Morning Update

Global M&A Help Stocks Begin the Day with Modest Gains

The bulls are trotting in morning trading to begin the week and new month, led by optimism in the corporate sector on a couple of major M&A announcements pertaining to euroarea and US firms. UK insurer Prudential Plc agreed to purchase American International Group’s pan-Asian life insurance unit for about $35.5 billion, while German pharmaceutical firm Merck KGaA reached an agreement to acquire biotech equipment firm Millipore Corp for about $7.2 billion. Meanwhile, the economic data is heavy this week, beginning with a mixed report on personal income and spending, ahead of the releases of the ISM Manufacturing Index and construction spending. Treasuries are modestly lower in early action, showing little reaction to the morning’s data, as traders may be treading cautiously ahead of the nonfarm payroll report at the end the week. Overseas, Asia moved higher and Europe is gaining ground as traders digest a slew of data across the pond and a disappointing report from HSBC Holdings.

As of 8:52 a.m. ET, the March S&P 500 Index Globex future is 3 points above fair value, the Nasdaq 100 Index is 5 points above fair value, and the DJIA is 30 points above fair value. Crude oil is up $0.22 at $79.88 per barrel, and the Bloomberg gold spot price is down $2.05 at $1,115.55 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.8% at 81.01.

Global M&A news is dominating the headlines, with UK insurer Prudential Plc (PUK $19) announcing that it has reached a definitive agreement to purchase American International Group’s (AIG $25) pan-Asian life insurance unit AIA Group for approximately $35.5 billion. The deal includes about $25 billion in cash, $8.5 billion in equity and equity-linked securities, and $2.0 billion in preferred stock of Prudential. AIG said the cash portion of the agreement will go to pay down the debt it owes the US government. AIG is solidly higher and Prudential is under sharp pressure.

Also, German pharmaceutical firm and liquid crystal supplier for flat panel TVs, Merck KGaA (MKGAY $26), announced that it has reached an agreement to acquire biotech equipment firm Millipore Corp. (MIL $94) for about $107 per share in cash, or a total transaction value of $7.2 billion. The transaction is expected to create a firm with a significant scale in high-growth bioresearch and bioproduction segments.

Personal outlays mixed, heavy economic week awaits

Kicking off a busy economic week, personal income was 0.1% higher in January, below the Bloomberg estimate of 0.4%, and December was revised from a 0.4% gain to a 0.3% rise. Personal spending rose 0.5% in January, versus the 0.4% Bloomberg expectation, while December’s 0.2% increase was upwardly revised to a 0.3% gain. The savings rate declined to 3.3% in January, after a downwardly revised 4.2% for December.

Also, the PCE Price Index, which is released with the income and spending data, increased 2.1% year-over-year in January, compared to the consensus forecast of 2.2%, and December’s 2.1% rise was unchanged. The core PCE Price Index, which excludes food and energy, was flat, matching expectations. Year-over-year, core prices moved 1.4% higher, also inline with the consensus of economists surveyed by Bloomberg. Treasuries are slightly lower, showing little reaction to the income and spending data.

Later today, the major economic news will poor in, with the morning release of the ISM Manufacturing Index, forecasted to fall modestly to 58.0 in February from 58.4 in January. Also, construction spending will be released, expected to decline 0.6% m/m in January.

However, the headlining report for the week will likely be the release of nonfarm payrolls on Friday, with the Bloomberg survey of economists forecasting payrolls fell by 50,000 in February, after declining 20,000 in January. The unemployment rate is estimated to increase to 9.8% from 9.7% in January. Jobs data will start getting a boost from the government, as the Census Bureau has said it expects to hire 181,000 workers from January to March and 971,000 in the following three months, peaking in May, where they are anticipating adding 500,000 workers.

Other releases on this week’s busy US economic calendar include the Fed’s Beige Book, the ADP Employment Change Report, the ISM Non-Manufacturing Index, pending home sales, MBA Mortgage Applications, initial jobless claims, factory orders, and consumer credit.

Disappointing banking report dampens early enthusiasm in Europe

Stocks in Europe are holding onto modest gains in afternoon action as financials are weighing on the indexes across the pond after a major banking firm posted disappointing earnings, limiting strength in materials issues on higher copper prices amid supply concerns following the large earthquake that hit Chile, which is the world’s largest producer of the metal. Financials are solidly lower and stocks in the eurozone have pared early gains amid pressure on shares of HSBC Holdings (HBC $55) after the UK’s largest bank posted full-year profits that came in well below analysts’ forecasts, on higher costs for bad debts. The soured sentiment in the financial sector is also offsetting some of optimism that came courtesy of the major M&A news in the region, amid the aforementioned news about Prudential’s offer to acquire AIG’s Asian life insurance business and Merck’s agreement to Millipore.

There is a plethora of major economic news in the eurozone that traders are considering as well, with February PMI Manufacturing reports in France, Germany and the overall euroarea being revised higher, while the first look at PMI manufacturing activity in the UK came in unchanged, versus the expectation that the index would tick lower. There were some GDP reports released, with Sweden’s output posting an unexpected contraction in 4Q, and Italy’s annual GDP declining by an amount more than expected. Rounding out the busy economic day, eurozone unemployment rate came in unchanged at a downwardly revised 9.9% for January, compared to the expectation that the rate would increase to 10.1%.

Britain’s FTSE 100 Index is 0.3% higher, France’s CAC-40 Index is up 0.7%, Germany’s DAX Index is advancing 1.1%, Italy’s FTSE MIB Index is flat, and Sweden’s OMX Stockholm 30 Index is 0.9% in the green.

Asia advances, led by miners amid mixed economic reports

Stocks in Asia were broadly higher, as miners led the way amid higher copper prices following the earthquake in Chile. Japan’s Nikkei 225 Index rose 0.5% paced by mining issues on the aforementioned increase in copper prices and following a report that showed vehicle shares rose 35.1% y/y in February. Australia’s S&P/ASX 200 Index posted a 1.1% gain to help the advance in the region aided by a report that showed manufacturing activity expanded at the fastest pace since 2007, per Bloomberg. The advance in Australia came despite increased expectations that the Reserve Bank of Australia will raise its benchmark interest rate tonight to 4.0%, from 3.75%. Chinese stocks were among the day’s best performers, with Hong Kong’s Hang Seng Index rising 2.2% and the Shanghai Composite Index advancing 1.2%. Optimism that the Chinese government may hold off on its pledge to control excess liquidity in the near term helped soothe sentiment as two separate reports showed the nation’s PMI Manufacturing activity declined, with the main index falling from 55.8 in January to 52.0 in February, versus the decline to 55.2 that economists had expected. This sentiment was helped by the Chinese Premier reiterating a “moderately loose” monetary policy over the weekend, per Bloomberg. Elsewhere, Taiwan’s Taiex Index rose 1.9% on the heels of a report that showed the nation’s Manufacturing PMI improved in February. Markets on South Korea and India were closed today.