Morning Market Update

Stocks Advance before Fed Chief Gives Monetary Policy Stance

The US equity markets are higher in early action as traders digest a plethora of manufacturing reports across the globe, headlined by a deceleration in activity out of China. However, the US ISM Manufacturing Index will be released after the opening bell. Treasuries are lower as stocks are gaining ground, but traders are treading cautiously before Fed Chairman Ben Bernanke takes to Capitol Hill to provide his semiannual testimony on monetary policy. Also, construction spending will be reported later this morning. Equity news is relatively light, with Dow member JPMorgan Chase & Co, as well as Goldman Sachs, reporting that costs associated with legal proceedings could reach several billion dollars, while AutoZone posted better-than-forecasted earnings and revenues. Overseas, Asia moved higher despite the slower manufacturing activity out of China, while Europe is mixed after a slew of data was reported across the pond.

As of 8:50 a.m. ET, the March S&P 500 Index Globex future is 4 points above fair value, the Nasdaq 100 Index is 8 points above fair value, and the DJIA is 23 points above fair value. Crude oil is $0.83 higher at $97.80 per barrel, and the Bloomberg gold spot price is up $8.45 at $1,419.93 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is flat at 76.88.

Dow member JPMorgan Chase & Co. (JPM $47) reported in an annual filing with the Securities and Exchange Commission (SEC) that the estimated aggregate range of possible losses in excess of its reserves for its legal proceedings could reach $4.5 billion, based on current information. According to the filling, JPM is involved in more than 10,000 legal proceedings. The announcement comes as the banking industry faces lawsuits regarding the financial crisis and housing market collapse, and Goldman Sachs Group Inc. (GS $164) reported that litigation losses of up to $3.4 billion is “reasonably possible.” GS also reported that it had 25 days in 2010 where its traders either made no money or lost money, with trading in 4Q being the weakest period of the year.

AutoZone Inc. (AZO $258) reported fiscal 2Q EPS of $3.34, above the $3.06 consensus estimate of analysts surveyed by Reuters, with revenues growing 10.3% year-over-year (y/y) to $1.7 billion, compared to the $1.6 billion that the Street was looking for. The auto parts retailer said its US same-store sales—sales at stores open at least a year—rose 7.1% y/y.

Manufacturing read and Fed Chairman’s testimony headline economic docket

Treasuries are lower in morning action as there are no economic releases ahead of the opening bell, with the yield on the two-year note up 2 bps to 0.70%, the yield on the 10-year note is 4 bps higher at 3.47%, and the 30-year bond yield gaining 2 bps to 4.53%.

Traders are awaiting two key economic events, beginning with the release of the ISM Manufacturing Index, forecasted to improve slightly from 60.8 in January, to 61.0 in February. Manufacturing activity is forecasted to post the nineteenth-consecutive month of expansion in February but the focus on today’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.

Rounding out the economic day, construction spending will be released this morning, forecasted to decline 0.4% month-over-month (m/m) in January, after falling 2.5% in December.

Europe mixed as traders sift through a plethora of data

Stocks in Europe have pared an early advance and are mixed in afternoon action with traders digesting a slew of economic data in the region. German stocks are gaining ground, as data out of Europe’s largest economy came in better than what economists had forecasted and the European Commission (EC) increased its 2011 economic growth forecast. Germany’s unemployment change fell by 52,000 in February, compared to the decline of 18,000 that was anticipated, while a separate report showed manufacturing activity was unexpectedly revised higher. The German manufacturing data headlined a plethora of activity reports across the pond, with Italy, France, and the UK all posting higher levels of expansion in the sector. Elsewhere, Italy reported a stronger-than-forecasted annual GDP and hotter-than-anticipated consumer prices. Meanwhile, the UK showed some favorable housing data, with the region’s mortgage approvals rising by an amount that exceeded expectations. However, gains in Europe are being limited by inflation concerns, with the euro-zone Consumer Price Index increasing at a rate of 2.4% y/y in February, while the aforementioned economic growth projection from the EC included comments that higher oil and commodity prices could keep inflation above the European Central Bank’s limit for most of the year, according to Bloomberg.

The UK FTSE 100 Index is 0.1% lower, France’s CAC-40 Index is gaining 0.1%, Germany’s DAX Index is advancing 0.4%, and Italy’s FTSE MIB Index is flat.

Asia gains as oil prices wane and traders digest Chinese manufacturing data

The equity markets in Asia were mostly higher as oil prices weakened with concerns in the Middle East easing somewhat, and following the gains posted in the US overnight. The Nikkei 225 Index rose 1.2%, with the Japanese yen declining amid the subdued sentiment toward the Middle East crisis, helping lift export issues. Meanwhile, the economic calendar in the region was focused on manufacturing activity, mainly out of China, with two separate reports showing decelerations as China has deployed several measures to control inflation and the formation of asset bubbles. Despite the slowing activity, the reaction was mostly positive as the data suggested the government may not remain as aggressive with its policy tightening measures. The Shanghai Composite Index rose 0.5% and the Hong Kong Hang Seng Index increased 0.3%, with the advance being limited by a solid decline in shares of HSBC Holdings (HBC $55) following its disappointing earnings report yesterday, which included a reduced profitability outlook. Moreover, India’s BSE Sensex 30 Index jumped 3.5% following a report showing a solid increase in the nation’s manufacturing activity. However, stocks in Australia moved lower, with the S&P/ASX 200 Index declining 0.1%, following data that showed the nation’s 4Q trade deficit was wider than expected and its retail sales grew at a slower pace than forecasted. Meanwhile, markets in South Korea were closed for a holiday.