Evening Market Update

Stocks Lower as Investors Assess Quake Impact

While well off the worst levels of the day, stocks began the week lower as investors continue to assess the ripple affects of the devastating earthquake and tsunami that hit Japan. Heightened anxiety over a possible nuclear meltdown in the region added to the negative tone, as did the shutdown of a number of Japanese companies as a result of power shortages. Amid the disarray, the Bank of Japan announced it will double the size of its asset purchase program and inject trillions of yen into the money markets in order to alleviate liquidity concerns. Meanwhile, news on the equity front was in short supply as traders focused on the disaster in Japan, with Berkshire Hathaway’s $9 billion acquisition of specialty chemical company Lubrizol being one of the only items of note. Treasuries were higher amid the weakness in the equity markets and as there were no major US economic reports scheduled for release today.

The Dow Jones Industrial Average lost 51 points (0.4%) to 11,993, the S&P 500 Index fell 8 points (0.6%) to 1,296, and the Nasdaq Composite dedclined 15 points (0.5%) to 2,701. In lighter volume, 964 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.03 to $101.19 per barrel, wholesale gasoline fell $0.03 to $2.96 per gallon, while the Bloomberg gold spot price increased $6.45 to $1,423.90 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies— lost 0.5% to 76.31.

Berkshire Hathaway Inc. (BRK/B $85) announced that it has reached an agreement to acquire specialty chemical company Lubrizol Corp. (LZ $135) for $135 per share in an all-cash transaction, valued at about $9.7 billion, including $700 million in debt. Berkshire Hathaway CEO Warren Buffett said the maker of lubricant additives for engine oils, “is exactly the sort of company with which we love to partner,” and Lubrizol CEO James Hambrick added that the deal “provides compelling value to our shareholders.” LZ finished over 27% higher, while BRK/B was lower.

US economic calendar light, keeping focus on Japan

Treasuries finished higher as the attention was focused on Japan following Friday’s massive earthquake and devastating tsunami, and as there were no major US economic reports scheduled for today. The yields on the 2-year and 10-year notes were 4 bps lower to 0.60% and 3.37%, respectively, and the 30-year bond yield was down 1 bp at 4.54%.

Japan disaster at the forefront, euro-zone leaders reach agreement

Japanese markets fell sharply as the nation continues to assess the damage caused by Friday’s magnitude 8.9 earthquake and resulting tsunami that hit the nation’s northeast region, while also eying the efforts to avoid a meltdown at a Japanese nuclear power plant following multiple hydrogen explosions at the facility in Fukushima. Reuters is reporting that officials are saying containment walls surrounding the radioactive cores of the damaged reactors appear to be intact, and people have been evacuated from the area. Meanwhile a plethora of major companies in the nation halted production amid power shortages.

In response to the natural disaster, the Bank of Japan (BoJ) held a shortened policy meeting and announced that it will double the size of its asset purchase program to 10 trillion yen and will pump 15 trillion yen into money markets to try to alleviate liquidity concerns. The BoJ said the actions are aimed at “preempting a deterioration in business sentiment and an increase in risk aversion in the financial markets from adversely affecting economic activity.”

Across the pond, while focus remained on the disaster in Japan and its impending global impact, European Union (EU) leaders met over the weekend to discuss the region’s debt crisis. Euro-zone leaders announced that they will allow the lending capacity of its bailout fund—the European Financial Stability Facility (EFSF)—to be raised from the previously agreed capped amount of 250 billion euros to its full capability of 440 billion euros. Also, EU leaders agreed to cut costs of loans made to the recently bailed out nation of Greece. However, the arrangement needs final approval at the EU summit set for March 24-25. The announcement sent bond yields of troubled euro-area nations lower.

The focus on the earthquake in Japan and the agreement among European leaders overshadowed the economic front across the pond, but a larger-than-forecasted y/y increase in euro-zone industrial production deserved a mention.

FOMC meeting on tap

Tomorrow’s one-day Federal Open Market Committee (FOMC) meeting and midday statement that concludes the meeting will likely divert some attention away from the events in Japan. No changes are expected to the fed funds target rate, currently at a level between 0-0.25%, or to the $600 billion asset purchase program, commonly known as quantitative easing, or QE2. Oil prices have spiked since the last meeting held January 25 and there have been indications of future strengthening in the job market.

Other releases on the US economic calendar include: the Empire Manufacturing Index, expected to rise to a level of 16.35 in March from the 15.43 reported in February, the Import Price Index, forecast to rise 0.9% m/m in February following a 1.5% increase in January, and the NAHB Housing Market Index, where economists anticipate the gauge of homebuilder sentiment to eke out a small gain to 17 for March from 16 the month prior.

Tomorrow’s international calendar will remain very light with the only major report being the German Zew Economic Sentiment Survey.