Morning Market Update

Week Begins Benign

The US equity markets are nearly unchanged in early action with traders grappling with a better-than-forecasted profit report from Citigroup Inc and lingering concerns regarding the potential impact on the financial sector of a festering foreclosure problem. Treasuries are higher in early action ahead of the releases of industrial production and capacity utilization and a read on homebuilder sentiment. In other equity news, Hasbro Inc posted profits that exceeded the Street’s projections and Northeast Utilities and NSTAR announced a merger for a transaction value of about $4.3 billion in stock. Overseas, Asia was mostly lower, while Europe is mixed on a diverse dose of equity news.

As of 8:53 a.m. ET, the December S&P 500 Index Globex future is 1 point above fair value, the Nasdaq 100 Index is 1 point above fair value, while the DJIA is 49 points above fair value. Crude oil is up $0.34 at $81.59 per barrel, and the Bloomberg gold spot price is down $5.70 at $1,362.70 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.4% at 77.33.

Citigroup Inc. (C $4) announced 3Q earnings ex-items of $0.08 per share, above the $0.06 consensus estimate of analysts surveyed by Reuters, with revenues declining 10.4% year-over-year (y/y) to $20.7 billion, below the $21.1 billion that the Street was expecting. The company said its provisions for credit losses declined by $746 million quarter-over-quarter (q/q), to the lowest level since 2Q 2007, reflecting “continued improvement in credit quality.”

Hasbro Inc. (HAS $45) reported 3Q EPS of $1.09, five cents above the estimate of analysts, with revenues increasing 3% y/y to $1.3 billion, roughly inline with the Street’s forecast. The toy maker said revenue grew in its preschool, boys and games & puzzles categories. HAS said it continues to believe it should be able to grow revenues and EPS for the full-year 2010, including dilution from its television investments and barring a further decline in consumer spending, global economic conditions or foreign exchange.

In M&A news, Northeast Utilities (NU $31) and NSTAR (NST $40) announced that both companies’ Boards of Trustees have unanimously approved a definitive merger agreement that will create one of the nation’s largest utilities, with a total enterprise value of $17.5 billion. The combined company will continue to be called Northeast Utilities, and in a $4.3 billion stock transaction, NST shareholders will receive 1.312 NU shares for each share of NST they own.

Manufacturing and housing reports set to kick off economic week

Treasuries are higher in early action ahead of the first piece of economic data for the week, which will come in the form of the September reading on industrial production, expected to rise 0.2% month-over-month (m/m), the same rate of advance posted in August, and capacity utilization, forecasted to inch up to 74.8% from 74.7% in August. Industrial production has been a source of strength thus far this year.

Later this morning, we will also get the release of the NAHB Housing Market Index, and the gauge of homebuilder sentiment is expected to increase slightly from 13 in September—the lowest level since March 2009—to 14 for October. Any reading below a level of 50 indicates more respondents feel conditions are poor.

Tomorrow, the focus on the housing market will continue with the release of the report on housing starts for September, expected to fall 3.0% m/m to an annual rate of 580,000 units, after posting a surprising 10.5% increase in August. Meanwhile, building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, are forecasted to rise 0.7% m/m to 575,000 units after increasing 1.8% in August.

However, the highlight of the week will likely come on Wednesday with the release of the Federal Reserve 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 November 2-3. There has been a lot of attention focused on whether the Fed will announce another round of quantitative easing.

Other releases on this week’s US economic calendar include: the MBA Mortgage Applications Index, weekly initial jobless claims, the Conference Board’s Index of Leading Indicators, and the Philly Fed Manufacturing Index.

Europe mixed as traders mull data from corporate sector

Stocks in Europe are mixed in afternoon action with financials gaining ground as the growing uneasiness regarding the foreclosure mess facing the US banking sector is being offset by the surge in shares of London-based BlueBay Asset Management Plc. on the report that Royal Bank of Canada (RY $55) will acquire the company for 963 million pounds ($1.5 billion). Also, financials received a slight boost from the better-than-forecasted earnings report from Citigroup. Meanwhile, materials are being pressured by the announcement that BHP Billiton (BHP $82) and Rio Tinto (RIO $66) scrapped an iron ore joint venture due to opposition from regulators. In other equity news, shares of Philips Electronics (PHG $34) are under solid pressure after the lighting company said it was “cautious” about its sales outlook because the economic climate is “uncertain” and consumer sentiment is “fragile,” per Bloomberg. The economic calendar across the pond is relatively light, with the lone major release being a report that showed UK home prices rose in October.

The UK FTSE 100 Index is 0.1% higher, France’s CAC-40 Index is 0.1% lower, and Germany’s DAX Index is advancing 0.3%.

Asia mostly lower as traders lack conviction

Stocks in Asia were mostly lower amid some profit taking as traders found sources of inspiration scarce as worries about the potential foreclosure crisis in the US banking sector outweighed the increased expectations of further US Federal Reserve stimulus efforts. China’s Shanghai Composite Index declined 0.5%, the Hong Kong Hang Seng Index fell 1.2%, South Korea’s Kospi Index dropped 1.4% and Taiwan’s Taiex Index decreased 1.8%. However, India’s BSE Sensex 30 Index gained a modest 2.2% and Japan’s Nikkei 225 Index was flat amid some upbeat corporate sector news, highlighted by a report that Toyota Motor Corp. (TM $72) was considering further expansion in Mexico, due to the strength in the Japanese yen, which helped offset today’s continued advance in the yen, remaining near the highest level compared to the US dollar since 1995. Toyota Motor Corp. did not comment on the report. Elsewhere, Australia’s S&P/ASX 200 Index declined 0.8% amid the weakness in shares Rio Tinto and BHP Billiton after the two mining giants scrapped an iron ore joint venture. However, a surge in shares of Perpetual helped limit the decline after the Australian asset manager reported that it had received a $1.7 billion takeover offer from a US private equity firm. The Asian economic calendar was relatively light, with reports showing Japanese department store sales fell in September and new vehicle sales rose in Australia for September.