Morning Market Update

Moving Higher Before Labor Data Fires

The US equity markets are higher in late-morning action, with crude oil prices remaining under the $100 per barrel mark as traders continue to deal with lingering Middle East uncertainty, while digesting a plethora of data. Treasuries remain nearly unchanged ahead of Friday’s key US labor report, following mixed personal income and spending data, upbeat regional manufacturing data, and a larger-than-forecasted drop in pending home sales. Meanwhile, equity news is being dominated by global M&A announcements, with reports suggesting Blackstone Group LP reached an agreement to acquire the US shopping center assets of Australia’s Centro Properties Group for about $9.4 billion, Ventas Inc reaching a deal to acquire Nationwide Health Properties Inc for $7.4 billion, while Australia’s Equinox Minerals Ltd offered to acquire Canada’s Lundin Mining Corp $4.9 billion. Outside of M&A, shares of Humana Inc are nicely higher after it was awarded a military contract, resulting in the company increasing its full-year EPS outlook. Overseas, Asia was mostly higher, while Europe is gaining ground despite a disappointing report from HSBC Holdings Plc.

At 10:59 a.m. ET, the Dow Jones Industrial Average is up 0.8% and the S&P 500 Index is 0.7% higher, and the Nasdaq Composite is advancing 0.4%. Crude oil is up $0.20 at $98.08 per barrel, wholesale gasoline is unchanged at $2.91 per gallon, and the Bloomberg gold spot price is increasing $3.63 to $1,414.23 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.5% at 76.92.

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 $0.14) 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 is modestly higher, while CEOPF is sharply higher.
Moreover, Ventas Inc. (VTR $55) has reached an agreement to acquire Nationwide Health Properties Inc. (NHP $42) in a stock-for-stock transaction valued at $7.4 billion, creating one of the largest publicly traded Real Estate Investment Trusts (REIT). VTR is down, while NHP is solidly higher.

Humana Inc. (HUM $66) is 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 remain nearly unchanged following the data, with the yield on the 2-year note down 2 bps at 0.70%, the yield on the 10-year note flat at 3.41%, while the 30-year bond rate is up 1 bp at 4.51%.

Europe higher despite Middle East uncertainty and disappointing financial sector results

Equity markets in Europe are gaining ground in late-day action, overcoming early sluggishness, as traders look past lingering Middle East uncertainty and disappointing results from HSBC Holdings Plc. (HBC $55), buying stocks that have been beaten down in the recent sell-off in the region. However, financials are being bogged down by a steep loss in shares of HSBC after it posted worse-than-forecasted full-year earnings and cut its profitability targets due to higher costs associated with global banking regulations that are looming on the horizon for the sector. Meanwhile, a solid gain in shares of Syngenta AG (SYENF $326) is helping stocks across the pond after the maker of agriculture chemicals received a boost from a report that India will give tax breaks to investors of the nation’s fertilizer industry, per Bloomberg. Also, Siemens AG (SMAWF $129) is gaining ground to buoy the markets after reports that it is mulling an IPO of its Osram lighting business, according to people familiar with the matter. Siemens has not commented on the matter.
In economic news 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.

The UK FTSE 100 Index is 0.2% higher, France’s CAC-40 Index is rising 1.4%, Germany’s DAX Index is rising 1.5%, and Ireland’s Irish Overall Index is advancing 0.6%.

Asia mostly higher as Japan recovers from early losses

Stocks in Asia were mostly higher, with Japan’s Nikkei 225 Index erasing early losses and finishing 0.9% higher, aided by strength in financial issues on reports of potential M&A activity in the region. Also, the Japanese economic calendar helped support sentiment, with better-than-expected retail sales data and improving small business confidence, offsetting separate reports that showed industrial production grew at a slower pace than expected and construction orders fell. Meanwhile, stocks in China also gained ground, with the Hong Kong Hang Seng Index rising 1.4% and the Shanghai Composite Index rising 0.9% despite the news that the government cut its economic growth forecast.

However, South Korea’s Kospi Index fell 1.2% on weakness in construction stocks on concerns about the economic impact of the unrest in the Middle East on the sector, while Australia’s S&P/ASX 200 Index finished 0.1% lower in a shortened session due to technical difficulties on the exchange’s computer system. But Australia’s mining sector gained ground on a rebound in copper prices and a report that Australia’s Equinox Minerals Ltd. (EQNMF $6) offered to acquire Canada’s Lundin Mining Corp. (LUNCF $7) 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). Lundin and Inmet have not commented on the offer. Finally, India’s BSE Sensex 30 Index rose 0.7% after a report showed the nation’s 4Q inflation rose at a smaller-than-forecasted rate, and after the country’s Finance Minister presented its annual budget that increased social spending by 17%, per Reuters.