Evening Market Update

Stocks Lose Steam Late in the Day

The US equity markets gave up modest gains in the final hour of trading to finish in the red, as ongoing global concerns continue to keep the market’s upward potential in check. A busy week of domestic economic data kicked off in a positive way, as personal spending rose more than anticipated and pending home sales unexpectedly rose in February, although the Dallas Fed Manufacturing Index did see a surprising decline. Treasuries showed little reaction to the data and finished nearly unchanged. In equity news, the US International Trade Commission announced that it will review a patent-infringement complaint by Eastman Kodak against Apple and Research in Motion, while Marriott International warned that its 1Q North American revenue growth has been modestly lower than expected. In M&A news, eBay announced an agreement to acquire GSI Commerce for approximately $2.4 billion.  

The Dow Jones Industrial Average fell 23 points (0.2%) to 12,198, the S&P 500 Index decreased 4 points (0.3%) to 1,310, and the Nasdaq Composite lost 12 points (0.5%) to 2,731. In moderately light volume, 784 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.74 to $103.66 per barrel, wholesale gasoline declined $0.02 to $3.03 per gallon, while the Bloomberg gold spot price decreased $9.29 to $1,420.45 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies— was flat at 76.17.

Eastman Kodak Co . (EK $4) traded sharply higher after the US International Trade Commission (ITC) decided that it will review a patent-infringement complaint by the digital imaging and photofinishing firm against Apple Inc. (AAPL $350) and Research in Motion(RIMM $56) pertaining to technology to preview images. The announcement comes after an ITC judge ruled in January that APPL and RIMM did not infringe on EK’s patents. None of the companies involved have commented. Shares of AAPL and RIMM were lower.

In M&A news, eBay Inc. (EBAY $30) announced that it has agreed to acquire ecommerce company GSI Commerce(GSIC $29) for $29.25 per share, or about $2.4 billion. The deal will be financed with cash and debt and is expected to close in 3Q 2011. GSIC was sharply higher, while eBay moved lower.

Marriott International Inc . (MAR $35) was under solid pressure after the hotel company reported that it expects worldwide revenue per available room (RevPAR), a key industry metric, in 1Q 2011 to increase about 7%, at the low end of its previous 7-9% growth outlook. The company said demand in international markets “has been robust,” but North American RevPAR growth has been modestly lower than expected, especially in large group hotels in markets such as New York, Atlanta, Orlando and Washington DC. MAR reiterated its 1Q EPS guidance.

Personal income and spending rise, while pending home sales unexpectedly increase

Personal income rose 0.3% month-over-month (m/m) in February, just below the 0.4% gain that was expected by economists surveyed by Bloomberg, and January’s 1.0% increase was revised favorably to a 1.2% increase. Also, personal spending was 0.7% higher m/m in February, compared to expectations of a 0.5% advance, and January’s 0.2% rise was revised to a 0.3% increase. The savings rate moved lower to 5.8% in February, after an upwardly revised 6.1% for January.

Also, the PCE Price Index, which is released with the income and spending data, was up 1.6% year-over-year (y/y) in February, matching expectations, after January’s 1.2% increase was unrevised. The core PCE Price Index, which excludes food and energy, was up 0.2% m/m, inline with expectations, while y/y, core prices moved 0.9% higher, also matching the consensus estimate.

Meanwhile, pending home sales unexpectedly rose, gaining 2.1% m/m in February, compared to the unchanged reading that economists were anticipating. January’s 2.8% decline was unrevised. However, compared to last year, the gauge of the pipeline of existing home sales is down 9.3%, after falling an unrevised 4.4% in January. The increase in sales came courtesy of a 7.0% m/m gain in the West, a 4.0% rise in the Midwest, and a 2.7% advance in the South, which offset a 10.9% fall in the Northeast. The rise in the index may have been a bit of a surprise after last week’s larger-than-forecasted decline in February existing home sales and the unexpected drop to a record low in new home sales.

Also, the Dallas Fed Manufacturing Activity Index surprisingly fell, declining from an unrevised 17.5 in February to 11.5 in March, compared to the 18.4 level that economists forecasted. A reading above zero denotes expansion.

Treasuries were nearly unchanged, after showing little reaction to the data, as the yield on the 2-year note moved 2bps higher to 0.76%, the yield on the 10-year note advanced 1 bp to 3.44%, while the 30-year bond rate was flat at 4.50%.

Euro-debt concerns turn to Ireland, German Chancellor Merkel’s party loses state election

In European economic news, the ongoing euro-debt uneasiness continues to keep sentiment in check, with the Dow Jones Newswires reporting that the European Central Bank is working on a plan to provide support to the Irish banking sector, with a new facility aimed at providing medium-term loans. Ireland is set to announce the results from a new round of stress tests of its banks later this week. In political news across the pond, poll results showed German Chancellor Angela Merkel’s conservative party was defeated in a state election to the Greens party, which is an anti-nuclear group that has received support in the aftermath of the nuclear crisis in Japan. The election loss for Merkel could hamper her party’s ability to enforce policy in Europe’s largest economy. Finally, European Central Bank (ECB) President Jean-Claude Trichet continued to take a hawkish stand on inflation, saying that current inflation levels are “durably” over the target level, fueling expectations that the ECB will increase interest rates at its meeting next week.

Focus in the Asia/Pacific region was on radiation leaks at a nuclear facility north of Tokyo, which was damaged by the massive earthquake and tsunami earlier this month. The radiation levels at the facility limited efforts to repair the cooling system used to bring the temperatures of reactors down and avoid a meltdown. The lone economic release for the region was an unchanged reading in Taiwan’s Leading Index.

In addition to the aforementioned S&P/CaseShiller Home Price Index, tomorrow’s US economic calendar will include consumer confidence, which is expected to fall to 65.0 in March, after reaching a three-year high of 70.4 in February.

Economic releases on the international front tomorrow include Japan’s jobless rate, French consumer spending, the German consumer price index, Italian business confidence, and the final reading of 4Q GDP from the U.K.