Evening Market Update

Rangebound Start to the Week

US equities traded in a tight range and finished mixed to start the week, as optimism over a number of M&A announcements and a report showing that Chinese international trade soared were offset by concerns over rising inflationary pressures. Headlining the day’s corporate deal-making was Dow member General Electric’s announcement that it will purchase the Well Support division of UK-based John Wood Group for about $2.8 billion, EchoStar agreed to buy Hughes Communications in a deal valued at roughly $2 billion, and Emergency Medical Services will be acquired by private equity firm Clayton, Dubilier & Rice LLC for about $3.2 billion. Elsewhere on the equity front, Dow member Boeing revealed its new 747-8 passenger jetliner, while MGM Resorts International posted a loss that was less than expected, but said revenues declined. Treasuries finished mostly flat as there were no major economic reports scheduled today.

The Dow Jones Industrial Average fell 5 points (0.04%) to 12,268, the S&P 500 Index gained 3 points (0.2%) to 1,332, and the Nasdaq Composite added 8 points (0.3%) to 2,817. In moderately light volume, 817 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. Crude oil fell $0.77 to $84.81 per barrel, while wholesale gasoline gained $0.05 to $2.52 per gallon, and the Bloomberg gold spot price rose $5.40 to $1,362.45 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies— rose 0.2% to 78.60.

Dow member General Electric Co.  (GE $21 ¹) announced that its oil & gas unit has entered into an agreement to acquire the Well Support division of UK-based John Wood Group Plc. (WDGJF $10) for approximately $2.8 billion. GE said the deal, which is expected to close later in 2011, provides it with entry into the fast growing demand for enhanced oil recovery from mature oil fields and expands its offering in unconventional oil and gas production, with significant applications for shale gas production. GE gained ground, while John Wood Group traded sharply higher overseas.
Fellow Dow component Boeing Co. (BA $72 ¹) unveiled its new 747-8 Intercontinental high-capacity passenger airplane. The aerospace company said the new aircraft offers airlines the lowest operating costs and best economics of any large passenger airplane while providing enhanced environmental performance. Shares were lower.

In other M&A news, satellite solutions and technology company EchoStar Corp. (SATS $31) reached an agreement to acquire broadband satellite technologies firm Hughes Communications Inc. (HUGH $59), valued at about $2 billion, including debt. Under the terms of the deal, HUGH shareholders will receive $60.70 per share and is expected to be closed later this year. SATS is higher, while HUGH is trading lower. Moreover, private equity firm, Clayton, Dubilier & Rice LLC announced that one of its affiliates reached an agreement to acquire Emergency Medical Services Corp. (EMS $63) for $64.00 per share in cash, in a deal valued at about $3.2 billion, including debt. EMS traded solidly lower as the deal price was below Friday’s closing price.

In earnings news, MGM Resorts International (MGM $15) reported a 4Q net loss ex-items of $0.20 per share, compared to the $0.22 per share shortfall that analysts surveyed by Reuters had forecasted. Revenues declined 1% year-over-year (y/y) to $1.5 billion, roughly inline with the Street’s forecast. The company said casino revenue decreased 3% y/y and hotel room revenue decreased 5% y/y, with revenue per available room (REVPAR) declining 2% as Las Vegas Strip occupancy declined. Looking ahead, the company said it is encouraged in early 2011 by the level of business activity it is seeing and its forward booking pace is currently ahead of last year, led by a stronger convention mix, which it believes will position the company to have a better year than last. Shares were solidly lower.

Light day ahead of the week’s economic fray

Treasurieswere mostly higher as there were no major economic reports due out today, with the yield on the two-year note flat at 0.85%, while the yields on the 10-year note and the 30-year bond declined 1 bp to 3.63% and 4.68%, respectively.

However, readings on a wide swath of the economy will be reported this week, beginning with advance retail sales tomorrow, forecasted to post a 0.5% month-over-month (m/m) gain in January, while sales ex-autos are also estimated to grow 0.5%, the same pace as in December. Same-store sales results - sales at stores open at least a year - reported by retailers were better than expected, despite poor weather.

Also on tomorrow’s US economic docket will be the Import Price Index, with economists forecasting a 0.8% m/m increase in January, following a 1.1% rise in December, business inventories, expected to move 0.7% higher in December, and the NAHB Housing Market Index, which economists are anticipating to remain at a level of 16 during February.

Chinese data lifts optimism

A report out of China showed that the nation’s exports jumped 37.7% year-over-year (y/y) in January, compared to the 22.5% increase that economists had expected, while imports surged 51.0% y/y, versus the 27.0% rise that was projected. Economic growth optimism resulting from the report outweighed concerns about the data forcing further monetary policy tightening by the Chinese central bank, but all eyes will be on tomorrow’s release of China’s Consumer Price Index, forecasted to accelerate from 4.6% y/y growth to a rate of 5.4%. China will also report PPI figures.

Meanwhile, Japan’s 4Q GDP contracted by a smaller rate than expected, declining 0.3% quarter-over-quarter (q/q)—versus the 0.5% contraction that was anticipated—to an annualized 1.1% drop, compared to the 2.0% decline that was projected. Elsewhere, Australian home loans grew more than two times the forecast of economists, and India’s wholesale prices decelerated in January.

Economic news in Europe was light, with a report showing euro-zone industrial production unexpectedly declined m/m in December being the lone release in the region.

Tomorrow’s international economic calendar will be chock full of reports for traders to digest, including: Italy’s trade balance, CPI from Spain, retail sales and CPI from the UK, the German ZEW survey, the euro-zone’s trade balance. As well, 4Q GDP figures from France, Italy, Germany and the euro-zone will be released. Further east, in addition to the Chinese inflation reports, Japan will release industrial production.