Morning Update

Stocks Start the Holiday Week on the Right Foot

Stocks have begun the holiday-shortened week solidly in positive territory, with the dollar weakening and gold hitting a new record high at almost $1,200 per ounce. Treasuries are lower as the only economic report of note today - existing home sales - has not yet been announced. Meanwhile, in the latest Fed speak a central banker said the Fed's asset purchase programs should be kept alive beyond their scheduled expiration dates to provide additional tools for dealing with the economy. In equity news, Microsoft and News Corp. are reportedly discussing a deal that would remove certain news websites from Google's search engine. Elsewhere, Tyson Foods and Campbell Soup both reported solid quarterly earnings. In overseas trading, Europe is higher amid more speculation on a takeover of Cadbury and a capital raising from Lloyds Banking Group. Asia was also higher as mining stocks rose following positive economic data in the region.

As of 8:52 a.m. ET, the December S&P 500 Index Globex future is 10 points above fair value, the DJIA is 84 points above fair value, and the Nasdaq 100 Index is 15 points above fair value. Crude oil is higher by $1.12 at $78.59 per barrel, and the Bloomberg gold spot price is up $14.60 at $1,165.20 per ounce. Elsewhere, the Dollar Index-a comparison of the US dollar to six major world currencies-is down 0.8% at 75.08.

Tyson Foods (TSN $13) reported 4Q EPS ex-items of $0.28, better than the $0.26 figure that Wall Street expected. Revenues were approximately inline with the level seen in 4Q 2008 at $7.2 billion, which was above the $6.9 billion consensus estimate. The company said that three of its operating segments, including Beef, Pork, and Prepared Foods all performed well, with adjusted profitability levels inline with historical averages. The fourth segment - Chicken - saw tougher conditions but the company said it is confident that it has measures in place to return that division to higher profitability. "Fiscal 2010 should be a much better year," Chief Operating Officer Jim Lochner said.

Campbell Soup (CPB $34) said its 1Q adjusted EPS increased 14% to $0.87, better than the $0.81 that analysts had forecasted. Meanwhile, revenue fell 2% to $2.2 billion as sales volumes were down 4% but prices were 2% higher. That was slightly behind the $2.3 billion revenue figure that Wall Street had anticipated. The company said improved gross margin performance and lower marketing expense helped it offset the lower revenues. "We're especially pleased with the significant improvement in our gross margin, driven by increased productivity in our supply chain," CEO Douglas Conant said. The soup maker also raised its full-year guidance, now expecting 4-5% sales growth and 6-7% EBIT growth, up from the earlier view of a 3-4% improvement in sales and 5-6% in EBIT.

Microsoft (MSFT $30) and News Corp. (NWS $14) are reportedly discussing a deal that would see News Corp. get paid to remove its news websites from Google's (GOOG $570) search engine, according to a source familiar with the matter. Microsoft owns the competing Bing search engine, while News Corp owns newspapers such as the Wall Street Journal and the Sun. The report said that News Corp initiated the discussions and that other publishers including the New York Times (NYT $9) are also looking for ways to charge for their news online. The Financial Times said Microsoft has held talks with other online publishers about removing their sites from Google as well. Google released a statement saying "We believe search engines are of real benefit to newspapers." None of the other companies involved commented.

Large helping of housing data in Thanksgiving-shortened week

A report on existing-home sales will begin this holiday-shortened week, with its release expected at 10:00 a.m. ET. The data is expected to show an increase of 2.3% month-over-month (m/m) to an annual rate of 5.70 million units in October after surging 9.4% to 5.57 million units in September. Recent data on the housing market has been distorted by the looming November 30 expiration of the government's $8,000 tax credit. Although the program was eventually extended earlier this month, there have been signs that October was a very weak month for the sector as consumers and builders alike put their plans on hold while waiting for news from Washington.

Later in the week, new home sales will be reported on Wednesday, forecasted to increase 0.8% m/m in October to an annual rate of 405,000 units. While new homes are a small percentage of the total market, they are viewed as a timelier indicator given that they are based on signings while existing home sales reflect contracts signed one to two months earlier. Data on the housing sector will also come from the S&P/Case-Shiller Home Price Index, which will be reported on Tuesday and is expected to show a continued improvement in the pace of price declines to -9.2% year-over-year (y/y) in September, after falling 11.3% in August. This series lags the existing home and new home sales data by a month and is a three month average of prices in 20 cities.

Elsewhere, St. Louis Federal Reserve Bank President James Bullard said asset purchase programs should be kept alive after their scheduled expiration to give the Fed more flexibility to deal with the economy. "I would just like to keep them active at a very low level instead of saying we're shutting down, shutting down permanently," he said. Explaining the rationale for such a move, Bullard noted "Initially it would do nothing for the economy, but it would give the Fed the option to react to future news as it comes in." The Fed's commitment to buy $1.25 trillion of mortgage backed securities is presently scheduled to end in March 2010. Bullard also defended accusations that the Fed was blind to the impending credit crunch, stating that officials issued "important warnings" about brewing problems before the crisis began. He noted that his predecessor at the St. Louis Fed, William Poole, warned in the early 2000s that Fannie Mae (FNM $1) and Freddie Mac (FRE $1 1) were "ticking time bombs." Moreover, former Minneapolis Federal Reserve Bank President Gary Stern published a book called "Too Big To Fail" in 2004, forewarning that some financial institutions were becoming too large for proper supervision. "These types of warnings show that the Fed is well aware of systemic risk concerns in real time," Bullard said.

Europe set to snap losing streak

Stocks in Europe are mostly higher in afternoon action, as France's CAC 40 Index is increasing for the first time in five sessions and Germany's DAX Index is looking to snap a two-day losing streak. A report showed Europe's services and manufacturing sectors expanded for the fourth-consecutive month, reassuring investors that the regional economy is recovering from the worst downturn in more than 60 years. Meanwhile, Lloyds Banking Group (LLDTF $1), the UK's largest mortgage lender, said it plans to sell approximately $13 billion of enhanced capital notes known as contingent convertible core Tier 1 securities, or "CoCos." The newly designed securities are designed to convert from debt to equity if the bank's Tier 1 capital ratio, a measure of financial strength, falls below 5%. Elsewhere, Cadbury (CBY $53) is higher after unconfirmed media sources said Kraft (KFT $27) may raise its previously-rejected takeover bid for the chocolate maker. Other reports suggested Hershey (HSY $ 37), privately-owned Italian firm Ferrero, and Nestle (NSRGY $47) are also planning to acquire the UK firm. Cadbury said in a statement that it was "focused on delivering value to shareholders as a stand-alone, pure-play confectioner," while none of the other firms involved commented.

Asian markets gain amid positive economic data, rising raw materials prices

Stocks in Asia were mostly higher, with Australia's S&P/ASX 200 Index rising almost 1% on the back of higher commodity prices. The US dollar fell and prices for raw materials gained ground as traders in Asia bet that the economic recovery will continue. Meanwhile, Hong Kong's Hang Seng Index was also approximately 1% higher. A newspaper reported a government economist as saying China's economy may grow more than 10% in 4Q, which contributed to the bullish market action. In other economic news in the region, Taiwan's export orders climbed in October for the first time in more than a year. Orders - an indication of shipments in the next three months - were up 4.4% year-over-year, which beat the average analyst expectation of 4.0%. Taiwan's largest export market is China, which saw its economy expand 8.9% in 3Q. The Taiwanese government also said today that industrial production rose 6.7% in October, an acceleration from the revised 1.7% pace from September. Elsewhere in Asia, Thailand's economy shrunk at a 2.8% annual rate in 3Q, the smallest pace in a year. That followed the 4.9% contraction in 2Q and beat the consensus estimate calling for a 3.2% fall. In Japan, markets were closed for a holiday.