Morning Update

Bulls Looking to Repair Yesterday’s Despair

After yesterday’s solid declines that came from some disappointing consumer and business confidence reports in the US and Germany, stocks are modestly higher in morning action. However, traders are treading cautiously ahead of a major report on the housing market and before Federal Reserve Chairman Ben Bernanke’s semi-annual monetary policy report in front of Congress. Treasuries are nearly unchanged ahead of the aforementioned events, and following a report that showed mortgage applications fell. In equity news, Saks Inc. posted an unexpected profit after excluding charges, and Toll Brothers posted a narrower loss than analysts were expecting. Overseas, Asia came under pressure on the heels of the steep decline in the US and the Eurozone, while Europe is modestly higher as traders digest more economic data.

As of 8:47 a.m. ET, the March S&P 500 Index Globex future is 5 points above fair value, the Nasdaq 100 Index is 10 points above fair value, and the DJIA is 17 points above fair value. Crude oil is down $0.08 at $78.78 per barrel, and the Bloomberg gold spot price is down $10.40 at $1,093.00 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.1% at 80.74.

Saks Inc. (SKS $7) reported adjusted 4Q EPS of $0.06, compared to the loss of $0.02 per share that Wall Street analysts had expected, with revenues falling 3.4% year-over-year (y/y) to $811 million, compared to the $799 million that the Street had anticipated. SKS said a substantial improvement in its gross margin and diligent expense control helped it post a modest 4Q profit, in spite of a 4.8% decrease in 4Q same-store sales—sales at stores open at least a year.

Toll Brothers (TOL $19) reported a fiscal 1Q loss of $0.25 per share, narrower than the $0.35 loss that analysts had forecasted, with revenues falling 20% y/y to $326.7 million, but above the $325 million that the Street had anticipated. The luxury homebuilder said its building deliveries declined 10% y/y to 596 units, while net signed contracts rose by 98% and its cancelation rate fell from 37.1% last year to 6.7%. The company’s CEO said, “We believe the housing market is still in choppy waters but the seas are getting calmer.”

Housing data and Bernanke testimony in focus

The US MBA Mortgage Application Index declined 8.5% last week, after the index, which can be quite volatile on a week-to-week basis, fell 2.1% in the previous week. The decrease came as the Purchase Index fell 7.3%, teaming up with a decline in the Refinance Index, which dropped 8.9%. Also, the average 30-year mortgage rate rose 9 basis points to 5.03%, remaining above the record low of 4.61% that was reached at the end of March 2009. Treasuries are nearly unchanged in morning action.

Later today on the economic calendar, will be the release of new home sales, forecasted to increase 3.5% m/m to an annual rate of 354,000 units. New home sales are a more current reading on activity in the housing market, reflecting contract signings and the extension and expansion of the home buyer tax credit will likely be a factor in the amount of contracts signed to purchase new homes. In December, new home sales unexpectedly fell 7.6%, but bad weather and the holidays may have drained the will of homebuyers to actively pursue new dwellings to end 2009, so we will see if the New Year brought buyers out in the market.

But the keynote event today will likely be Federal Reserve Chairman Ben Bernanke’s first leg of his two-day semi-annual monetary policy report before Congress, beginning with his testimony before the House Financial Services Committee. After the Fed Chief provided testimony two-weeks ago, in which he foreshadowed last week’s surprising increase in the Fed’s discount rate—a primary credit rate for banks to obtain short term loans from the Fed—Bernanke’s comments may carry some extra weight on the Street. Traders will be looking for any comments on the timing of Fed asset sales and if the Committee still plans to end its purchases of mortgage-backed securities (MBS) as these actions could have important implications on interest rates and the recovery in the housing market. Also, traders will be looking for any clues pointing to any possible changes to the Fed’s outlook that “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

Europe slightly higher after yesterday’s solid decline

Stocks in Europe have moved modestly higher in afternoon action as traders are assessing the health of the Eurozone economy following yesterday’s sell-off on a disappointing report on German business confidence. Traders are digesting some more economic reports across the pond today, which showed consumer confidence in Germany—Europe’s largest economy—declined by a smaller amount than anticipated, while the nation’s 4Q GDP remained unrevised at a flat reading compared to last quarter, as strength in German exports was offset by weakness in private consumption. In other economic news, Italy’s retail sales in December were flat month-over-month (m/m), compared to a slight gain that was forecasts by economists, while Eurozone industrial new orders unexpectedly rose, increasing 0.8% m/m in December, versus the expectation of a 1.0% drop. Also, November’s 1.6% advance was revised to a 2.7% gain m/m.

In equity news, shares of Rhodia (RHAYY $18) are solidly higher after the French chemicals company reported 4Q net income that exceeded analysts’ estimates and it said it sees a “significant” improvement in 2010 profitability. Also, hotel chain parent Accor (ACRFF $47) is higher after it announced that it will execute the spinoff of its service-voucher division sooner than anticipated.

Britain’s FTSE 100 Index is 0.4% higher, France’s CAC-40 Index is up 0.3%, Germany’s DAX Index is advancing 0.2%, and Italy’s FTSE MIB Index is 0.3% in the green.

Asia follows global markets lower

Stocks in Asia were mostly lower on the heels of solid declines in the US and Europe yesterday courtesy of the disappointing economic reports in the respective nations. Concerns about the global economy sapped risk appetites and the Japanese yen received a boost as traders sought the safe haven Asian currency, which weighed on export issues in Japan, and the Nikkei 225 Index fell 1.5% to pace the decline in the region. The economic uneasiness also pressured commodity-related issues and the resource heavy nation of Australia saw its S&P/ASX 200 Index drop 1.5% to also lead the broad-based decline. However, China’s Shanghai Composite Index rose 1.3% to buck the trend, despite state media reports that Chinese banking regulators told commercial lenders to pare back on loans to local governments, in an attempt to control excess liquidity and avoid the formation of asset bubbles, according to Reuters. The Chinese government did not confirm the reports.

Meanwhile, Hong Kong’s Hang Seng Index declined 0.8%, led by a solid decline in shares of Hyundai Motor Co. (HYMTF $17) on news that it halted sales of its 2011 Sonata sedan in the US due to door latch issues. However, a report that showed Hong Kong’s 4Q GDP expanded by a larger amount than economists had forecasted compared to last year as well as the previous quarter helped limit some of the losses in the nation. In other economic news, South Korea announced that consumer confidence fell to a seven-month low, per Reuters, and the Kospi Index declined 1.0%. Rounding out the day, Taiwan’s Taiex Index fell 0.9% and India’s BSE Sensex 30 Index dipped 0.2%.