Morning Update

Bulls Licking Their Wounds, Trying to Rebound

On the heels of last week’s solid decline amid concerns about government intervention in China to cool off the economy and the White House’s pledge to reel in risk-taking in the banking industry, stocks are nicely higher in morning action. Treasuries are lower in early trading, ahead of a report on existing home sales, which will kick off a heavy week on the economic front. As 4Q earnings season continues to roll on, profit reports are a bit on the light side today with Halliburton and Quest Diagnostics both exceeding analysts’ expectations, but the earnings calendar this week will be full of major reports, especially in the tech sector. In other equity news, Wal-Mart announced that it will eliminate over 11,000 jobs at its Sam’s Clubs. Overseas, markets are mostly lower.

As of 8:38 a.m. ET, the March S&P 500 Index Globex future is 10 points above fair value, the Nasdaq 100 Index is 13 points above fair value, and the DJIA is 69 points above fair value. Crude oil is down $0.19 at $74.35 per barrel, and the Bloomberg gold spot price is higher by $2.78 at $1,095.97 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is unchanged at 78.27.

Dow member Wal-Mart (WMT $53) announced that it will eliminate more than 11,000 jobs at its Sam’s Club warehouses, most of which are part-time employees who had run in-store product demonstrations as the company will use a third party firm to conduct the demonstrations. Sam’s Club’s CEO said he did not expect any “material impact” on its financial results and he pointed out that the move is an investment in the in-club experience, stressing that the move is not a short term cost-cutting measure, per CNBC.

Halliburton (HAL $31) reported 4Q EPS ex-items of $0.28, one penny above the estimate of Wall Street analysts, with revenues up about 3% versus last quarter to $3.7 billion, slightly above the $3.6 billion that was forecasted by analysts. The energy firm said it focused on managing costs and weak global demand and volatility in the commodity markets negatively impacted the oil service industry. HAL added that revenue growth was driven by increased activity in North America, while its international results were impacted by the reduction of activity due to weather related seasonality, lower than normal equipment sales and a decrease of natural gas activity in Mexico.

Quest Diagnostics (DGX $59) announced 4Q EPS of $0.97, above the $0.96 estimate that analysts were expecting, with revenues increasing 2.7% year-over-year (y/y) to $1.8 billion, just shy of the $1.9 billion that was forecasted by the Street. The healthcare diagnostic testing company said clinical testing volume decreased by 0.3%, due to lower drugs-of-abuse testing, which is sensitive to hiring trends. Excluding the impact of drugs-of-abuse testing, volumes increased by about 0.5%. DGX said it expects 2010 EPS to be between $4.10-4.30, compared to analysts’ forecasts, which is calling for the company to report full-year earnings in 2010 of $4.20 per share.

Housing report set to kick off heavy economic week

Treasuries are lower ahead of a busy economic week, which kicks off with today’s existing home sales report, out just after the opening bell and is expected to have decreased 9.8% m/m in December to an annual rate of 5.9 million units after surging the prior three months as the initial expiration of the tax incentive loomed. Existing home sales reflect closings from contracts entered one to two months earlier, while new home sales are a more current reading on activity in the housing market, as they reflect contract signings. The new home sales report will be released on Wednesday, and is forecasted to increase 4.2% m/m in December to an annual rate of 370,000 units, after falling in three of the past four months, highlighted by an 11.3% decline in November. Tomorrow’s release of the S&P/CaseShiller Home Price Index rounds out the housing data, expected to show prices declined 5.0% y/y for November.

Durable goods orders will be reported on Thursday, expected to rise 2.0% m/m in December, building on a 0.2% gain in November, while ex-transportation, orders are forecasted to have grown 0.5% m/m, after surging 2.0% in November. This series is volatile on a month-to-month basis.

Friday brings the Advance Gross Domestic Product (GDP) report for 4Q, the first reading on the broadest measure of economic output for the period, and considered a proxy for corporate profits. The consensus forecast has been rising, now at an annualized rise of 4.6% in the quarter, after rising 2.2% in 3Q (versus the initial reading of 3.5%). Personal consumption is expected to have increased 1.8% after growing 2.8% in 3Q and the GDP Price Index is expected to have advanced 1.3%, with the core PCE Index, which excludes food and energy, also increasing 1.3%. While the report is backward-looking, it is closely watched due to its comprehensive nature and potential impact on monetary policy.

All eyes will be on the two-day Federal Open Market Committee (FOMC) meeting that concludes with the release of the statement mid-day Wednesday. No changes are expected to interest rate policy at the meeting. Market participants continue to watch for any clues that indicate the timing of when the Fed expects to contemplate tightening, focusing on the language used by the Fed with regard to the “extended period” for keeping rates at an exceptionally low rate.

Other reports on this week’s US economic calendar include the Chicago Fed National Activity Index, the Richmond Fed Manufacturing Index, the MBA Mortgage Applications Index, initial jobless claims, the Conference Board Consumer Confidence Index and the University of Michigan consumer sentiment survey. Additionally, President Obama will be giving his State of the Union speech on Wednesday night.

Europe modestly lower

Stocks in Europe are slightly below the flatline in afternoon action as weakness in healthcare and technology stocks are being limited by rebounds in financials and industrials from last week’s solid declines. There are some earnings reports across the pond that are in focus, with shares of Philips Electronics (PHG $28) are nicely higher after Europe’s largest consumer electronics maker reported 4Q earnings that exceeded analysts’ forecasts. However, the company’s CEO sounded some caution, saying that today’s economic circumstances do not allow for a reliable prediction, per Reuters. Elsewhere, shares of Ericsson (ERIC $10) are under pressure after the wireless equipment maker posted 4Q profits that missed expectations on slumping sales and restructuring costs. Britain’s FTSE 100 and France’s CAC-40 indexes are 0.1% lower, while Germany’s DAX Index is 0.4% in the red. On the economic front, a report showed a gauge of consumer confidence in Germany—Europe’s largest economy—deteriorated from last month, but came in at a level just above the consensus of economists surveyed by Bloomberg.

Asia slips as concerns linger

Stocks in Asia were broadly lower as worries over the impact of China’s possible sooner-than-anticipated monetary policy tightening—on the heels of last week’s larger-than-forecast 10.7% y/y gain in 4Q GDP—and Obama’s proposed clamp down the banking industry on the global economic recovery. Japan’s Nikkei 225 Index declined 0.7%, South Korea’s Kospi Index fell 0.8%, and Australia’s S&P/ASX 200 Index decreased 0.7% after a report showed producer prices in 4Q unexpectedly fell on a quarter-over-quarter (q/q) basis. Meanwhile, shares in China were also lower, led by banks on concerns that companies may need to shore up capital after a proposed large capital raising plan from one of the nation’s largest banking firms. Shares of Bank of China (BACHY $12) were lower after it announced that it will seek shareholder approval to issue convertible bonds to raise up to approximately 40 billion yuan to boost its capital base. The Shanghai Composite Index dropped 1.1% and Hong Kong’s Hang Seng Index finished 0.6% lower. Elsewhere, Taiwan’s Taiex Index closed 0.7% lower even after a report that showed the nation’s industrial production rose more than expected, rising 47.3% y/y in December, compared to the 40.9% that was expected by economists surveyed by Bloomberg.