Morning Market Update

Bulls Trying to Snap Selling Streak

The US equity markets are moving higher in early trading amid another light day on the economic front, as the bulls are trying to curb the recent wave of downward pressure on stocks that has come from an increase in uncertain global economic recovery sentiment. Treasuries are lower in morning action as traders await a late-day release of consumer credit and a final-hour speech from Federal Reserve Chairman Ben Bernanke. In equity news, International Paper Co announced that it has launched a hostile bid to acquire all of the outstanding shares of Temple-Inland for $30.60 per share in cash, or about $3.3 billion, while FedEx Corp reported an 8.3% increase in its quarterly dividend. Overseas, Asian markets finished mixed, with Japanese stocks rebounding from yesterday’s losses, while European equities are clinging to modest gains for the major markets as some favorable data is offsetting continued Greek debt uncertainty.

As of 8:49 a.m. ET, the June S&P 500 Index Globex future is 6 points above fair value, the Nasdaq 100 Index is 7 points above fair value, and the DJIA is 53 points above fair value. WTI crude oil is $0.53 lower at $98.48 per barrel, and the Bloomberg gold spot price is up $0.56 at $1,545.14 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.4% to 73.64.

International Paper Co. (IP $30) announced that it has proposed to acquire all of the outstanding shares of Temple-Inland (TIN $21) for $30.60 per share in cash, or about $3.3 billion, representing a premium of 46% compared to yesterday’s closing price. The Board of TIN rejected that offer, saying the proposal “grossly undervalues the company,” and IP said it is “very disappointed” with the response and is prepared to consider all alternatives to successfully complete this transaction.

FedEx Corp. (FDX $88) reported that its Board of Directors approved an 8.3% increase in its quarterly dividend to $0.13 per share, payable on July 1, 2011 to shareholders of record at the close of business on June 17, 2011.

Fed Chief Bernanke speaks and consumer credit due out in final hour of trading

Treasuries are modestly lower in morning action as the economic calendar remains light until the final hour of the trading day, with the yield on the 2-year note unchanged at 0.43%, while the yield on the 10-year note is 3 bps higher at 3.02% and the 30-year bond rate is advancing 2 bps to 4.28%.

At 3:00 p.m. ET, we will get the release of consumer credit for April, forecasted to increase $5.00 billion, after rising $6.02 billion in March.

However, the highlight of the day may come at 3:45 p.m. ET, as Federal Reserve Chairman Ben Bernanke will speak to the International Monetary Conference in Atlanta, regarding the outlook for the US economy. The recent string of softer-than-expected economic data has increased chatter about the need for further monetary stimulus from the Fed as it is set to end its asset purchase program, known as QE2, at the end of this month.

Europe mostly higher amid favorable data, but Greece uncertainty continues

The major equity markets in Europe are moving modestly higher in afternoon action as traders digest some upbeat economic data, while uncertainty regarding Greece’s debt situation continues to limit conviction. The economic calendar across the pond yielded some optimism amid the growing global economic recovery uneasiness, highlighted by a report that showed factory orders in Germany—Europe’s largest economy—rose 2.8% month-over-month (m/m) in April, after falling a favorably revised 2.7% in March, and compared to the 2.0% increase that economists had anticipated. The April year-over-year (y/y) growth rate in German factory orders came in at a 10.5% increase, versus the 9.0% gain that was projected. Also, a separate report showed eurozone retail sales rose 0.9% m/m in April, well above the 0.3% increase that was estimated, with the y/y rate coming in 1.1% higher, compared to the flat reading that economists anticipated. The reports are helping offset data that showed UK home prices increased at a smaller rate than expected. Meanwhile, stocks in Greece are under solid pressure as traders continue to grapple with an acceptable plan to help the debt-laden nation solve its fiscal crisis, with uncertainty remaining as to whether bondholders may be forced to share in the losses if any restructuring occurs, even as European Central Bank (ECB) President Jean-Claude Trichet noted yesterday that he is against imposing losses on creditors, per Bloomberg.

The UK FTSE 100 Index is up 0.1%, France’s CAC-40 Index is 0.4% higher, and Germany’s DAX Index is rising 0.5%, while Greece’s Athex Composite Index is falling 2.2%.

Asia mixed as some markets return to action

Stocks in Asia finished mixed as markets in China and South Korea traded for the first time this week after being closed for holidays yesterday, while Japanese stocks rebounded from yesterday’s solid decline. Japan’s Nikkei 225 Index rose 0.7% amid some bargain hunting of stocks that have come under pressure on the recent increase in global economic uncertainty, despite a solid decline in shares of Sony Corp. (SNE $26) after a group of hackers announced that they had hit the company’s network again. Sony did not comment on the report. The decline in shares of Sony came despite reports that it is in talks to merge its small-size liquid-crystal display (LCD) panel business segments with Toshiba Corp. (TOSYY $30), though both companies have not commented on the report. In economic news, Japan’s Leading Index declined slightly more than expected in April.

Elsewhere, Australia’s S&P/ASX 200 Index dipped 0.1% after the Reserve Bank of Australia (RBA) kept its benchmark interest rate unchanged at 4.75% for the sixth-straight meeting, noting that inflation will be close to target over the next twelve months. Also, the commodity price rise of early 2011 likely needs a breather and could result in a short-term correction. Finally, this could create a buying opportunity in commodity-rich countries, as the longer-term outlook remains strong. Meanwhile, stocks in China finished mixed, with the Shanghai Composite Index increasing 0.6% and the Hong Kong Hang Seng Index falling 0.4%. Finally, South Korea’s Kospi Index dropped 0.7%.