Morning Update

Market Opens Weak as Fed Meets This Week

Stocks are under pressure in morning action as commodity prices are lower and traders are taking the opportunity to book some profits after last week’s solid advance, which took the major indices to new highs for 2009. There appears to be some cautious sentiment on the Street ahead of the Federal Reserve’s monetary policy decision, due out on Wednesday, as traders will be looking for any details regarding the Fed’s plan to unwind some of the massive stimulus efforts that have been deployed to combat the financial crisis, trying to determine what impact this will have on the sustainability on the economic recovery. In equity news, Dell kept up the recent uptick in M&A activity after it announced that it will acquire Perot Systems for $3.9 billion, while homebuilder Lennar posted a larger-than-expected loss. Treasuries are higher ahead of the release of the Index of Leading Economic Indicators. Overseas, markets are mostly lower.

As of 8:50 a.m. ET, the December S&P 500 Index Globex future is 10 points below fair value, the DJIA is 85 points below fair value, and the Nasdaq 100 Index is 14 points below fair value. Crude oil is lower by $1.74 at $70.30 per barrel, and the Bloomberg gold spot price is down $10.05 at $997.55 per ounce.

Dell Inc. (DELL $17) announced that it has reached a definitive agreement to acquire information technology services and business solutions firm Perot Systems (PER $18) in a transaction valued at approximately $3.9 billion. Under the terms of the deal, DELL will acquire all outstanding Class A common stock of PER for $30 per share in cash—about a 68% premium over Friday’s closing price—and this transaction is not subject to a financing condition.

Homebuilder Lennar (LEN $17) reported a 3Q loss of $0.97 per share, larger than the $0.46 per share loss that the Street had expected, as revenues fell 35% to $721 million, also short of the $774 million that had been expected. LEN noted that its results included a $0.42 per share charge related to valuation adjustments and other write-offs. The company said its new orders were down 8%, deliveries fell 29%, while its cancelation rate improved from 27% the same period a year ago to 19% in 3Q. LEN said, ‘During the third quarter, the overall housing market continued its road back to recovery as more confident homebuyers took advantage of increased affordability.”

Fed meeting gets this week’s top billing

Treasuries are higher in early action as traders await the latest look at the Index of Leading Economic Indicators (LEI), set to be released later in morning action, forecast to gain 0.7% for August, posting its fifth-straight monthly gain, and the index sits at level not seen since July 2008.

However, the report that will likely grab the lion’s share of the Street’s attention on this week’s economic calendar will be the two-day Federal Open Market Committee (FOMC) meeting, which begins tomorrow and concludes with the release of its statement mid-day Wednesday. No changes are expected to interest rate policy at the meeting. The only change made at the August meeting was that the Fed extended the timing of the Treasury purchase program to the end of October. After next week’s meeting, the Fed is not scheduled to meet again until November 4th, making this the last formal opportunity for the Fed the option to adjust the program size or timing. However, the Fed has been making changes to its special programs on dates outside of the formal FOMC meeting in recent months.

Housing and manufacturing data will also be in focus as existing home and new home sales will be released on Thursday and Friday respectively, and durable goods orders will also be released on Friday. Other reports that will round out this week’s economic calendar include MBA mortgage applications on Wednesday, weekly initial jobless claims on Thursday, and the final revision to the University of Michigan’s Consumer Sentiment Index for September will be reported on Friday.

Europe under pressure as commodity prices slip

Stocks in Europe are under pressure, led by basic materials issues as key metals and crude oil prices are moving lower. Financials are also among the largest losers across the pond, weighed down by a solid decline in shares of Royal Bank of Scotland (RBS $18) after people familiar with the matter said the UK’s largest government-controlled bank held discussions last week to possibly raise between 3-5 billion pounds through a rights offering, according to Bloomberg news. RBS did not comment on the matter. On the economic front, Britain’s largest residential property website released a report over the weekend, showing the average cost of a home rose 0.6% in September following a 2.2% decline in August.

China erases early losses in light action in Asia

Stocks in Asia were mostly lower in light action as Japan was closed for a holiday, while markets in India, the Philippines, Indonesia, Malaysia, and Singapore were also closed. However, China’s Shanghai Composite Index rose 0.2%, overcoming a loss of as much as 3%, with shares of Metallurgical Corp. of China jumping 28% in the construction and engineering firm’s first day of trading after completing the world’s second largest initial public offering this year, according to Reuters. Elsewhere, weakness in commodity prices weighed on trading in Australia with its S&P/ASX 200 Index declining 0.3%, Hong Kong’s Hang Seng Index fell 0.7%, and South Korea’s Kospi Index dropped 0.3% after the nation’s Finance Minister said economic growth in 3Q may slow versus 2Q.