Morning Market Update

Bulls Trying to Repair Last Week’s Data Despair

US stocks are gaining some ground in early action, following last week’s disappointing drop in the latter part of the week, driven by uneasiness in the face of some key earnings reports from the banking sector and weakening US economic data. Treasuries are modestly lower in morning action ahead of an economic docket that will bring a look at the housing market and before the mid-week testimony on Capitol Hill by Federal Reserve Chairman Ben Bernanke. Earnings season continues to roll on, with Delta Air Lines Inc missing the Street’s earnings forecasts, while toy maker Hasbro posted mixed results. Overseas, Asia was mostly lower in light action as Japanese markets were closed, while Europe is shrugging off some disappointing euro-area debt developments amid a plethora of M&A news.

As of 8:51 a.m. ET, the September S&P 500 Index Globex future is 5 points above fair value, the Nasdaq 100 Index is 5 points above fair value, while the DJIA is 46 points above fair value. Crude oil is down $0.22 at $75.79 per barrel, and the Bloomberg gold spot price is down $7.23 at $1,185.78 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.2% at 82.62.

Delta Air Lines Inc. (DAL $12) reported 2Q EPS ex-items of $0.65, compared to the $0.68 Reuters estimate, with revenues increasing 17% year-over-year (y/y) to $8.2 billion, roughly inline with the Street’s forecast. The airline said its passenger unit revenue increased 19.4% y/y driven by a favorable yield and an improvement in load factor.

Hasbro Inc. (HAS $40) reported 2Q EPS of $0.29, five cents above the consensus estimate of analysts, with revenues declining 7% y/y to $737.8 million, short of the $750 million that the Street was looking for. The toy company reaffirmed its second-half revenue forecast.

Housing data to dominate economic calendar

Treasuries are modestly lower in early trading to start the week, in which a read on the housing market comes in the form of three reports, beginning with today’s NAHB Housing Market Index, which measures homebuilder sentiment, and is expected to decline to 16 from 17, followed by tomorrow’s release of housing starts for June, expected to show a decrease of 2.9% m/m to an annual rate of 576,000 units, after plunging 10.0% in May. Meanwhile, building permits, one of the leading indicators tracked by the Conference Board, and included in the housing starts report, are forecasted to rise 0.2% m/m in June after falling 5.9% in May.

Thursday caps the week of housing data, with the release of existing home sales, forecasted to drop 9.9% m/m in June to an annual rate of 5.1 million units. Sales of existing homes reflect closings from contracts entered one to two months earlier.

Other releases on the US economic calendar include the MBA Mortgage Applications Index, initial jobless claims, and the Conference Board’s Index of Leading Indicators.

Europe overcoming sovereign debt worries on M&A activity

Stocks in Europe are higher in afternoon action as traders are digesting a plethora of equity news, and are shrugging off some disappointing news pertaining to the euro-area debt crisis. Moody’s Investors Service downgraded its credit rating of Ireland, due to a “significant loss of financial strength,” but the ratings firm moved Ireland’s outlook to stable from negative. In other euro-zone debt related news, the International Monetary Fund (IMF) and the European Union (EU) suspended talks with the Hungarian government regarding its 20 billion euro ($25.9 billion) bailout package, saying that the debt-laden nation must take tougher measures to cut its budget deficit in order to comply with requirements to receive the rescue capital.

However, some M&A news on the equity front is helping foster some resiliency across the pond, with International Power Plc. (IPRPY $48) moving solidly higher amid the announcement that it has entered into talks to merge energy assets with French power firm GDF Suez SA (GDSZF $32). Also, shares of UK engineering and manufacturing firm Tomkins Plc. (TKS $14) is up over 30% after it said it has received a 3.9 billion pound ($4.4 billion) cash bid to be acquired by Canadian private equity firm Onex Corp. (ONEXF $24) and the Canada Pension Plan Investment Board. Moreover, Nokia Siemens Networks—a joint venture between Siemens AG (SI $95) and Nokia Corp. (NOK $9)—announced that it will pay $1.2 billion for certain wireless network assets of Motorola Inc. (MOT $8). In other equity news, Electrolux AB (ELUXY $45) is under pressure after missing analysts’ core profit forecasts, while offering some lackluster demand comments, and BP Plc. (BP $37) is lower on reports that its talks to sell some assets stalled over the weekend, and on concerns its recent well cap in Gulf of Mexico may be leaking and that it may force the company to reopen the cap.

Economic news is light, with a reading of UK home prices declining month-over-month (m/m) in July, and the euro-zone current account deficit widening, while a separate report showed euro-zone construction output declining in May.

The UK FTSE 100 Index is 0.6% higher, France’s CAC-40 Index is up 0.7%, and Germany’s DAX Index is advancing 0.6%, while Ireland’s Irish Overall Index is down 0.4% and Hungary’s Budapest Stock Exchange Index is 1.9% lower.

Asia mostly lower following Friday’s slide in the US

Stocks in Asia were mostly lower in the wake of the steep losses that were seen in the US on disappointing reactions to earnings reports out of the banking sector and a larger-than-expected decline in a reading of consumer confidence. However, trading was lighter than usual in the Asia/Pacific region, with markets in Japan closed for a holiday. Meanwhile, Australian equity markets found the most pressure, as the S&P/ASX 200 Index fell 1.5% on economic recovery uneasiness, exacerbated by the soured finish to the week in the US on Friday. The dampened sentiment overshadowed some M&A news in Australia, with US private equity firms Carlyle Group and TPG Capital winning a bidding war to acquire Healthscope Ltd. (HSCPF $3), Australia’s second-largest hospital operator, sending its shares solidly higher. In political news in Australia, new Prime Minister Julia Gillard called an election for August 21st over the weekend, beginning a five-week period of campaigning in the region. Elsewhere, stocks in China were mixed, with the Shanghai Composite Index gaining 2.1%, while Hong Kong’s Hang Seng Index declined 0.8%. Rounding out the day, South Korea’s Kospi Index decreased 0.4%, while Taiwan’s Taiex Index and India’s BSE Sensex 30 Index both dipped 0.2%.