Morning Market Update

Flat Beginning to Week

The equity markets are nearly unchanged in morning action as traders reflect on September’s uncharacteristically strong advance, aided by last week’s gains on the heels of some favorable US economic data, while waiting to see what this week’s economic calendar has in store. Treasuries are higher in early trading as there are no major reports on today economic docket, but key reports on GDP, manufacturing, housing, and personal income and spending are due out later this week. Meanwhile, M&A news is in focus this morning, with Dow member Wal-Mart Stores Inc announcing a non-binding proposal to acquire South African retailer Massmart Holdings Limited, Southwest Airlines Co reporting that it has reached an agreement to acquire AirTran Holdings Inc, and Unilever Plc. reaching an agreement to acquire Alberto-Culver Co. Overseas, Asia was broadly higher after last week’s strong advance in the US, while Europe is nearly unchanged in afternoon action as M&A is being offset by lingering banking sector concerns.

As of 8:54 a.m. ET, the December S&P 500 Index Globex future is 1 point above fair value, the Nasdaq 100 Index is at fair value, while the DJIA is 6 points above fair value. Crude oil is up $0.22 at $76.71 per barrel, and the Bloomberg gold spot price is up $2.55 at $1,298.50 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.1% at 79.28.

In M&A news, Dow member Wal-Mart Stores Inc. (WMT $54) announced that its has made a preliminary, non-binding proposal which could, if successful, lead to the world’s largest retailer making a cash offer to acquire South African retailer Massmart Holdings Limited (MMRTY $39) for about ($4.6 billion).

Elsewhere, Southwest Airlines Co. (LUV $12) announced that it has reached an agreement to acquire AirTran Holdings Inc. (AAI $5)—the parent of AirTran Airways—in a transaction valued at more than $1.37 billion. The companies said the acquisition expands LUV’s route network to Atlanta and around that nation.

Data on manufacturing, personal spending, and final 2Q GDP to come later in the week

Treasuries are higher in morning action, with today’s economic calendar void of any major releases, but the rest of the week will yield reports on manufacturing, personal income and spending, housing, and the final reading of output in the US for 2Q.

The week starts off slow, with Tuesday’s July reading of the S&P/CaseShiller Home Price Index, which lags the sales data by a month, forecasted to rise 3.10% year-over-year (y/y), while falling 0.05% month-over-month (m/m).

Thursday brings the final reading of 2Q gross domestic product (GDP), expected to be unrevised at a 1.6% quarter-over-quarter (q/q) annualized rate, after expanding by 3.7% in the first quarter. The final report on GDP typically does not change much from the second reading, and economists are expecting personal consumption to remain at 2.0% and no adjustments to inflation readings, with the GDP Price Index at 1.9%, and the core PCE Index, which excludes food and energy, at 1.1%.

The week concludes with the September release of the ISM Manufacturing Index, expected to decline to 54.5 from 56.3 in August. The level that separates expansion from contraction is 50.0. The ISM Non-Manufacturing Index will be released the following week, and is forecasted to increase to 52.4 from 51.5.

Other releases on the US economic calendar this week include: consumer confidence, the Richmond Fed Manufacturing Index, the MBA Mortgage Applications Index, weekly initial jobless claims, the Chicago Purchasing Manager Survey of manufacturing and services sectors, personal income and spending, construction spending, and the final University of Michigan Consumer Sentiment Index for September. Please note, while the US labor report is typically released on the first Friday of the month, September’s data will be reported next Friday.

Europe nearly unchanged as M&A offset by lingering banking sector concerns

Stocks in Europe are hovering around that flatline in afternoon action, as optimism from a substantial M&A announcement is being limited by continuing uneasiness about health of the euro-area banking sector. Concerns toward the group came as Moody’s cut its ratings on government-controlled Anglo Irish Bank’s senior unsecured debt by three notches to one level above junk status, due to a small risk the government would not continue to support that class of debt, per Reuters. Meanwhile, UK consumer products firm Unilever Plc. (UL $29) reported that it has agreed to acquire US-based hair care firm Alberto-Culver Co. (ACV $31) for $37.50 per share in cash or about $3.7 billion. In other equity news, shares of AstraZeneca Plc. (AZN $53) are lower after the drugmaker’s prostate cancer pill failed to show improved survival in a late-stage trial, and it said it has no plans to submit the treatment for regulatory approval at this time.

The economic calendar across the pond is relatively light, with a UK housing survey declining m/m in September, euro-zone money supply increasing more than economists expected in August, Sweden’s trade balance unexpectedly swinging to a deficit, and Spain’s mortgages falling in July.

The UK FTSE 100 Index and France’s CAC-40 Index are 0.1% lower, Germany’s DAX Index is flat, Spain’s IBEX 35 Index is declining 0.7%, and Sweden’s OMX Stockholm 30 Index is decreasing 0.3%, while Ireland’s Irish Overall Index is 0.2% higher.

Asia broadly higher following strong advance in US on Friday

Stocks in Asia posted broad-based gains as global recovery optimism lifted the major equity markets in the region on the heels of the favorable durable goods report out of the US, which led a strong advance on Friday. Japan’s Nikkei 225 Index rose 1.4% led by export issues and equities tied to manufacturing of goods intended to last more than three years following the data out of the US, offsetting some lingering concerns about the recent surge in the Japanese yen, which has threatened profits of companies that rely on sales abroad and the overall economy. The strength in the yen was evident in a report that showed Japanese exports rose at a much smaller rate than forecasted by economists in August, while imports exceeded expectations. However, consumer lenders came under pressure to limit the gains in Japan, as trading in Takefuji Corp. (TAKAY $2) was restricted today amid a media report that the lender is making preparations to file for bankruptcy protection. The company said it is considering various steps to restructure itself, per Bloomberg.

Meanwhile, China’s Shanghai Composite Index gained 1.4% in the first trading session since last Tuesday due to a holiday, even after reports showed Chinese leading indicators for August deteriorated, and the rate of industrial profits decelerated solidly. Moreover, Hong Kong’s Hang Seng Index rose 1.0% amid the improved global recovery sentiment and following a report that showed the nation’s trade deficit narrowed much more than anticipated in August. Shares of Television Broadcasts (TVBCY $10) were sharply higher to help the advance in Hong Kong amid reports that a prominent investor is seeking a stake in the company. Elsewhere, South Korea’s Kospi Index increased 0.8% amid the broad advance in the region, but shares of Hyundai Motor Co. (HYMLF $67) came under pressure to limit gains in the nation after the country’s largest automaker said it will recall almost 140,000 vehicles in the US due to steering issues. Moreover, the sweetened sentiment toward the global economic prosperity supported metals and commodity prices and stocks in the resource-reliant nation of Australia, with the S&P/ASX 200 Index rising 1.6%. Rounding out the day, Taiwan’s Taiex Index increased 0.3%, as a decline in a gauge of leading indicators limited enthusiasm, and India’s BSE Sensex 30 Index rose 0.4%.