Morning Market Update

Modestly Lower Amid Light News

Stocks are poised to open lower, while the day’s action may be characterized by quadruple witching, wherein futures and options on stocks and indexes expire. The global economic picture is dominated by the European bank situation, after the EU said individual bank stress tests will be released next month and there are no US economic releases on today’s docket. In equity news, CVS Caremark and Walgreen Co announced a new contract for continued participation by Walgreen in CVS Caremark’s pharmacy network, the Wall Street Journal is reporting that Motorola will pump cash into a cell phone spinoff, and Qualcomm is under a new antitrust investigation by the European Commission. Treasuries are lower and overseas markets are mixed.

As of 8:42 a.m. ET, the September S&P 500 Index Globex future is 1 point below fair value, the Nasdaq 100 Index is 2 points below fair value, and the DJIA is 18 points below fair value. Crude oil is down $0.82 at $75.97 per barrel, and the Bloomberg gold spot price is up $12.55 at $1,257.70 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is flat at 85.72.

CVS Caremark (CVS $32) and Walgreen Co (WAG $29) are higher after the two companies announced they reached an agreement on terms under which Walgreen will continue participating in the CVS Caremark pharmacy benefit management national retail network for existing, new or renewal plans, although financial terms of the new contract were not disclosed.

The Wall Street Journal is reporting that Motorola (MOT $7) is planning to buy back most of its debt and give the bulk of its remaining cash reserves, roughly $3-4 billion, to a new division centered on the mobile phone business, citing people familiar with the matter, while the company spokeswoman declined to comment on specific plans. The new division would also include the cable set-top box business and be called Motorola Mobility, while the remaining company would be called Motorola Solutions.

Qualcomm (QCOM $36) said it is facing a new antitrust investigation by the European Commission, just months after the Commission withdrew a previous four-year antitrust probe. The new complaint is based on allegations from UK wireless chip maker Icera and Dow Jones is reporting the issue appears to be related to how QCOM links patents from other companies to its own patent offering as a means of increasing its sales.

Lack of US data puts economic focus on global recovery picture

Treasuries are lower as traders continue to digest a week of mixed economic data, although some stability in Europe buoyed confidence, and there are no US economic releases scheduled for today.

European shares fluctuate

Stocks in Europe are mixed, with banks advancing, while shares of drug companies are lower. Financials are gaining ground after the European Union yesterday said it would release the results of stress tests on Europe’s 25 largest banks in the second half of July, “at the latest,” according to ECB President Trichet, although investors are divided on whether the tests are tough enough. German Chancellor Angela Merkel said it was important to give “maximum transparency,” and when asked what action would be taken if the tests revealed shortcomings, she said the EU has “taken precautions,” including the 750 billion euro rescue package. In the ongoing fallout from the Gulf oil spill, BP Plc (BP $32) is higher after CEO Tony Hayward faced strong criticism in a long testimony before the US Congress yesterday, highlighted by the revelation of over 760 safety violations in the past half decade and calls of “stonewalling” by the CEO, and today Moody’s Investor Service became the third agency to downgrade the company’s credit rating this week.

In equity news, healthcare issues are in focus after Roche (RHHBY $36) said it expects to delay a diabetes drug by at least 12 to 18 months after safety concerns were raised in a Phase III study, and a new report in Diabetes Care said that Sanofi-Aventis SA’s (SNY $31) Lantus diabetes drug may raise the risk of cancer, while the company said evidence so far was “unclear” and the recent study “lacks precision.” Elsewhere, shares of automakers rose after Porsche (POAHY $4) said it expects a smaller full-year loss.

In economic news, the UK reported a smaller-than-expected fiscal deficit and a report showed mortgage approvals rose more than forecast, while Italian industrial orders came in above estimates.

The UK FTSE 100 Index and Germany’s DAX Index are up 0.1%, France’s CAC-40 Index is down 0.3%, Spain’s IBEX 35 Index is gaining 1.0%, and Italy’s FTSE MIB Index is flat.

Markets in Asia mixed

Stocks in Asia were mixed, with Japanese exporters falling as the yen continued to strengthen, getting a boost after the new Japanese administration pledged to cut public debt and Prime Minister Kan said he’d consider an opposition party proposal to raise the consumption tax, while the Nikkei 225 Index ended the session nearly unchanged. Resources names rose after commodities, particularly gold, gained ground, prompting a 0.5% gain in the Australian S&P/ASX 200 Index. Softbank rose after the exclusive provider of Apple Inc’s (AAPL $272) iPhone in Japan said orders for the new model outstripped supply, and other companies in the cell phone supply chain also advanced. However, Japanese consumer lenders and banks fell as a stricter lending rule was announced, which caps interest rates at 20% and prohibits lending to borrowers with consumer debt equal to a third or more of their annual income.

Chinese markets were mixed, with the Hong Kong Hang Seng Index increasing 0.7%, while the Shanghai Composite Index fell 1.8%. In Hong Kong, Henderson Land Development (HLDCY $6) fell after the government said regulatory and law enforcement authorities are “looking into and following up on“ 20 canceled apartment sales that the property developer said yesterday would result in the company taking a $94 million charge. Shares of Tencent, China’s largest internet company by market value, rose after China Business news said the company signed a memorandum of understanding with Cisco Systems (CSCO $23) to jointly develop data and communications services in China, while the companies have not commented. Health care companies in China fell, after the National Development and Reform Commission said it will draw up a plan to curb “substantial” gains in medicine prices and curb profiteering. Elsewhere, India’s BSE Sensex 30 Index fell 0.3% and Korea’s Kospi Index gained 0.5%.