Morning Market Update

Earnings Season Commencement in Focus

Markets are trading around the flatline after posting a gain last week, despite bullish news of bailout package details for Greece, and volume is likely to be light as traders await the first quarter earnings season which unofficially starts after the close tonight with results from Dow component Alcoa. In other equity news, Mirant and RRI Energy announced a merger of equals to create the second-largest independent power producer, and Bloomberg is reporting that Palm has hired advisors to seek bids for the company. Treasuries are lower as risk-based trades buoyed Greek bonds, and there are no major US economic releases due out today. Shares in Europe are nearly unchanged despite the Greek bailout details, and Asia was mixed as measures to cool property speculation were announced.

As of 8:48 a.m. ET, the June S&P 500 Index Globex future and the DJIA are 1 point above fair value, while the Nasdaq 100 Index is 1 point below fair value. Crude oil is down $0.45 at $84.47 per barrel, and the Bloomberg gold spot price is down $2.60 at $1,159.40 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.6% to 80.62.

Shares of Mirant (MIR $11) and RRI Energy (RRI $4) are higher after reporting a merger of equals that would create the second-largest independent US power producer, to be named GenOn Energy. The combined company is estimated to deliver $150 million in cost savings starting in 2012, providing larger geographic diversity and “ample liquidity” of $2.9 billion in cash to handle market swings. Mirant shareholders will get a fixed ratio of 2.835 shares of RRI Energy for each of their shares, and the deal doesn’t require regulatory approval from state utility commissions since the companies don’t own utilities.

Palm (PALM $6) is higher after Bloomberg news reported that the company hired Goldman Sachs (GS $179) and Qatalyst Partners to seek bids for the company, citing people familiar with the situation, who noted that Taiwan’s HTC Corp (HTCXF $10) and China’s Lenovo Group Ltd (LNVGY $15) have looked at the company. None of the companies in the report have commented.

Economic releases in the US kick up starting on Wednesday

Treasuries are lower as investors sell the relative safety of US government bonds to buy Greek bonds after details of a bailout package for Greece emerge, and the economic calendar in the US does not start heating up until Wednesday with the March release of the Consumer Price Index (CPI), with prices at the consumer level expected to increase 0.1% m/m on both the headline and core rates, and March advance retail sales are forecasted to advance by 1.1% m/m, while sales ex-autos are estimated to increase 0.5% in March. Mid-day Wednesday brings the release of the Beige Book, wherein Fed staffers summarize anecdotal economic data from all twelve Federal Reserve districts in preparation for the next Federal Open Market Committee (FOMC) meeting scheduled for April 27-28. Thursday brings the report on industrial production, anticipated to rise 0.7% m/m with capacity utilization expected to have risen to 73.3%.

The week ends with the release of housing starts for March on Friday, expected to show an increase of 6.1% m/m to an annual rate of 610,000 units, after falling 5.9% in February, while building permits, one of the leading indicators tracked by the Conference Board, are forecasted to decline 1.7% m/m in March after falling 1.6% m/m in February.

Investors will be focused on earnings in coming weeks, as corporations report results quarterly, while economic data continues to stream in on a monthly basis, and while volatile on a month-to-month basis, the trend in the economy has shown continued improvement. The key for the next move in stocks is whether corporate results are strong enough, as the market has already posted nice year-to-date returns.

Most European markets little changed despite Greek rescue plan

News of a bailout plan for Greece, which is buoying Greek stocks and bonds, is being met with other markets hugging the flatline midday. While Greek bond yields plunged, the spread over German government bonds, known as bunds, was more modest, as investors sold the perceived safety of German bunds. The bullish reaction in Greece came amid details regarding a bailout as Euro-region finance ministers announced they would provide as much as 30 billion euros in three-year loans in 2010 at a rate around 5%, below the rate currently being priced by markets, while saying that the International Monetary Fund (IMF) would provide another 15 billion euros, without providing details on the IMF portion. The 45 billion euro bailout offer comes ahead of a bill auction in Greece tomorrow, and the Greek Finance Minister said that the government plans to go ahead with debt sales without taking up the aid offer. The EU showed no sign of demanding further budget measures, saying the Greek government was implementing a “very bold and ambitious plan.”

In equity news, shares of Home Retail (HMRTY $17), the parent of UK’s Argos catalog stores, are rising after the Mail reported that Wal-Mart Stores Inc’s (WMT $55) Asda division may be interested in making an offer for the company. Home Retail did not comment and an Asda spokesperson said “We do not comment on market speculation.” In Switzerland, shares of UBS AG (UBS $17) are higher after the company reported preliminary results of a 1Q pretax profit of at least 2.5 billion francs ($2.4 billion), boosted by demand in the fixed income trading unit, and as client withdrawals fell sharply.

A weekend crash that killed Poland’s president, central bank chief and other government and military officials is having little impact on markets, with the Polish WIG20 Index gaining 0.4%. Elsewhere, Britain’s FTSE 100 Index is 0.2% lower, France’s CAC-40 Index and Germany’s DAX Index are declining 0.3%, and Greece’s Athex Composite Index is surging 3.6%.

Asia mixed, weighing bullish Greece news and China property measures

Markets in Asia finished mixed, as the Greek rescue package was offset by concerns of tighter lending standards in China, and a decline in the yen versus the euro buoyed the Japanese Nikkei 225 Index to rise 0.4%, as shares of Japanese exporters benefit from the weaker currency. The China Banking Regulatory Commission said that some banks in Beijing had “voluntary and prudently” raised down-payment requirements for second mortgages to 60% and that lenders must report risk exposures by the end of June. China also announced new loans in March of 510.7 billion yuan ($74.8 billion), below the 709 billion yuan forecast and the 700 billion yuan announced for February, while money supply as measured by M2 rose 22.5%. Meanwhile, China reported its first trade deficit since 2004, of $7.2 billion, as imports surged 66% while exports rose 24%, while the surplus was larger than the $390 million deficit expected by a survey of economists conducted by Bloomberg. Deficits were reported with Japan and S. Korea, while a $9.9 billion surplus with the US was reported. China’s Shanghai Composite Index retreated by 0.5% and Hong Kong’s Hang Seng Index fell 0.3%, lead by declines in property developers.

In equity news, shares of Dentsu (DNTUF $23), Japan’s largest advertising company according to Bloomberg, rose after releasing preliminary results that were higher than forecast, and Mitsui & Co (MITSY $350) gained after announcing a joint venture with China’s New Hope Group Co to buy and sell ingredients for animal feed in China. Shares of Macarthur Coal Ltd (MACDF $15) jumped 6% after the Australian newspaper reported that Xstrata Plc (XSRAY $4) may offer about A$4 billion ($3.7billion) for the company, without saying where it got the information, while Macarther said that it had not received a bid from Xstrata. Qantas Airways (QUBSF $3) rose after the CEO said that an improving economy is feeding a recovery in business demand, while leisure travel remains strong. In other markets, India’s BSE Sensex 30 Index decreased 0.5%, Australia’s S&P/ASX 200 Index gained 0.7%, while South Korea’s Kospi Index lost 0.8%.