Morning Update

Personal Income Tops Forecasts, Bulls Looking to Rebound

After another disappointing week despite a larger-than-expected gain in 4Q GDP on Friday, the bulls are looking to repair some of the damaged sentiment amid continued worries about China’s efforts to slow down growth and festering fears about the health of sovereign debt in the Eurozone. Stocks are higher in early action, following a better-than-expected earnings release from Dow member Exxon Mobil and after a report that showed personal income rose slightly more than forecasted. Treasuries are lower on the advance in the equity markets but a major report on manufacturing activity is due out later this morning and could extend or diminish the early gains in the markets. In other equity news, Humana matched the Street’s profit projections, while its revenues came in a bit light, but it raised its full-year profit outlook. Overseas, stocks in Asia were mixed amid a flood of economic data, headlined by manufacturing reports in China, which showed continued expansion, but the reports are stoking concerns that the Chinese government may be forced to ramp up its efforts to rein in excess liquidity. Meanwhile, Europe is mixed as traders are digesting a plethora of manufacturing reports in the Eurozone.

As of 8:53 a.m. ET, the March S&P 500 Index Globex future is 6 points above fair value, the Nasdaq 100 Index is 5 points above fair value, and the DJIA is 52 points above fair value. Crude oil is up $0.59 at $73.48 per barrel, and the Bloomberg gold spot price is higher by $6.53 at $1,087.38 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.3% at 79.25.

Dow member Exxon Mobil (XOM $64) reported 4Q EPS ex-items of $1.27, compared to the $1.19 that Wall Street analysts were anticipating, with revenues coming in at $89.8 billion, topping the $86.2 billion that the Street was expecting.

Humana Inc. (HUM $49) announced 4Q EPS of $1.48, matching the estimate of analysts, with revenues rising 2% year-over-year (y/y) to $7.6 billion, compared to the $7.8 billion that the Street was expecting. HUM said its total premium and administrative service fees rose 2% y/y, reflecting an increase in both average Medicare advantage membership and per-member premiums, which were “substantially” offset by declines in average commercial medical membership. HUM raised its full-year 2010 EPS forecast.

Personal income and spending increase, key read on manufacturing on deck

Personal income was 0.4% higher in December, above the Bloomberg estimate of 0.3%, and November was revised from a 0.4% gain to a 0.5% rise. Personal spending increased 0.2% in December, versus the 0.3% Bloomberg expectation, while November’s 0.5% increase was upwardly revised to a 0.7% gain. The savings rate rose to 4.8%, after a downwardly revised 4.5% in December.

Also, the PCE Price Index, which is released with the income and spending data, increased 2.1% year-over-year in December, compared to the consensus forecast of 2.2%, and November’s 1.5% rise was left unrevised. The core PCE Price Index, which excludes food and energy, was 0.1% higher, inline with expectations. Year-over-year, core prices moved 1.5% higher, also matching the consensus of economists surveyed by Bloomberg. Treasuries remain lower following the income and spending data.

Later this morning, the economic calendar will yield the ISM Manufacturing Index, forecasted to fall modestly to 55.5 in January from 55.9 in December, which would indicate the sixth month of expansion in the manufacturing sector. Last month this index was surprisingly strong, increasing more than expected on a surge in orders and employment strength, while the ISM Non-Manufacturing Index yet again missed to the downside, but moved back into expansion territory, at 50.1, and January’s reading anticipated on Wednesday is forecasted to rise further, to 51.0. Manufacturing has been stronger on export strength while the service sector is more domestic-driven and has been more volatile on a month-to-month basis, suffering from the weak state of consumer spending in the US.

Also, construction spending for December will be released just after the opening bell, expected to decline 0.5%, after falling 0.6% in November.

Employment data will likely dominate the economic front as key reports will come out this week, beginning with Wednesday’s ADP Employment Change Report, where the forecast is that private sector employers shed 40,000 jobs in January after declining by 84,000 in December. The ADP report overstated job losses relative to the government’s nonfarm payrolls report for five-straight months before nearly equaling the Labor Department figure in December. Thursday, the focus on employment will continue with the weekly initial jobless claims report, forecasted to fall by 15,000 to 455,000.

However, nonfarm payrolls will headline the week on Friday, with the Bloomberg survey of economists forecasting payrolls increased by 10,000 in January, which would mark the second monthly job increase since December 2007, the month the recession began, after rising 4,000 in November and then subsequently falling 85,000 in December. The unemployment rate is estimated to be unchanged at 10.0%.

Other releases on this week’s busy US economic calendar include pending home sales, MBA Mortgage Applications, factory orders, and consumer credit.

Europe mixed as economic docket is in focus

Stocks in Europe are mixed in afternoon action amid some key economic data, mainly involving Manufacturing PMI reports across the Eurozone. Final revisions of January Manufacturing PMI’s in the Eurozone, France, and Germany were all unexpectedly revised higher, while the first looks at January Manufacturing PMI’s in the UK, Italy, and Sweden all came in higher than economists surveyed by Bloomberg had anticipated. Other economic reports in the area that are worth mentioning included a smaller-than-expected increase in mortgage approvals in the UK, and a slightly higher-than-expected increase in French producer prices. Britain’s FTSE 100 Index is 0.2% higher, France’s CAC-40 Index is 0.1% lower, Germany’s DAX Index is up 0.1%, Italy’s FTSE MIB Index is down 0.3%, and Sweden’s OMX Stockholm 30 Index is 0.7% in the green. In equity news, Vivendi (VIVDY $26) is under pressure after a jury in a US federal court ruled that the music company misled investors, while discount airline Ryanair Holdings (RYAAY $26) is nicely higher after the company raised its full-year earnings forecast after it posted a narrower 3Q loss than was forecasted.

Economic data flies but China shares slide

Stocks in Asia were mixed as traders digested a plethora of data in the region, with China’s economic calendar commanding the most attention. The Shanghai Composite Index fell 1.6% amid resurfaced fears that the Chinese government may be forced to continue to tighten monetary policy to cool off the economy, following through on its pledge to stem the formation of assets bubbles, exacerbated by two separate manufacturing PMI reports, which both increased further into expansionary territory, with one showing the largest gain in the prices component since 2008 and the other showing the second-fastest pace of expansion since 2008, per Bloomberg. Additional uneasiness in China came on the heels the People’s Bank of China’s Deputy Governor saying yesterday in Davos, Switzerland that the government is planning new measures to rein in overcapacity in steel, cement and other industries, per Bloomberg News. However, Hong Kong’s Hang Seng Index rose 0.6%, following a report that showed retail sales increased by a larger amount than economists surveyed by Bloomberg. Elsewhere, Australia’s S&P/ASX 200 Index fell 1% amid fears about the impact of a possible slowdown in China on demand for commodities and after a report that showed job advertisements in Australia tumbled month-over-month in January and ahead the nation’s central bank monetary policy announcement later today, where it is expected to increase its benchmark lending rate for the fourth time in as many meetings.

South Korea’s Kospi Index rose 0.3% after reports that showed exports and imports jumped 47.1% and 26.7%, respectively y/y in January, but both came in shy of expectations, and consumer prices rose by a smaller amount than expected. Economic data was also in focus in Taiwan, as reports showed manufacturing PMI improved further into expansionary territory and consumer prices rose more than expected. Taiwan’s Taiex Index fell 1.5% today. India’s BSE Sensex Index finished flat following reports that showed the pace of export expansion on a y/y basis slowed, while imports jumped. Rounding out the day in Asia, Japan’s Nikkei 225 Index rose 0.1%, with vehicle sales rising 36.8% y/y in January. Japanese equity news was also in focus as shares of Honda Motor Company (HMC $34) declined after announcing a large global recall over a faulty window switch, and Toyota Motor Corp. (TM $77) came under further pressure after it unveiled its plan for fixing its accelerator pedal issues, which has led to a large recall and temporary production shutdowns of certain vehicles. Elsewhere, shares of Mizuho Financial Group (MFG $4) gained ground after the nation’s third-largest bank posted its second consecutive quarterly profit, while Toshiba Corp. (TOSYY $32) fell in reaction to the country’s largest memory-chip maker’s slashing its annual sales forecast, which it announced on Friday.