Morning Market Update

Looking to Rebound as Heavy Economic Week Abound

Following last week’s decline on euro-zone debt concerns and fears toward the financial sector, exacerbated by reports on criminal charges against Goldman Sachs, stocks are higher in morning trading amid a major M&A announcement in the airline industry, and as a 110 billion euro bailout package was agreed to in Europe. Treasuries are lower amid the increase in the equity markets and after personal income and spending both increased as expected, kicking off a heavy week on the economic front, which will culminate with Friday’s labor report, forecasted to show 200,000 jobs were added to nonfarm payrolls. Also, the ISM Manufacturing Index and construction spending will be released just after the opening bell today. Equity news is relatively light, with the parent of United Airlines, UAL Corp, and Continental Airlines Inc agreeing to a $3 billion merger-of-equals. Overseas, Asia was lower as China increased banks’ reserve requirement for a third time this year, and Europe is lower despite the euro-zone agreement to support Greece.

As of 8:53 a.m. ET, the June S&P 500 Index Globex future is 5 points above fair value, the Nasdaq 100 Index is 8 points above fair value, and the DJIA is 40 points above fair value. Crude oil is up $0.15 at $86.30 per barrel, and the Bloomberg gold spot price is up $1.93 at $1,181.13 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.4% at 82.16.

UAL Corp. (UAUA $22), the parent of United Airlines, and Continental Airlines Inc. (CAL $22) announced that they have reached a definitive all-stock merger-of-equals agreement, in which CAL shareholders will receive 1.05 shares of UAUA for each share they own. The deal, which will form the world’s largest airline, is valued at about $3 billion and UAUA shareholders will own 55% of the equity of the combined company and CAL shareholders will own about 45%.

Personal income and spending rise as expected to commence heavy economic docket

Kicking off the economic week, personal income was 0.3% higher in March, matching the Bloomberg estimate, and February’s flat reading was revised to a 0.1% increase. Personal spending rose 0.6% in March, also inline with expectations, and February’s 0.3% increase was upwardly revised to a 0.5% gain. The savings rate declined to 2.7% in March, after a slightly downwardly revised 3.0% reading for February.

Also, the PCE Price Index, which is released with the income and spending data, increased 2.0% year-over-year (y/y) in March, matching the consensus forecast, and February’s 1.8% rise was left unchanged. The core PCE Price Index, which excludes food and energy, was 0.1% higher month-over-month (m/m), inline with expectations. Year-over-year, core prices moved 1.3% higher, also inline with the consensus of economists surveyed. Treasuries remain lower, extending losses after the income and spending data.

Later this morning, the ISM Manufacturing Index will be released, expected to show an increase to 60.0 in April from 59.6 in March, with 50 being the level that separates contraction versus expansion in the economy. Moreover, construction spending will also be released in the morning session, expected decline 0.3% m/m in March.

The week promises to have a plethora of major economic reports that will likely shape sentiment this week, headlined by Friday’s Labor Report, and economists expect nonfarm payrolls to grow by 200,000 jobs for April, after adding 162,000 in March, while the unemployment rate is estimated to be unchanged at 9.7%. 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 factory orders, pending home sales, the ISM Non-Manufacturing Index, the ADP Employment Change Report, MBA Mortgage Applications, nonfarm productivity, initial jobless claims, and consumer credit.

Europe under pressure despite Greece agreement

Stocks in Europe are under pressure in afternoon action despite the agreement between the EU and International Monetary Fund (IMF) on a 110 billion euro financial rescue package for the debt-ridden nation of Greece, as uneasiness remains regarding other highly indebted nations in the region such as Portugal and Spain. Greece agreed to austerity measures and will be required to cut wages, increase taxes, and cut pension payments and raise retirement ages for some public-sector workers. Euro-zone nations and officials must provide approval for Greece to take control of the funds and it is expected to receive the first installment before some of the nation’s debt obligations mature on May 19th, avoiding default and debt restructuring. Meanwhile, attention on the massive oil spill in the Gulf of Mexico continues and energy firm BP Plc (BP $52), whose oil rig is at the cause of the oil pollution, vowed to pay “all necessary and appropriate clean-up costs” from the disaster. Shares of BP are lower in the US, but markets are closed in the UK. In other equity news across the pond, Norsk Hydro (NHYDY $8), Europe’s third-largest aluminum maker, per Bloomberg, agreed to acquire the aluminum assets of Vale SA (VALE $31) for about $4.9 billion.

In economic news, the euro-zone Manufacturing PMI for April was revised slightly higher, after Germany’s Manufacturing PMI was revised to a level above economists had originally forecasted.

France’s CAC-40 Index is down 0.4%, Germany’s DAX Index is off 0.1%, Spain’s IBEX 35 Index is declining 1.1%, and Greece’s Athex Composite Index is 0.9% lower, while markets in Portugal are closed.

Asia slips in muted session

Stocks in Asia were mostly lower, with the weekend’s agreement on a bailout package for Greece failing to support sentiment, in lighter-than-usual trading as markets in Japan, China, and Thailand were closed for holidays. However, even as stocks in mainland China were closed, Hong Kong’s Hang Seng Index traded today, falling 1.4% after a smaller-than-forecasted year-over-year increase in retail sales for March and amid concerns about the impact of the Chinese government’s actions to further rein in excess liquidity by raising the reserve requirement that banks needed to maintain for the third time this year. China ordered banks to increase the amount that they need to keep in reserve at the nation’s central bank by another 50 basis points to 17% for the country’s biggest lenders as it tries to avoid the formation of asset bubbles and cool down its economy. Meanwhile, mining issues led Australian stocks lower, with the S&P/ASX 200 Index declining 0.5%, after the government imposed a 40% tax on resource firms’ profits. Also, South Korea’s Kospi Index dropped 1.2% despite an improvement in a reading of the nation’s Manufacturing PMI, as a separate reading showed its consumer prices rose more than economists had expected in April. Elsewhere, Taiwan’s Taiex Index fell 0.7%, and India’s BSE Sensex 30 Index decreased 1.0% after a report showed the nation’s Manufacturing PMI deteriorated for the second-straight month, although it remained at a level depicting expansion.