Morning Market Update

Deals Give Lift to Bulls

Stocks are poised to move higher in early action after a spate of M&A news is boosting sentiment. Shares of 3Par Inc are over 30% higher after the company received another offer, this time from Dow member Hewlett-Packard Co, that bested the previous bid from Dell Inc. Elsewhere, Campbell Soup Co. is reported to be considering a bid for part of privately-held United Biscuits, and Potash of Saskatchewan Inc formerly rejected BHP Billiton’s offer and said it has been approached with other bids. The economic calendar is quiet today, and Treasuries are lower as the equity markets rise. Overseas, the lack of action by the Bank of Japan to address the surging yen dominated headlines, as did the indecisive election in Australia. However, both European and Asian markets also participated in the M&A fever, with Europe markets higher and Asian markets mixed.

As of 8:49 a.m. ET, the September S&P 500 Index Globex futures is 4 points above fair value, the Nasdaq 100 Index is 12 points above fair value, and the DJIA is 35 points above fair value. Crude oil is up $0. 48 at $74.30 per barrel, and the Bloomberg gold spot price is up $0.35 at $1,228.15 per ounce.

Shares of data storage company 3Par Inc (PAR $25) are over 30% higher after the company received another acquisition bid, this time from Dow member Hewlett-Packard Co (HPQ $40), for $24 in cash, or $1.6 billion in enterprise value, better than Dell Inc’s (DELL $12) bid last week of $18, which was a 87% premium at the time.

Campbell Soup Co. (CPB $37) is reportedly considering a $2.3 billion offer for part of privately-held United Biscuits PLC according to the Sunday Times. The report said Campbell is interested in the biscuit-making operations, and less in the snacks unit of the company. Neither company commented on the report.

Elsewhere in M&A news, Potash Corp. of Saskatchewan Inc. (POT $153) formally rejected the $38.6 billion, $130 per share, unsolicited buyout from BHP Billiton (BHP $68), saying it “substantially undervalues” the company, and said that it has been approached by third parties with bids. The Wall Street Journal reported a consortium led by Chinese private-equity fund Hopu Investment Management Co. is studying the feasibility of a bid for Potash, citing a person familiar with the situation, who said the group is made up of investors from Canada, the U.S. and Asia, and includes at least two sovereign wealth funds.

Economic calendar in the US quiet ahead of busy week

The economic calendar starts off Tuesday with the release of existing home sales, forecasted to drop 13.4% m/m in July to an annual rate of 4.65 million units after falling 5.1% in June and dropping 2.2% in May. The next day brings the release of new home sales, expected to be flat m/m in July to an annual rate of 330,000 after rising a surprising 23.6% in June after falling to a record low in May. Durable goods orders will also be reported on Wednesday, expected to have risen 3.0% m/m in July after falling 1.0% in June, while ex-transportation, orders are forecasted to have grown 0.5% m/m in July, after declining 0.6% in June.

The week caps off with Friday’s second reading of 2Q gross domestic product (GDP), expected to be revised much lower to 1.4% from the initial 2.4% reading, on a quarter-over-quarter annualized rate, after expanding by 3.7% in the first quarter. Since the initial reading, net trade data implied a decrease to growth, as imports (a subtraction from growth) outpaced exports, and inventory and construction data were worse than expected.

The economy entered a soft patch beginning in May, with retail sales and new home construction posting weaker-than-expected results, but manufacturing has continued to be a bright spot, with industrial production posting monthly growth in all but June this year. The market continues to be concerned about the lack of strength in the job market, with initial jobless claims rising anew and hitting the 500,000 mark last week. Corporations are uncertain about the regulatory and tax environment and looking at higher health care costs in the future. It is possible that the economic bubble going into the crisis was accompanied by over-hiring. During the downturn, companies were quick to layoff and have realized they can get by with smaller workforces, aided by use of technology, prompting productivity to surge. Additionally, small businesses continue to face difficult times and have weak forecasts for future revenues. In addition to being the primary source of job creation, small businesses are also responsible for a large portion of job losses. While a majority of economic indicators continue to show growth, albeit at a low level, recent data has demonstrated that risks to growth remain elevated.

Europe higher on M&A news

Stocks in Europe are higher in afternoon action as deal-making news boosted sentiment. HSBC Holdings PLC (HBC $49) said it is in talks with financial group Old Mutual PLC (ODMTY $15) to buy a controlling stake in South Africa’s fourth-largest bank Nedbank Group Ltd (NDBKY $36) in a deal worth as much as $6.8 billion. Sky Deutschland, Germany’s largest pay-television company, jumped after a media report that the CEO said the company was in talks to combine distribution activities with cable network operators Kabel Deutschland Holding AG and Unitymedia GmBH. Argues Industries rose after the company said it was in “very advanced” negotiations with a potential buyer for the company’s Gigaset unit.

In economic news, the euro-zone manufacturing PMI for August fell more than expected, while the services PMI came in better than anticipated.

The UK FTSE 100 Index is up 0.7%, France’s CAC-40 Index is higher by 0.8%, and Germany’s DAX Index is advancing by 0.4%.

Asia mixed, lack of action by Bank of Japan and Australian election lead headlines

Stocks in Asia were lower on continued concerns about the rate of economic recovery, with declines continuing in Japanese stocks, with the Nikkei 225 Index falling 0.7%, as the yen continues to post new 15-year highs against the US dollar. Amid continued speculation of intervention by the Bank of Japan in the currency market, traders were disappointed by the lack of action after BoJ Governor Shirakawa and Prime Minister Kan spoke by phone. According to the Chief Cabinet Secretary, there was “absolutely no” discussion of intervention in the currency market, but declined to comment on whether monetary easing was discussed. Bloomberg reported that people familiar with the matter say the BoJ is still assessing the impact of the yen on the economy, ahead of the bank’s Sept. 6-7 meeting. After markets closed, Kan met with Finance Minister Noda, and despite rumors of a possible stimulus package, Noda said that stimulus was not discussed “at all.”

Elsewhere in Asia, neither Australian Prime Minister Julia Gillard nor the opposition party won a majority in the country’s election, and both parties will likely need to negotiate with independent parties to form a majority. Resource names were higher, as opposition party leader Abbott is against the proposed mining tax, and the S&P/ASX 200 Index closed nearly unchanged. In earnings news, Australia’s Westpac Banking Corp (WBK $101) fell after its net interest margin dropped despite a 27% increase in profits. In M&A news, Foster’s Group Ltd (FBRWY $5) was higher after the Sunday Times reported that SABMiller Plc (SBMRY $29) is considering a bid for Foster’s beer unit Carlton & United Breweries, while Foster’s mentioned press reports about a potential bid in response to an Australian Securities Exchange inquiry, but didn’t elaborate. Elsewhere, China's Shanghai Composite Index rose 0.4% while Hong Kong's Hang Seng Index fell 0.4%. Earnings news was active, with China Construction Bank (CICHY $41), the world’s second-largest bank by market cap according to Bloomberg, posting a 20% increase in 2Q profits, beating estimates, Gome Electrical Appliances Holdings reporting a 66% increase in first half income, and Chinese automaker BYD Co Ltd (BYDDY $60) falling after missing earnings estimates. South Korea's Kospi Index lost 0.4%, and India’s BSE Sensex 30 Index was unchanged.