing data and Fed meeting likely to shape the week

Looking ahead, Tuesday will bring two key economic events-starting with the release of housing starts and building permits. The expectation is that starts fell to an annualized rate of 450,000 in February, while building permits, a more forward-looking indicator, are expected to have declined to an annualized rate of 500,000. Homebuilders have had to continue to pare back new construction, as the level of supply remains elevated relative to the 5-6 months that is considered normal. Homebuilders have had to compete with highly discounted foreclosures, as well as lower access to capital markets.

Also, the Federal Open Market Committee (FOMC) will begin its two day monetary policy meeting on Tuesday with the meeting concluding on Wednesday. With the fed funds rate already targeted to a rate near zero, no action is expected on the targeted interest rate. However, the Fed will likely update the market with regard to the unconventional measures it is taking to stabilize the economy and credit markets. Of particular interest will be any details regarding the status of the Term Asset-backed Securities Loan Facility (TALF), which is expected to be put into action soon, but has been undergoing start-up issues of structure and operation. Additionally, investors will be monitoring progress on the Fed's purchases of mortgage-backed securities and any indications of moving forward with the idea of buying Treasuries. At the last FOMC meeting held in January, Jeffery Lacker expressed dissent with using targeted credit programs, preferring to expand the monetary base by purchasing Treasuries.

Schwab's Chief Investment Strategist Liz Ann Sonders, and Director of Sector Analysis, Brad Sorensen, CFA, note in their bi-weekly Schwab Market Perspective: Depression/Recession-Does it Matter?, while the Fed has been hesitant to purchase Treasuries to date, as doing so would open a whole new can of worms, it may need to become more aggressive in its targeting of mortgage-backed securities in order to meaningfully bring down mortgage rates to a level that would really start to stimulate demand. One cautionary note-no matter how low mortgage rates get, low rates would unlikely stimulate much on the buying front until price declines stop. Few rational buyers enthusiastically borrow money at 5% to purchase an asset that's declining at a 15% rate-resulting in a 20% "real" mortgage rate. Read more on their market perspective at www.schwab.com/marketinsight.

Other reports on this week's economic calendar include the Producer Price Index for February on Tuesday, followed by the Consumer Price Index and weekly MBA mortgage applications on Wednesday, while Thursday will bring the Philly Fed survey, weekly jobless claims data, and leading indicators for February.

Banks boost stocks in Europe

Stocks in Europe are higher in afternoon action, led by financials after the finance chiefs from the world's biggest developed and emerging economies over the weekend vowed a "sustained effort" to stem the global recession and rid the banks' balance sheets of toxic assets. At the G-20 meeting over the weekend, the communique said, "Our key priority now is to address the value of assets held on banks' balance sheets, which are constraining banks' lending." Also, helping support the sector, UK lender Barclays (BCS $4) is up over 20% after it said it has had a "strong start to 2009" and it said it has held discussions over the possible sale of its exchange traded funds (ETF) unit, iShares, in an attempt to bolster capital and avoid the government from having to take a stake in the company as part of its asset insurance program for banks. In other equity news, shares of brewer Heineken (HINKY $13) are gaining ground after it said it has no plans to issue a rights offering to raise capital.

On the economic front, the euro-zone Consumer Price Index increased 0.4% in February, moving the year-over-year rate to 1.2%, stoking some fears about deflation as the rate remains near the decade low 1.1% it recorded in January.

Japan hits one-month high

Stocks in Asia were broadly higher to start the week as the recent enthusiasm toward financials led the way, boosting Hong Kong's Hang Seng Index up over 3.6% and sending Japan's Nikkei 225 Index up 1.8%--a one month high. Helping promote optimism in the banking sector and sweetening sentiment in Japan, the Nikkei newspaper reported that the Bank of Japan is considering purchasing subordinated debt from banks to strengthen capital positions of the financial firms. A drop in crude oil prices after OPEC's decision weighed on oil and gas shares to limit the gains in Asia, while the Pakistan's Karachi 100 Index jumped 5.6% after the Prime Minister pledged to reinstate Supreme Court justices that were fired under military rule in 2007.