Morning Update

Mixed in Morning Action

As traders get back to work following a three-day holiday weekend, stocks are modestly lower in early action as the Street is digesting some M&A activity, as well as earnings reports from the financial sector, headlined by Citigroup's 4Q loss that matched expectations, while TD Ameritrade came up short of analysts' forecasts. On the M&A front, Cadbury has accepted Dow member Kraft Foods' sweetened takeover offer, and Tyco International agreed to acquire Brink's Home Security Holdings. Treasuries are lower in morning trading ahead of a read on homebuilder confidence. Overseas, Asia finished mostly lower and China tightened its interest rates for the second-straight week, while Europe is being bogged down by a disappointing economic sentiment report in the region's largest economy.

As of 8:52 a.m. ET, the March S&P 500 Index Globex future is at fair value, the Nasdaq 100 Index is 3 points above fair value, and the DJIA is 2 points below fair value. Crude oil is down $0.80 at $77.20 per barrel, and the Bloomberg gold spot price is lower by $0.05 at $1,133.55 per ounce. Elsewhere, the Dollar Index-a comparison of the US dollar to six major world currencies-is up 0.6% at 77.49.

Citigroup (C $3) reported a 4Q loss of $0.33 per share, matching the estimate of Wall Street analysts, with managed revenues of $17.9 billion, excluding a $10.1 billion pre-tax loss associated with the repayment of the government's Troubled Asset Relief Program (TARP), versus the $18.4 billion that analysts had expected. The company also said it would have lost $0.06 per share in 4Q after excluding the impact of TARP repayment. Citigroup added that its provision for loan losses in 4Q was $8.2 billion, down 36% versus the same period a year ago, and off 10% from 3Q. The company said it made "enormous progress" in 2009 as it "greatly improved" its capital strength and reduced the size and scope of the company. Citigroup had 4Q net credit losses of $7.1 billion, which was down $800 million from 3Q, and the second-straight quarter of improvement.

UK confectioner Cadbury (CBY $52) has accepted Dow member Kraft Foods' (KFT $30) sweetened takeover offer, which values CBY at nearly $19 billion, per CNBC. The deal entails KFT paying 840 pence ($13.78) for each share of CBY, including 500 pence per share in cash and the remaining being paid in KFT stock. Additionally, CBY shareholders will receive 10 pence per share as a special dividend once the deal is declared an unconditional offer. KFT revised its previous bid by about 9% and CBY shareholders have until February 2nd to accept the offer.

In other M&A news, Tyco International (TYC $38) has agreed to acquire Brink's Home Security Holdings (CFL $31), now operating as Broadview Security, for a cash and stock transaction valued at $42.50 per share or about $2 billion.

TD Ameritrade (AMTD $18) reported fiscal 1Q EPS of $0.23, missing the Street's expectation by three cents, as revenues of $625 million, was also below the $634 million forecast. AMTD said client trading volumes have decreased some from record highs, but they remain "healthy," and it said it continues to deliver strong client asset and account growth.

Homebuilder sentiment due out in the second half of trading day

Treasuries are lower in morning action as the only report on today's economic calendar is the afternoon release of the NAHB's Housing Market Index, and the gauge of homebuilder confidence is forecast to improve from 16 in December to 17 January.

The earnings calendar will lead the marquee this week, as trading is shortened due to Monday's market closure in observation of the Martin Luther King holiday, and there is a light schedule for economic data. The first major economic release is expected tomorrow, with the Producer Price Index (PPI) for the month of December, which is forecast to be flat m/m, after jumping 1.8% in November on a surge in energy prices. Excluding food and energy, the core rate is expected to rise 0.1% in December, after November's hotter-than-expected reading of 0.5% was influenced by a 4.2% increase in prices for light motor trucks and rise in cigarette prices. On a y/y basis, the headline price is expected to jump 4.5%, while the core rate is forecasted to increase a more subdued 1.0%.

Housing starts for December will also be reported on Wednesday, expected to be up a mere 0.2% m/m in December to an annual rate of 575,000, experiencing volatility around the initial expiration of the tax credit, which influenced a 10.1% drop in October and 8.9% jump in November. Building permits, one of the leading indicators tracked by the Conference Board, are forecasted to decrease 1.5% m/m after declining 4.2% m/m in October and increasing 6.9% in November. Despite new home sales falling in three of the past four months, and still low homebuilder sentiment, builders have been slowly constructing fresh supply, as inventory levels fell to very low levels in early 2009, and builders have had to transition to smaller and more affordable homes to meet consumer preferences and buying power.

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

Europe under pressure following disappointing German data

Stocks in Europe are lower in afternoon action, led by financials as key earnings reports loom for the sector, while industrials and basic materials are also among the worst performers following a another decline in economic sentiment in Germany-Europe's largest economy. The ZEW survey of economic sentiment-a gauge of expectations for the next six months-fell more than anticipated, dropping from 50.4 in December to 47.2 in January, compared to the slight drop to 50.0 that economists surveyed by Bloomberg had forecasted. The ZEW Index has deteriorated for four consecutive months. In other economic news, UK consumer prices rose more than expected month-over-month in December. Germany's DAX and France's CAC-40 indexes are down 0.6%, while the UK's FTSE 100 Index is 0.5% lower. In equity news across the pond, Cadbury is higher after the announcement that it has accepted Kraft's takeover offer, but shares of train maker Alstom (ALSMY $8) are lower after it posted 3Q sales that missed analysts' forecasts, and SABMiller (SBMRY $29) is down after the world's second-largest brewer reported beer volumes that disappointing analysts.

Asia lower but China shares gain despite more central bank tightening

Stocks in Asia were mostly lower, led by technology and financial companies amid some cautious trading as 4Q earnings season is set to ramp up, with key reports expected out of the sectors. Japan's Nikkei 225 Index decreased 0.8% as export issues paced the decline on continued strength in the Japanese yen versus the dollar, which is sitting near a one-month high compared to the greenback, to dampen the outlook for profits of companies that rely heavily on sales in the US. However, stocks in China were higher, with Hong Kong's Hang Seng Index rising 1% and the Shanghai Composite Index advanced 0.3%, as the unemployment rate in Hong Kong fell more than expected, falling to 4.9%, while the People's Bank of China conducted another government debt auction with a higher yield for the second-straight week. The nation's central bank sold one-year bills with the yield increasing by eight basis points, the highest rate in 14 months, per Bloomberg, as the country continues to try to stem excess liquidity and prevent the forming of asset bubbles. In other economic news in the region, South Korea's department store sales increased 12.5% year-over-year in December, following a 6.4% advance in November, while Japan's consumer confidence dipped from 39.9 in November to 37.9 in December. South Korea's Kospi Index declined 0.1%. Elsewhere, Australia's S&P/ASX 200 Index decreased 1%, Taiwan's Taiex Index fell 1.1%, and India's BSE Sensex 30 Index dropped 0.9%. One equity story in Asia that is worth mentioning was the much anticipated announcement that Japan Airlines (JALSY $0.52) will file for bankruptcy.