Evening Market Update

Mixed Bag for Stocks and Economic Data

Traders were met with a mixed bag of results to start the week. A modest decline in crude oil prices and easing concerns over the impact of Libya’s oil production disruptions helped the blue chips to tally a session in the bulls’ column. However, weakness in technology shares pushed the Nasdaq lower midday to finish flat. Meanwhile, better-than-expected reads on a couple of regional manufacturing reports and a larger-than-forecasted gain in personal income were offset by a drop in pending home sales that exceeded expectations and only a slight uptick in personal spending. Monday’s “merger” moniker remained intact as the equity front was dominated by a number of global M&A announcements, including reports of Blackstone Group reaching an agreement to acquire the US shopping center assets of Australia’s Centro Properties Group for about $9.4 billion, Ventas striking a deal to purchase Nationwide Health Properties for $7.4 billion, and Australia’s Equinox Minerals Ltd looking to acquire Canada’s Lundin Mining Corp for $4.9 billion. In other equity news, Humana upped its guidance citing a recently-awarded military contract. Treasuries finished the day nearly flat.

The Dow Jones Industrial Average rose 96 points (0.8%) to 12,226, the S&P 500 Index gained 7 points (0.6%) to 1,327, and the Nasdaq Composite added 1 point (0.04%) to 2,782. In moderate volume, 1.2 billion shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. Crude oil lost $0.91 to $96.97 per barrel, wholesale gasoline fell $0.02 to $2.89 per gallon, while the Bloomberg gold spot price increased $1.20 to $1,411.80 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies— was 0.4% lower at 77.24.

In global M&A news, US private-equity firm Blackstone Group LP (BX $18) reached an agreement to acquire the US shopping center assets of Australia’s Centro Properties Group (CEOPF $0.22) for about $9.4 billion, according to the Wall Street Journal, which cited people familiar with the matter. None of the entities involved have commented on the report. BX finished modestly in the green, while CEOPF was sharply higher.
Moreover, Ventas Inc. (VTR $55) has reached an agreement to acquire Nationwide Health Properties Inc. (NHP $43) in a stock-for-stock transaction valued at $7.4 billion, creating one of the largest publicly traded Real Estate Investment Trusts (REIT). VTR was down, while NHP was solidly higher.

In other corporate dealmaking, Australia’s Equinox Minerals Ltd. (EQNMF $6) offered to acquire Canada’s Lundin Mining Corp. (LUNCF $8) for 4.8 billion Canadian dollars ($4.9 billion) in cash and stock. Per Dow Jones Newswires, the bid from Equinox could thwart a C$9 billion ($9.2 billion) planned merger between Lundin and Inmet Mining Corp (IEMMF $68), and Equinox CEO said “Its pretty simple: we’re a 26% premium, while the merger is a zero premium,” and the combination of Equinox and Lundin “will have one of the best profiles in the copper business.” Lundin and Inmet have not commented on the offer. EQNMF and LUNCF were higher, while IEMMF was lower.

Humana Inc. (HUM $65) finished solidly higher after it raised its full-year 2011 EPS outlook to a range of $5.95-6.15, from $5.70-5.90. The company said in light of late-Friday’s announcement from the US Department of Defense that it has awarded it the South Region TRICARE contract, the company no longer expects to incur expenses of approximately $0.25 per share associated with the loss of the contract in early 2012.

Personal income and spending mixed, housing and manufacturing data later today

Personal income rose 1.0% month-over-month (m/m) in January, well above the 0.4% gain that was expected by economists surveyed by Bloomberg, and December’s 0.4% increase was unrevised. However, personal spending was 0.2% higher m/m in January, compared to expectations of a 0.4% advance, and December’s 0.7% rise was revised to a 0.5% increase. The savings rate moved higher to 5.8% in January, after an upwardly revised 5.4% for December.

Also, the PCE Price Index, which is released with the income and spending data, was up 1.2% year-over-year (y/y) in January, below expectations calling for a 1.3% advance, after December’s 1.2% increase was unrevised. The core PCE Price Index, which excludes food and energy, was up 0.1% m/m, matching expectations, while y/y, core prices moved 0.8% higher, inline with the consensus estimate.

Meanwhile, pending home sales fell more than expected, declining 2.8% m/m in January, compared to the decrease of 2.3% that economists were anticipating. Also, December’s 2.0% increase was revised to a decline of 3.2%, and compared to last year, the gauge of the pipeline of existing home sales is down 4.4%, after falling a downwardly revised 3.3% in December. The decline in sales came courtesy of a 7.3% m/m drop in the Midwest, a 5.2% decrease in the West, and a 2.4% fall in the Northeast, offsetting a 1.4% rise in the South.

In other economic news, we received a look at some regional business activity reports, with the Chicago Purchasing Managers Index unexpectedly rising, increasing from an unrevised 68.8 in January, to 71.2 in February—the highest since July 1988—compared to the decline to 67.5 that economists had expected. A reading above 50 denotes expansion in activity. Production posted a solid gain, rising from 73.7 to 78.2 to help the surprising increase, along with modest increases in new orders and order backlogs, while prices paid declined slightly and employment decreased. Also, the Dallas Fed Manufacturing Activity Index rose more than forecasted, rising from an unrevised 10.9 in January to 17.5 in February, compared to the 13.0 level that economists forecasted. A reading above zero denotes expansion.

Treasuries finished mostly unchanged following the data, with the yield on the 2-year note down 1 bp at 0.69%, the yield on the 10-year note up 1 bp to 3.42% and the 30-year bond yield down 1 bp at 4.49%.

Mixed economic results overseas, Middle East concerns cool

Investors overseas were able to least shift some of the focus off of the lingering uncertainty in the Middle East and look more to economic and equity reports in the region, helping to buoy sentiment. On the economic front in Europe, German import prices rose more than expected, producer prices in France increased at a level matching expectations, while euro-zone consumer prices gained at a y/y rate that was slightly below economists’ forecasts, after prices fell more than projected on a m/m basis. In other news, Ireland’s Parliament held an election over the weekend, with the nation’s ruling party being defeated by the Fine Gael party, though the reaction was modest as it was widely expected.

Despite the Chinese government cutting its economic growth forecast, sentiment in the Asia/Pacific region was also mostly positive, aided by the Japanese economic calendar where better-than-expected retail sales data and improving small business confidence offset separate reports that showed industrial production grew at a slower pace than expected and construction orders fell. Elsewhere, India reported 4Q inflation that rose at a smaller-than-forecasted rate, and the country’s Finance Minister presented its annual budget that increased social spending by 17%, per Reuters.

Plethora of global manufacturing data, Bernanke on tap

Tomorrow, the US economic calendar will yield the release of the ISM Manufacturing Index, forecasted to improve slightly from 60.8 in January, to 61.0 in February. Manufacturing activity has improved for several months—forecasted to post the nineteenth-consecutive month of expansion in February—but the focus on tomorrow’s report will likely be on the Prices Paid Index and employment component, given the recent flare-up in inflation concerns and as the employment situation remains a disappointment at the Federal Reserve. The employment component of January’s release rose to the highest level since 1973 and the prices paid component jumped to the highest level since July 2008.

As well, construction spending will be released, forecast to fall 0.5% m/m in January, and Federal Reserve Chairman Ben Bernanke will deliver his monetary policy report in front of the Senate Banking Committee beginning at 10 a.m. ET.

Tomorrow’s international economic calendar will have a number of reports for traders to peruse, including manufacturing PMI figures from France, Italy, Germany, the UK and the euro-zone, German unemployment, euro-zone CPI and unemployment, Italian CPI, consumer credit, housing prices and mortgage approvals out of the UK, and Swedish 4Q GDP. Further east, China will release two measures of PMI manufacturing as well as 4Q GDP, South Korea, Indonesia and India report their respective trade balances, while Japan will release employment figures, personal income and retail sales, and Australia will offer retail trade data. In central Bank action, the Bank of Canada will conclude its monetary policy meeting and announce its interest decision, where it is widely expected to maintain its benchmark overnight target rate at 1.0%.