Morning Market Update

Solid Start to the Week on M&A and After Air Strikes on Libya

The US equity markets are nicely higher in morning action, beginning the week on a positive note, led by a major M&A announcement in the telecom sector and some relative optimism of progress in Japan’s ability to avoid a nuclear meltdown. Moreover, multiple air strikes on Libya by a US and European led coalition are driving oil prices higher, but appear to have thwarted Libyan leader Qaddafi’s advance into rebel territory. Oil prices are higher, while Treasuries are lower amid the advance in stocks, ahead of a report on existing home sales. In equity news, Dow member AT&T Inc announced that it has reached an agreement to acquire T-Mobile USA from Germany’s Deutsche Telekom in a cash-and-stock transaction worth about $39 billion. Elsewhere, Citigroup Inc announced a 1-for-10 reverse split and said it will reinstate its quarterly dividend, while Tiffany & Co posted earnings that exceeded expectations. Overseas, Asia was higher, but Japanese markets were closed for a holiday, while European equities are gaining solid ground.

As of 8:51 a.m. ET, the June S&P 500 Index Globex future is 15 points above fair value, the Nasdaq 100 Index is 30 points above fair value, and the DJIA is 121 points above fair value. WTI crude oil is $2.03 higher at $103.88 per barrel, and the Bloomberg gold spot price is up $15.01 at $1,433.91 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.1% at 75.54.

Dow member AT&T Inc. (T $28) announced that it has reached a definitive agreement to acquire T-Mobile USA from Deutsche Telekom AG (DTEGY $14) in a cash-and-stock transaction currently valued at approximately $39 billion. AT&T will pay $25 billion in cash and the rest in stock. The companies said the deal provides an optimal combination of network assets to add capacity sooner than any alternative, and it provides an opportunity to improve network quality in the near term for both companies’ customers. As part of the transaction, Deutsche Telekom will receive an equity stake in AT&T that would give it an ownership interest in AT&T of approximately 8% and a Deutsche Telekom representative will join the AT&T Board of Directors. The acquisition is subject to regulatory approvals.

Citigroup Inc. (C $5) announced a 1-for-10 reverse split of its common stock and that it intends to reinstate a quarterly dividend of $0.01 per share in the 2Q 2011, following the effective date of the reverse stock split, which it expects to be after the close of trading on May 6, 2011. The company’s CEO Vikram Pandit said, “Citi is a fundamentally different company that it was three year ago.”

Tiffany & Co. (TIF $57) reported 4Q EPS ex-items of $1.44, above the $1.40 consensus estimate of analysts surveyed by Reuters, with revenues rising 12% year-over-year (y/y) to $1.1 billion, roughly inline with the Street’s expectations. Same-store sales—sales at stores open at least a year—increased 9% y/y, due to better holiday sales than it had previously reported and growth in all geographic regions. The company issued full-year 2011 guidance that topped expectations.

Existing home sales kick off the week’s data

Shortly after the opening bell, the economic calendar will yield the release of existing home sales, forecasted to decline 4.7% month-over-month (m/m) in February to an annual rate of 5.11 million units, following January’s 2.7% increase to a rate of 5.36 million units. Treasuries are lower in morning action as stocks are advancing, with the yields on the 2-year and 10-year notes 3 bps higher to 0.62% and 3.30%, respectively, and the 30-year bond yield gaining 2 bps to 4.43%.

Today’s housing data will be the first look at home sales in February, followed by Wednesday’s release of new home sales, which calculates sales of single-family homes based on signings instead of closings, considered a more timely indicator of conditions in the housing market, expected to gain 2.1% to an annual rate of 290,000 after falling by 12.6% m/m to 284,000 in January.

However, Friday’s final reading of 4Q gross domestic product (GDP) will likely be the headlining release, forecasted to be revised up to 3.0% from a 2.8% quarter-over-quarter (q/q) annualized rate, an acceleration from the 2.6% rate experienced in 3Q. No change is expected to the all-important personal consumption component, which was last reported at a 4.1% q/q rate for 4Q. Inflation readings are also expected to be unchanged, with the GDP Price Index coming in at a 0.4% gain, and the core PCE Index, which excludes food and energy, reporting an increase of 0.5%.

Other releases on this week’s US economic calendar include: the volatile durable goods orders report, the Richmond Fed Manufacturing Index, the MBA Mortgage Applications Index, weekly initial jobless claims, and thefinal University of Michigan Consumer Sentiment Index reading for March.

M&A and relative Japanese nuclear optimism helping Europe move nicely higher

The equity markets in Europe are solidly higher across the board in afternoon action, with some easing of concerns about a nuclear meltdown in Japan and a major M&A deal between the US and Germany helping support sentiment. Telecom issues are leading the broad-based advance, with shares of Deutsche Telekom sharply higher on its deal to sell T-Mobile USA to AT&T Inc. for $39 billion. However, uncertainty regarding stability in the Middle East and North Africa continues to command attention in the wake of a second wave of US and European led coalition airstrikes on Libya, which crippled Qaddafi’s military and hampered an advance into rebel territory. Oil prices are moving higher.

Meanwhile, the European economic calendar remains light, with the only piece of data worth mentioning being a reading on UK home prices gaining 0.8% m/m in March, after jumping 3.1% in February.

The UK FTSE 100 Index is 1.2% higher, while France’s CAC-40 Index and Germany’s DAX Index are rising 2.0%.

Asia moves higher as Libya air strikes and Japan tragedy remained in focus

Stocks in Asia moved higher in a relatively lighter-than-usual session, with no major economic reports released today, while Japanese markets were closed for a holiday. However, the tragedy in Japan following the massive earthquake and tsunami that hit the Northeast region of the nation continues to be in focus, with amplified attention remaining on the damaged nuclear facility north of Tokyo. Japan continues to try to cool nuclear reactors at the facility to avoid a meltdown, with some relative signs of progress made, and Japanese Prime Minister Kan said he can see “light at the end of the tunnel,” per Bloomberg. Also, US-European led airstrikes on Libya over the weekend had traders eying the prices of oil and trying to gauge what lies ahead for the Libyan leadership and stability in the Middle East and North African region. Stocks in China finished higher, with the Shanghai Composite Index rising 0.1% and the Hong Kong Hang Seng Index gaining 1.7% on the heels of Friday’s banking sector reserve rate requirement increase by the government. Meanwhile, South Korea’s Kospi Index increased 1.1% and Australia’s S&P/ASX 200 Index rose 0.4%.