Morning Market Update

Global M&A Keeping Markets in the Green      

US stocks are higher in early action following a solid week of gains capped off by a favorable US labor report on Friday, as a plethora of global M&A deals is helping to support sentiment. Dow member Pfizer Inc announced that it has reached an agreement to sell its Capsugel business to private-equity firm KKR & Co for $2.38 billion, Vodafone Group Plc greed to sell its stake in French mobile phone company SFR to Vivendi SA for $11.3 billion, and China’s Minmetals Resources Ltd. announced that it has made an unsolicited bid to acquire Australian-based Equinox Minerals Ltd. for $6.5 billion in cash. Treasuries are higher as there are no major economic reports scheduled for today, but central bank reports later this week are likely to grab the lion’s share of attention. Overseas, Asia was mostly higher, while Europe is gaining ground. 

As of 8:46 a.m. ET, the June S&P 500 Index Globex future is 3 points above fair value, the Nasdaq 100 Index is 8 points above fair value, and the DJIA is 21 points above fair value. WTI crude oil is $0.06 higher at $108.00 per barrel, and the Bloomberg gold spot price is up $8.50 at $1,437.30 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.1% at 75.75.

In relatively light US equity news, Dow member Pfizer Inc. (PFE $20) announced that it has entered into an agreement to sell its Capsugel business for $2.38 billion in cash to private-equity firm KKR & Co. (KKR $17). Capsugel is a world leader in pharmaceutical and dietary supplement capsules and generated $750 million in revenue in 2010.

Central banks to likely garner the week’s spotlight

Treasuries are modestly higher in morning trading as there are no major US economic reports scheduled to be released today. The yield on the 2-year note is down 3 bps at 0.77%, the yield on the 10-year note is 1 bp lower at 3.43%, and the 30-year bond yield is flat at 4.49%.

This week’s economic events will be focused on global central banks, headlined by Thursday’s policy meetings from the European Central Bank (ECB) and the Bank of England (BoE), as well as tomorrow’s release of the US Federal Reserve’s minutes from its March 15 meeting. A rate-hike of 25 basis points to 1.25% by the ECB is widely expected and the BoE is expected to leave its benchmark interest rate unchanged at 0.50%. Support from central banks to Europe’s banking system in terms of easy monetary policy is waning, with a possible ECB rate hike in April, and concerns over inflation in the United Kingdom causing division within the BoE. Also, fiscal austerity will continue to weigh on growth and employment in Europe and the UK. We remain concerned about the ability for the UK and the eurozone economies to grow in the face of these headwinds.

Other reports on this week’s economic calendar include: the ISM Non-Manufacturing Index, MBA Mortgage Applications, weekly initial jobless claims, consumer credit, and wholesale inventories.

M&A helping lead the way in Europe

The equity markets in Europe are mostly higher in afternoon action, led by materials and telecommunications issues on the heels of some major M&A announcements in the sectors. Shares of Vodafone Group Plc. (VOD $29) are higher after the company agreed to sell its stake in French mobile phone company SFR to Vivendi SA (VIVHY $29) for 7.95 billion euros ($11.3 billion). Moreover, shares of Rhodia SA (RHAYY $29) are sharply higher after the specialty chemicals company reached an agreement to be acquired by Solvay SA (SVYZY $91) for 3.4 billion euros ($4.8 billion). However, gains are being limited by growing expectations of a rate-hike by the European Central Bank (ECB) following its Thursday meeting, exacerbated by a report that showed euro-zone producer prices rose 6.6% year-over-year (y/y) in February, from 5.9% in January, and a separate release that showed investor confidence deteriorated by a larger amount than economists forecasted. In other economic news, UK PMI Construction came in above expectations, while Italy’s deficit-to-GDP was lower than forecasted.

The UK FTSE 100 Index is up 0.4%, Germany’s DAX Index is gaining 0.2%, and Italy’s FTSE MIB Index is rising 0.3%, while France’s CAC-40 Index is unchanged.

Asia mostly higher following Friday’s US jobs report

Stocks in Asia finished mostly higher in relatively light trading with some markets in China and Taiwan closed for holidays, with Friday’s favorable US jobs report helping support sentiment. Japanese markets continued to be hamstrung by the aftermath of March’s massive earthquake and tsunami, with concerns about radiation leaks at a damaged nuclear facility remaining in focus. Japan’s Nikkei 225 Index rose 0.1% on the heels of the gains in the US last week, but optimism was held in check by details on the sentiment of the nation’s large manufacturers as the government released a breakdown of its 1Q Tankan Survey of Large Manufacturers, which showed post-disaster responses calling for business conditions in the coming months to worsen as the sector deals with power outages and production halts as a result of the tragedy. However, Australian stocks moved higher, with the S&P/ASX 200 Index gaining 0.5%, supported by M&A activity after China’s Minmetals Resources Ltd. announced that it has made an unsolicited bid to acquire Australian-based Equinox Minerals Ltd. (EQXMF $6) for $6.5 billion in cash. Elsewhere, South Korea’s Kospi Index slipped 0.2% after reaching an all-time high earlier in the day, with refining issues leading to the downside, while Hong Kong’s Hang Seng Index and India’s BSE Sensex 30 Index were the best performers in the region, as both posted gains of 1.5%.