Morning Update

Nearly Unchanged as Week Begins

After posting solid gains last week, aided by a smaller-than-expected job decline from nonfarm payrolls, stocks are near the flatline as traders await more evidence that the global economic recovery has enough catalysts to continue. The US economic calendar will be relatively light this week, with the keynote release being Friday’s advance retail sales report. Treasuries are lower as there are no major economic reports on today’s docket. However, the equity front is providing some aid to sentiment as Dow member McDonald’s Corp posted better-than-expected same-store sales results, while M&A continues to gain steam, with today’s announcement from AIG that it is selling its international life insurance unit to MetLife for about $15.5 billion. Overseas, Asia moved broadly higher, while Europe is also hovering around the flatline.

As of 8:48 a.m. ET, the March S&P 500 Index Globex future is 1 point below fair value, the Nasdaq 100 Index is 1 point below fair value, and the DJIA is 2 points below fair value. Crude oil is up $0.26 at $81.76 per barrel, and the Bloomberg gold spot price is down $0.22 at $1,134.43 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.2% to 80.31.

Dow member McDonald’s Corp (MCD $64) is higher in early action after the world’s largest fast-food chain reported February same-store sales—sales at stores open at least thirteen months—rose 4.8%, topping the 4.0% estimate per Bloomberg. However, US sales rose 0.6%, compared to the 1.0% estimate, and European sales gained 5.4%, versus the 6.5% estimate. Meanwhile, sales in Asia/Pacific, Middle East and Africa lead the way, rising 10.5%, above the 6.5% that the Street had expected.

American International Group (AIG $28) announced that it has reached a definitive agreement for the sale of its international life insurance unit American Life Insurance Company (ALICO) to MetLife (MET $39) for approximately $15.5 billion, including $6.8 billion in cash and the remainder in equity securities of MET. AIG said the cash portion of the deal will be used to reduce its outstanding balance owed to the government. Shares of both firms are higher.

Retail sector report set to dominate economic docket

Treasuries are lower in morning action as there are no major reports scheduled for release on today’s economic calendar. The week will be relatively light with respect to major reports coming out of the economic front, but Friday’s release of advance retail sales for February will likely carry some weight on the Street, forecasted to fall 0.2% month-over-month (m/m), after growing 0.5% in January, while sales ex-autos are estimated to come in flat, on the heels of a rise of 0.6% in January. On a month-to-month basis the data can be volatile, but on a 3-month basis, retail sales comparisons have been positive since July. Retailers reported much better-than-expected same-store sales last week, which may have foreshadowed a favorable reading on the retail sector on Friday.

Other releases on the US economic agenda this week include the MBA Mortgage Application Index, wholesale inventories, the trade balance, initial jobless claims, business inventories and the University of Michigan consumer sentiment survey.

Europe near the flatline as Greece concerns ease but drug makers find pressure

Stocks in Europe are nearly unchanged in afternoon action as fears about the deficit problems are easing, while drug companies are under pressure. The easing concerns toward Greece come on the heels of its austerity measures to pare its deficit and a successful bond auction last week and, which continued after French President Nicolas Sarkozy said the euro-area members stand ready to offer support should the debt-ridden nation need assistance. Sarkozy said, “I want to be very clear: if it were necessary, the states of the euro-zone would fulfill their commitments,” per Bloomberg. The comments followed the weekend meeting with Greek Prime Minister George Papandreou and the French leader said that, although Greece does not need help today, “we have measures, we are ready, we are determined.” However, stocks in the euro-area are being weighed down by a solid decline in shares of AstraZeneca (AZN $45) after a trial showed its experimental colon cancer drug Recentin failed to match results of Roche Holding’s (RHHBY $42) Avastin for treating the cancer.

In economic news, Germany’s industrial production rose 0.6% m/m in January, compared to the 1.0% increase that economists had expected. Also, separate reports showed France’s business sentiment unexpectedly deteriorated in February, while Switzerland’s unemployment rate dipped to 4.4% in February, matching expectations, while the nation’s retail sales for January almost doubled expectations. Elsewhere, an investor confidence report of the euro-zone for March unexpectedly improved.

Britain’s FTSE 100 Index is flat, France’s CAC-40 Index is 0.1% lower, Germany’s DAX Index is unchanged, and Switzerland’s Swiss Market Index is declining 0.2%.

Asia advances after US jobs data

Stocks in Asia were broadly higher, led by optimism regarding the recovery of the US economy on the heels of the smaller-than-expected drop in jobs from nonfarm payrolls, which supported an increase in risk appetites. The waning risk aversion put pressure on the Japanese yen versus most major currencies including the dollar, helping the outlook for profits from export issues that rely on sales outside the Asian nation, which supported the Nikkei 225 Index’s 2.1% gain to lead the advance in the region. Also helping Japanese stocks, a report showed that the country posted a larger-than-expected trade surplus in January. There was some M&A action that helped sentiment, with shares of Arrow Energy (ARWEF $3) gaining over 45% after Royal Dutch Shell (RDS/A $57) and PetroChina (PTR $117) made a joint offer to acquire the company for about A$3.3 billion ($3 billion). The announcement helped Australia’s S&P/ASX 200 Index gain 0.9%. Elsewhere, Taiwan’s Taiex Index rose 1.3%, even after the nation reported a smaller-than-expected trade surplus in February, with growth in export slowing to a pace below economists’ estimates. Meanwhile, stocks in China participated in the broad-based advance, as the Shanghai Composite Index increased 0.7%, while Hong Kong’s Hang Seng Index advanced 2.0%.

In other equity news, BHP Billiton (BHP $79) moved higher after the world’s largest mining firm, per Bloomberg, reached an agreement with JFE Holdings (JFEEF $36) on a 55% increase in the price it receives for coking coal—a key material for making steel. Rounding out the day, South Korea’s Kospi Index increased 1.6% and India’s BSE Sensex 30 Index rose 0.6%.