Morning Update

Nearly Unchanged as Commodity Prices Wane

On the heels of Friday’s better-than-expected labor report, which increased some expectations that the Fed may move to increase interest rates sooner than expected, stocks are near the unchanged mark as traders grapple with whether the economic recovery can be sustained as stimulus measures begin to be reined in. The dollar is higher in morning action amid the aforementioned outlook, to weigh on crude oil and gold prices, pressuring energy and materials issues. Treasuries are mixed ahead of a report on consumer credit and before Fed Chief Ben Bernanke’s speech later today to the Economic Club of Washington. In equity news, the Financial Times is reporting that Citigroup is trying to gain approval to pay back $20 billion in TARP funds before a capital raising deadline, and CF Industries raised its takeover offer for fellow fertilizer firm Terra Industries. Overseas, Asia was mixed, while Europe is under pressure.

As of 8:52 a.m. ET, the December S&P 500 Index Globex future is 1 point above fair value, the DJIA is 11 points below fair value, while the Nasdaq 100 Index is 1 point below fair value. Crude oil is lower by $0.38 at $75.09 per barrel, and the Bloomberg gold spot price is down $16.50 at $1,144.90 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.1% at 75.94.

The Financial Times reported yesterday that Citigroup Inc. (C $4) is trying to get the approval from the US government to allow it to repay $20 billion in taxpayer funds loaned to the firm as part of the Treasury’s Troubled Asset Relief Program (TARP), before next week’s deadline for the company to commence a capital-raising effort. The newspaper cited unnamed sources and both the US Government and Citigroup have not commented on the report.

Fertilizer firm, CF Industries (CF $89) announced that it has increased its offer for Terra Industries (TRA $39) by $4.75 per share in cash, bringing the value of the deal to about $4.6 billion. The offer to acquire TRA now stands at $36.75 in cash and .1034 of a share of CF common stock for each share of TRA.

Consumer credit slated for final hour of trading, Bernanke’s speech may tide traders over

Treasuries are mixed in morning action as there are no major reports scheduled for release on the economic calendar in the first half of today’s session, while in afternoon action, consumer credit will be reported, forecast to decline by $9.3 billon for October, versus the $14.8 billion drop in September.

Also, traders will likely pay close attention to today’s speech by Federal Reserve Chairman Ben Bernanke to the Economic Club of Washington, at 12:00 p.m. ET. Any comments in light of last Friday’s labor report will be closely scrutinized in an attempt to gauge when the Fed may start to tighten its extremely loose monetary policy. Following Friday’s labor report, the fed funds futures showed that traders bumped up expectations that the Fed may raise interest rates sooner than expected, with the highest probability showing an increase at its June policy meeting.

Looking ahead, advance retail sales for November will highlight this week’s economic docket, released on Friday and forecasted to rise 0.7% month-over-month (m/m), after growing 1.4% in October, while sales ex-autos are estimated to increase 0.4%, on the heels of a rise of 0.2% in October. Results for October showed broad-based improvement in a typically slower month. Last Friday’s improvement in the rate of job losses as well as less-dire consumer net worth expectations this year with the stock market rally and stabilization of the housing market have improved consumer sentiment.

Other releases on the economic agenda this week include the MBA Mortgage Application Index, wholesale inventories, the trade balance, initial jobless claims, import prices, business inventories, and the University of Michigan consumer sentiment.

Europe under pressure on German data and as UK banks decline

Stocks in Europe are under pressure in afternoon action, giving back some of last week’s gains, led by weakness in financials, exacerbated by media reports that the UK government is considering a windfall tax on banks as one revenue-raising option. Basic materials are also pacing the decline across that pond on weakness in commodity prices, such as gold and crude oil, and after a disappointing report from the economic front in Germany—Europe’s largest economy. German factory orders unexpectedly declined, falling 2.1% month-over-month in October—the first decline in eight months—versus the forecast of economists surveyed by Bloomberg, which called for a 0.8% increase.

In equity news, Daimler (DAI $53) is nicely higher after the luxury car maker said sales of its Mercedes-Benz unit jumped 16.4% and after it forecasted solid growth for the division for 4Q. Also, shares of Siemens (SI $94) are under pressure following the disappointing German factory data, and after Morgan Stanley downgraded shares of Europe’s largest engineering firm.

Asia mixed after Friday’s labor report

Stocks in Asia finished mixed as traders reacted to Friday’s US labor report, which pushed the dollar higher versus most major currencies on increased expectations that the Fed may move its main interest rate higher sooner than some had forecast. The stronger dollar weighed on commodity prices last week and the pullback in resources pressured Australia, as the S&P/ASX 200 Index declined 0.6%. Although the Japanese yen is gaining some ground today versus the dollar, export issues supported a 1.5% advance in Japan’s Nikkei 225 Index, as last week’s steep losses in the Japanese currency compared to the dollar lifted hopes of profits from companies that rely on sales in the US. Elsewhere, Hong Kong’s Hang Seng Index dropped 0.8%, while South Korea’s Kospi and China’s Shanghai Composited indexes both moved 0.5% higher. Meanwhile, Taiwan’s Taiex Index rose 1.6% after a report showed exports rose more than expected.

In equity news from the Asia/Pacific region, Japan Airlines (JALSY $5) posted a solid gain for the second session in a row, on the hopes that the nation’s largest air carrier may get a loan guarantee from the government. Also, shares of Hitachi (HIT $28) came under pressure after Japan’s fourth-largest company by sales announced that it sold 350.7 billion yen ($3.9 billion) in securities to help grow new business and pay off debt.