Morning Update

Mixed Trading to Start the Day, Housing Data on Tap

Markets are set to start the trading session in muted fashion ahead of a report on previously-owned home sales, which is expected to show a slower pace of decline in February, while homebuilder KB Home gave bullish commentary. Conflicting commentary out of Europe regarding the possibility of aid to Greece is weighing on the euro to the benefit of the US dollar, and commodity prices are slightly lower. In other equity news, Walgreen Co missed Street estimates, noting a weak flu season. A regional report on manufacturing will be reported after the bell, in addition to the existing home sales report, and Treasuries are mixed ahead of the data. European markets are higher on bullish corporate news, and Asia closed generally higher.

As of 8:42 a.m. ET, the June S&P 500 Index Globex future and the Nasdaq 100 Index future are both 1 point below fair value, while the DJIA is 1 points above fair value. Crude oil is down $0.35 at $81.25 per barrel, and the Bloomberg gold spot price is down $4.55 at $1,097.70 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.4% to 80.93.

Walgreen Co (WAG $36) reported 2Q EPS ex-items of $0.70, lower than the $0.71 analyst estimate, and revenue of $17 billion also missed forecasts of $17.17 billion. The company said that same-store sales – sales from stores open more than a year – fell 0.2%, driven by a 1.6% decline in front of the store sales as the company saw lower demand for discretionary goods and cold and flu products, while same-store sales for prescriptions rose 0.6%. In commenting on the results, the CEO said that, “As much as the early flu season helped our first quarter results, it hurt our second quarter results.”

KB Home (KBH $17) reported a net loss of $54.7 million, or $0.71 per share, including pretax, noncash charges for inventory impairments and land option contract abandonments of $13.4 million. It is unclear if the analyst estimate of a $0.42 loss per share excludes the charges. Meanwhile, the company noted that backlog grew for the first time in four years, net orders rose 5% and that it is positioned to return to profitability in the latter part of the year. In commenting on the housing market, KBH said that it doesn’t yet see a sustained nationwide recovery, but that a number of markets may be stabilizing or starting to rebound.

Report on existing home sales due after trading begins

After the market opens brings the release of existing-home sales, expected to have decreased 1.1% month-over-month (m/m) in February to an annual rate of 5.0 million units. Sales of existing homes reflect closings from contracts entered one to two months earlier, while new home sales, expected to show a 1.9% increase in February to an annual rate of 315,000 units when released on Wednesday, are a more timely indicator of conditions in the housing market, as they reflect contract signings. Housing market data has been volatile and has yet to show a resurgence in sales after the initial tax credit was expanded and extended, and a m/m increase in new home sales would be the first since October. Treasuries are mixed ahead of the release.

The Richmond Fed Manufacturing Index will also be released after the open, and is expected to improve to 5 in March from 2 in February, wherein a reading above zero denotes expansion.

Europe advancing on positive corporate news

European markets are higher on positive results out of the financial sector in Europe and Asia, led by a gain in shares of insurer Legal & General Group Plc (LGGNY $7), which returned to a profit and boosted its dividend, and 2009 net income of 863 million pounds handily beat the 461 million pound analyst estimate. In M&A action in the region, government-services company VT Group Plc (VTGRF $10) agreed to be purchased by Babcock International Group while Cairn Energy Plc (CRNCY $12) rallied after the operator of India’s biggest onshore oil field announced the start of drilling in Greenland and raised output forecasts in Rajasthan. Adding to the positive side of the ledger, the UK consumer price index for February came in lower than expected, rising 3.0% year-over-year (y/y) versus the 3.1% estimate, a deceleration from the 3.5% pace in January. The measure of inflation is at the upper end of the 3.0% limit set by policymakers, but is a positive move as some central bankers have expressed concern that inflation risks have risen.

Elsewhere in Europe, commentary about the situation in Greece continues to flow ahead of a European Union (EU) summit scheduled for March 25-26, with EU President Van Rompuy seeking to strike an agreement on an aid mechanism for Greece before the start of the meeting, according to a European diplomat. Conflicting signals continued today as the Greek Finance Minister pushed back against suggestions that the International Monetary Fund (IMF) provide loans and the German Economy Minster repeated his reluctance to put his taxpayer funds at risk.

Britain’s FTSE 100 Index and France’s CAC-40 Index are both higher by 0.5%, Germany’s DAX Index is up by 0.2%, and Greece’s Athex Composite Index higher by 1.6%.

Asia higher on positive economic sentiment

Stocks in Asia rose on signs of continued economic growth in the region, as economists boosted forecasts and earnings continue to come in better than expected. The Bank of Japan released the minutes from its February monetary policy meeting, where surprisingly some members were of the view that “upside and downside risks were becoming balanced” even as deflation deepened, while others noted “considerable downside risks to the economy.” The division of opinions continued into March, as the 5-2 vote last week by the Bank of Japan to expand a credit program to 20 trillion yen ($222 billion) demonstrates, and there is speculation that last week’s move was prompted by political pressure. The view that economic growth could pick up momentum in Japan, along with increased growth forecasts for New Zealand and the governor of the Philippines noting a meeting next month with ratings agencies to seek an upgrade of the nation’s debt, added to bullish sentiment. However, Japan’s Nikkei 225 Index ended 0.5% lower on the session, after being closed for a holiday yesterday. Toshiba Corp (TOSYY $30) was higher after the company said it would build a flash memory chip plant in Japan beginning in July, and the Nikkei newspaper reported that Toshiba will collaborate with Bill Gates’s TerraPower to develop a nuclear reactor capable of operating for decades without refueling. Over the weekend, the Yomiuri newspaper said that Japan’s government will likely propose building at least 14 more nuclear stations by 2030. Elsewhere in Japan, property developers were lower after a report showed that commercial land prices fell 6.1% in 2009 to the lowest level since comparable data was first collected in 1974, according to Bloomberg.

Elsewhere in Asia, the Bank of China (BACHY $13) reported net income of 81.1 billion yuan, higher than the 78.7 billion yuan forecast after the close in trading, and Chinese property shares fell after the Oriental Morning Post reported that Shanghai may require developers to make a full payment for land purchases within 30 days of signing contracts from 60 days currently, without citing a source. The Shanghai Composite Index fell 0.7%, while Hong Kong’s Hang Seng Index increased 0.3%, Australia’s S&P/ASX 200 gained 0.9%, South Korea’s Kospi Index rose 0.6% and India’s BSE Sensex 30 Index advanced 0.2%.