Morning Update

Advance Continues on Earnings and M&A

The bulls are looking to keep the momentum from yesterday’s solid advance rolling as stocks are nicely higher in morning action amid a much better-than-expected profit report from Deere & Co. and an announcement from Walgreen Co. that it has reached an agreement to acquire New York-based drugstore chain Duane Reade Holdings for just over $1 billion. Treasuries are lower in early action after housing starts and building permits came in at annual rates above economists’ forecasts, while import prices rose more than expected. Elsewhere, mortgage applications declined for a second-straight week, but some major reports are due out later today, headlined by the minutes of the Federal Reserve’s last monetary policy meeting. In other equity news, Campbell Soup lowered its sales forecast. Overseas, Asia rallied and Europe is trading higher.

As of 8:52 a.m. ET, the March 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 44 points above fair value. Crude oil is up $0.33 at $77.34 per barrel, and the Bloomberg gold spot price is higher by $0.78 at $1,120.22 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.2% at 79.89.

Deere & Co. (DE $54) reported fiscal 1Q EPS of $0.57, blowing away the $0.19 that Wall Street analysts had forecasted, but revenues declined 6% year-over-year (y/y) to $4.8 billion, compared to the $4.2 billion that the Street was looking for. The farm and construction equipment maker said that global economic conditions remain “stubbornly weak” but it was able to take cost and asset discipline “to an even higher level.” Worldwide equipment sales decreased 7% during the quarter, with sales in the US and Canada falling 8% and sales outside this region declining 6%. The company increased its full-year profit outlook. Shares are solidly higher.

Walgreen Co. (WAG $34) announced that it has reached a definitive agreement to acquire New York-based drugstore chain Duane Reade Holdings in a cash transaction for a total enterprise value of about $1.075 billion, including the assumption of debt. WAG said the acquisition would immediately provide the company with a leading position in the largest drugstore market in the US. Duane Reade is owned by private equity firm Oak Hill Capital Partners.

Campbell Soup (CPB $34) decreased its revenue forecast for 2010 to a range of growth between 2.5-3.5% y/y from a previous forecast of between 4-5%. CPB’s updated guidance came as it announced a comprehensive plan to “boost the performance of its condensed soup portfolio.” The company reported 2009 sales of $7.59 billion, and analysts are expecting 2010 sales of $7.88 billion. Shares are lower.

Housing starts and permits mixed to kick off heavy economic day

Housing starts for January were reported, showing starts rose 2.8% month-over-month (m/m) to an annual rate of 591,000 units, from an upwardly revised 575,000 last month, and compared to economists’ expectations of an advance to 580,000. Meanwhile, building permits dropped, falling about 4.9% m/m to an annual rate of 621,000 from last month’s unrevised 653,000. The expectation was for a decrease of 5.1% to 620,000 units.

Meanwhile, the Import Price Index rose 1.4% m/m for January, above the expectation of economists, which called for the index to increase by 1.0%. Year-over-year, import prices are higher by 11.5%, versus the 10.8% forecast of economists. Treasuries are lower after the housing and import price reports.

In other economic news, the US MBA Mortgage Application Index declined 2.1% last week, after the index, which can be quite volatile on a week-to-week basis, dipped 1.2% in the previous week. The decrease came as the Purchase Index fell 4%, teaming up with a decline in the Refinance Index, which fell 1.2%. The average 30-year mortgage rate remained unchanged at 4.94%, remaining above the record low of 4.61% that was reached at the end of March 2009.

The busy day on the economic calendar will continue throughout the day, as industrial production will be reported in morning action, anticipated to rise 0.7% m/m in January, after a 0.6% increase in December, while capacity utilization is expected to have risen to 72.6% from 72.0%.

Then in afternoon action, the likely headlining report will be released in the form of the Federal Reserve’s release of the minutes from the January Federal Open Market Committee (FOMC) meeting, expected to come out at 2:00 p.m. ET. By communicating their intentions regarding policy, the Fed influences expectations about future rates, and thus traders carefully parse the minutes. Last week’s testimony by Fed Chairman Ben Bernanke, in which he laid out some of tools the Fed has prepared to rein in its extremely loose monetary policy, offered little insight as to when policy makers could begin to deploy these measures, so traders will be combing the release for any other signs on the timing of these efforts.

Europe remains in the green as more upbeat earnings are seen

Stocks in Europe are nicely higher in afternoon action, led by technology, industrials, and financials on lingering optimism regarding the global economic recovery and as concerns regarding debt-laden Greece continue to abate. Financials are also receiving a lift from another favorable earnings report in the sector, extending optimism that came on the heels of yesterday’s better-than-expected profit announcement from UK bank Barclays. Shares of BNP Paribas (BNPQF $64) are solidly higher after France’s largest bank posted 4Q earnings that exceeded analysts’ forecasts—its fourth-straight quarterly profit, per Bloomberg—aided by lower allowances for loan losses.

There were some economic reports in the region that deserve a mention as UK jobless claims for January unexpectedly increased, rising by 23,500, to the highest level since 1997, per Bloomberg. Also in the UK, the Bank of England released the minutes from the central bank’s monetary policy meeting that took place on February 4th, showing that policy makers voted unanimously to pause its 200 billion-pound bond purchase program on the expectation that inflation will return to its 2% target. Meanwhile, Eurozone construction output increased by 0.5% month-over-month (m/m) in December, while the Euroarea trade surplus came in at a smaller amount than economists had expected. The UK FTSE 100 Index is 1.0% higher, France’s CAC-40 Index is up 1.9%, Germany’s DAX Index is gaining 1.4%, while Greece’s Athex Composite Index is rebounding, trading 0.6% in the green.

Asia joins the global rally

Stocks in Asia were broadly higher after the solid advances yesterday in the US and Europe as economic data supported optimism about the global recovery, boosting commodity issues, while the financial sector benefitted from relatively easing concerns about the deficit problems in Greece and after an upbeat profit report from Barclays. Japan’s Nikkei 225 Index gained 2.7% to lead the way amid the aforementioned economic and financial sector optimism, and amid some weakness in the Japanese yen versus the dollar and other major world currencies, which also lifted the outlook for revenues of export companies that rely heavily on sales outside the Asian nation. Elsewhere, South Korea’s Kospi Index increased 1.7% and Hong Kong’s Hang Seng Index rose 1.3%, returning to trading after taking the first part of the week on for a holiday. Meanwhile, Australia’s S&P/ASX 200 Index advanced 2.2%, led by financials and resource-related issues. Rounding out the day, India’s BSE Sensex 30 Index rose 1.3%, while markets in China and Taiwan remained closed for holidays.

The Asian economic calendar was fairly light today, with a report on the Leading Index in Australia rising 0.5% month-over-month (m/m) in December, and the Bank of Japan commencing its monetary policy meeting, with its interest rate announcement due out later today. The expectation is for the BoJ to keep it benchmark lending rate unchanged at 0.1%.