Morning Update

Dubai Support and Energy M&A Leading the Way

Amid soothed concerns about the debt of United Arab Emirate member Dubai following the $10 billion loan it received from Abu Dhabi, stocks are moving higher in morning action, with a huge M&A announcement in the energy sector offering support to sentiment on the Street. Dow member Exxon Mobil announced that it will buy XTO Energy for about $41 billion, boosting optimism about confidence resurfacing in the corporate sector and the subsequent aid to the economic recovery that may result. In other equity news, Citigroup announced measures that it will deploy to pay back $20 billion of the loans it took from the government’s TARP funds. Treasuries are higher in early action amid a dormant economic calendar, which will heat up later in the week, headlined by the two-day monetary policy meeting by the Federal Reserve. Overseas, markets are mostly higher.

As of 8:51 a.m. ET, the March S&P 500 Index Globex future is 8 points above fair value, the DJIA is 50 points above fair value, while the Nasdaq 100 Index is 10 points above fair value. Crude oil is lower by $0.59 at $69.28 per barrel, and the Bloomberg gold spot price is up $4.35 at $1,119.75 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.1% at 76.52.

Citigroup (C $4) announced that it has reached an agreement with the US government and its regulators to repay US taxpayers the $20 billion held in preferred securities that were loaned to the company through the Treasury’s Troubled Asset Relief Program (TARP) and to terminate the loss-sharing agreement with the government. The company said the securities transactions planned to facilitate the repayment include the immediate issue of $20.5 billion in capital and debt, comprised of $17 billion in common stock and $3.5 billion of tangible equity units—comprised of prepaid common stock purchase contracts and subordinated notes. Also, Citigroup will sell up to $5 billion of the common stock it holds in a concurrent secondary offering. Shares are under pressure.

In other deal making news, Dow member Exxon Mobil (XOM $73) announced that it will acquire natural gas producer XTO Energy (XTO $41) in a deal valued at $41 billion—including $10 billion in debt—aimed at enhancing XOM’s position in the development of unconventional natural gas and oil resources. The all-stock transaction will involve XOM issuing 0.7098 common shares for each common share of XTO, representing a 25% premium of XTO’s closing price on Friday. The acquisition is subject to XTO stockholder approval and regulatory clearance.

Fed meeting headlines the week’s economic calendar

Treasuries are higher in morning action as there are no major reports scheduled on today’s economic calendar. However, the week will yield plenty of reports for traders to try to determine where the global economic recovery stands.

Inflation will be in focus, beginning with tomorrow’s release of the Producer Price Index (PPI) expected to show prices at the wholesale level were up 0.8% m/m in November, after rising 0.3% in October. While food and energy are the smallest components of the inflation indexes, the volatility of their prices tends to explain a large portion of m/m changes. The core rate, which excludes food and energy, is expected to rise 0.2% after falling 0.6% the prior month. The Consumer Price Index (CPI) follows on Wednesday, anticipated to have risen 0.4% m/m in November, after increasing 0.3% October. Ex-food and energy, the core CPI rate is forecasted to have risen 0.1%, after a 0.2% increase in the prior month.

Additionally, key reports during the week will include a look at the manufacturing sector with Tuesday’s report on industrial production and capacity utilization, anticipated to increase by 0.5% m/m and rise to 71.1%, respectively. Moreover, housing will be in focus with Wednesday’s release of housing starts and building permits, with starts expected rise 9.5% to an annual rate of 579,000 units and permits forecasted to gain 3.4% to 570,000 units.

However, the keynote event on this week’s economic docket will likely be the two-day Federal Open Market Committee (FOMC) meeting, which begins tomorrow and concludes with the release of the statement mid-day Wednesday. No changes are expected to interest rate policy at the meeting. Market participants continue to watch for any clues that indicate the timing of when the Fed expects to contemplate tightening, focusing on the language used by the Fed with regard to the “extended period” for keeping rates at an exceptionally low rate.

Other releases on the US economic calendar this week include the Empire Manufacturing Index, the NAHB Housing Market Index, MBA Mortgage Applications, initial jobless claims, the Index of Leading Economic Indicators, and the Philadelphia Fed’s Business Activity Index.

Europe advancing as Dubai Debt concerns cool

Stocks in Europe are higher in afternoon action, led by financials following the announcement that Abu Dhabi will provide Dubai with $10 billion to help Dubai World—a privately-held holding company for the government of Dubai—meet upcoming debt obligations, of which over $4 billion is due today. The news helped soothe concerns that ramped up late last month after Dubai World requested a standstill on $26 billion in debt of the fund. Basic materials and technology issues are also among the best performing sectors to pace the advance across the pond. On the economic front in the European region, a report showed UK home prices fell 2.2% month-over-month in December, after declining 1.6% in November, and employment in the eurozone fell 0.5% quarter-over-quarter in 3Q. Moreover, a separate report showed eurozone industrial production declined 0.6% month-over-month in October, after gaining a downwardly revised 0.2% in the previous month and compared to the 0.7% decline that economists surveyed by Bloomberg had forecasted. In equity news, shares of Daimler (DAI $52) are higher after the maker of luxury cars and parent of Mercedes-Benz said it expects to outpace growth in China’s overall vehicle market next year and tripled production capacity at a Beijing venture as sales are expected rise.

Asia mostly higher as traders cheer Dubai debt support and mull Japanese data

Stocks in Asia finished mostly in positive territory after sentiment received some relief following the news that Dubai will receive support from Abu Dhabi to help it meet some of its debt obligations and as a key report on sentiment in the manufacturing sector in Japan sent mixed signals. The Tankan Large Manufacturers Index posted a -24 reading in 4Q, an improvement from the -33 number it reached in the previous quarter, and a better-than-expected level than the -27 that economists had forecasted. However, the negative number the Japanese manufacturing sentiment index posted continues to depict that pessimists still outweigh optimists and according to Bloomberg, the survey showed confidence among the nation’s large manufacturers increased by the smallest amount since the economy emerged from the recession. Additionally, the report noted that companies planned to reduce capital spending, which applied some pressure on the financial sector. Japan’s Nikkei 225 Index was nearly unchanged, while the country’s broader Topix Index fell 0.4%.

Meanwhile, shares in China moved higher, with Hong Kong’s Hang Seng Index increasing 0.8% and China’s Shanghai Composite Index rising 1.7%, following a report that the Chinese government will aim to slow down the pace of property price increases, by planning to “speed the construction of low-cost housing and strengthen supervision of the real estate market, according to the Bloomberg news, which cited the Xinhua news agency. Elsewhere, South Korea’s Kospi Index increased 0.5%, Australia’s S&P/ASX 200 Index gained 0.4%, while India’s BSE Sensex 30 Index dipped 0.1%. In equity news, French insurer AXA (AXA $23) and Australian asset manager AMP (AMLTY $23) increased their takeover offer for AXA Asia Pacific Holdings (AXAPF $4) by 16% to 12.9 billion Australian dollars ($11.8 billion).