Morning Update

Feeling No Grief on Possible Toxic Asset Relief

Stocks are solidly higher in early action as more optimism toward the financials is supporting sentiment as the Street waits for US Treasury Secretary Timothy Geithner's announcement of a plan aimed at possibly deploying $1 trillion in funding to help clear up toxic debt that is plaguing banking balance sheets. The upbeat mood in the banking sector is helping trading around the globe as overseas markets are higher. Treasuries are nearly unchanged ahead of the Treasury's announcement and before a key housing report. In equity news, Suncor Energy agreed to buy Petro-Canada for about $15 billion, and H&R Block provided tax season results through Mid-March.
As of 8:46 a.m. ET, the June S&P 500 Index Globex futures contract is 14 points above fair value, the Nasdaq 100 Index is 21 points above fair value, and the DJIA is 144 points above fair value. Crude oil is up $0.24 to $52.31 per barrel, and gold is down $6.80 at $949.40. Suncor Energy (SU $25) announced that it has agreed to buy Petro-Canada (PCZ $24) for about C$18.43 billion ($14.9 billion), in an all stock deal. The deal will create Canada's largest energy company and is expected to save $1.3 billion in annual cost savings. H&R Block (HRB $19) reported tax season results through March 15, 2009, saying total returns prepared were down 3.2% versus last year. The tax preparer said retail returns prepared year-to-date fell 6.2%, while net average retail fees increased 7.9%. HRB said there continues to be a slight shift from assisted to do-it-yourself tax preparation methods this year, and it believes this is primarily driven by increased price sensitivity of clients due to current economic conditions. Housing data dominates economic week
Treasuries are flat as housing data will kick off the week's economic docket. At 10 a.m. ET, existing home sales for February will be released, and the expectation is for a rate of 4.45 million units on an annualized basis, down 0.9% month-over-month (m/m), after falling 5.3% in January. Year-over-year sales are expected to have declined 10.1%. Distressed sales, such as foreclosures, have comprised 45% of transactions in recent months, and sales of existing homes have turned up in some markets where the steepest declines in prices have occurred. The Obama administration unveiled a foreclosure mitigation plan in February, and several large banks agreed to temporarily suspend foreclosures. Although lower prices and mortgage rates have helped improve the most badly beaten markets, home prices seem unlikely to stabilize while supply remains elevated-in January, the numbers were nine months for existing homes and 13 months for new homes (versus the five or six months that's considered normal for both measures). Additionally, a weakening job market and future declines in home prices implied by high inventories, as well as impaired consumer confidence, means that stabilization in the housing market will need time to work through. This week will bring more housing data with Wednesday's release of new home sales for February, forecasted to show a 2.9% month-over-month decline to 300,000 units on an annualized rate, which would mark a new low in the pace of sales since data began in 1963. The National Association of Home Builders Index of builder confidence last week indicated that potential first-time home buyers have been hampered by tight credit conditions, while potential trade-up buyers are finding it "very tough to sell their existing homes." New home sales face tough competition from the discounted prices that foreclosed existing homes provide. The move by the Fed this week to lower mortgage rates may provide a better borrowing environment for future potential home buyers. Durable goods orders for February will also be released on Wednesday, and it is expected that orders fell 2.4%. Ex-transportation, orders are expected to have declined 2.0%. The rate of durable goods orders is a key input into the calculation of gross domestic product (GDP), and the expectation is that GDP in 1Q 2009 will fall 5.0%. Other reports on this week's economic calendar include MBA Mortgage Applications on Wednesday, final 4Q GDP and jobless claims on Thursday, while personal income and spending and University of Michigan consumer sentiment will close out the week on Friday. Bank balance sheets to get some relief Today, US Treasury Secretary Timothy Geithner is expected to announce more details on his plan to help rid toxic banking assets-which sit at the heart of the financial crisis-from the balance sheets of financial firms as Liz Ann and Brad have firmly noted in their recent Schwab Market Perspectives needs to be done to address repairing the credit markets and stemming the recession. How to price those assets remains a crucial component of any plan, and this pricing dilemma seems to be at the heart of stalled steps aimed at attacking the toxic asset problem. Secretary Geithner has promised to provide details on the proposed private/public partnership in the near future, and we're anxious to see how they plan to deal with this issue. The Treasury released some details of Geithner's Public-Private Investment Program (PPIP) and the PPIP will use $75-100 billion from the $700 billion Troubled Asset Relief Program (TARP) enacted last year, giving the government "purchasing power" of $500 billion, according to a statement by the Treasury, which it said the program may expand to $1 trillion over time. The Treasury added that, "This approach is superior to the alternatives of either hoping for banks to gradually work these assets off their books or of the government purchasing the assets directly." Europe runs on financial enthusiasm Stocks in Europe are nicely higher in afternoon action as financials are grabbing the reins as traders are showing some continued optimism toward the group ahead of US Treasury Secretary Geithner's planed presentation. Basic materials issues are also helping support the advance as the improving sentiment that the flood of stimulus efforts around the globe are beginning to produce some progress on repairing the global economy is stoking optimism for demand in commodities. On the equity front, shares of Daimler (DAI $28) are gaining ground after it said it will sell a 9.1% stake to Abu Dhabi's Aabar Investments. The investment of 1.95 billion euros ($2.67 billion) in the maker of Mercedes-Benz will make Aabar Investments the company's largest shareholder according to the Financial Times. Asia advances on stimulus announcements Stocks in Asia were solidly higher across the board as financials, technology, and commodity stocks led the way amid upbeat optimism that more global stimulus efforts will be deployed to stem the economic slide. Sentiment was sweetened after China backed its growth target and Japan hinted that it may deploy more stimulus efforts to help combat the global recession. Japan's Nikkei 225 Index gained 3.4% and the broader Topix Index rose 3.5% after Japanese Finance Minister Kaoru Yosano said yesterday that a new 20 trillion yen ($208 billion) stimulus package is "not out of line." China's Shanghai Composite Index increased almost 2% after the country's stimulus efforts may add as much as 1.9 percentage points to economic expansion-to help the government achieve its growth target this year. Elsewhere, Hong Kong's Hang Seng Index led the way in Asia, jumping 4.8% as sentiment toward financials continued to improve, helped by the US Treasury's expected announcement.