Morning Market Update

Moving Higher Following Mixed Session Yesterday

The US equity markets are higher in early action as European stocks are gaining ground despite the expected rate hike by the European Central Bank tomorrow, aided by strength in financials and some favorable data out of Germany. Meanwhile, Treasuries are lower in early trading amid the rise in stocks, with a decline in mortgage applications being the lone economic report out today. In equity news, Monsanto Co exceeded the Street’s profit estimates but sales were a bit light, American Superconductor Corp is down sharply after it warned about 4Q and full-year results, while Cephalon Inc rejected Valeant Pharmaceuticals International Inc’s unsolicited $73.00 per share ($5.7 billion) proposal to acquire the drugmaker. Elsewhere overseas, Asia finished mixed, with Chinese markets moving higher despite yesterday’s rate hikes.

As of 8:51 a.m. ET, the June S&P 500 Index Globex future is 6 points above fair value, the Nasdaq 100 Index is 15 points above fair value, and the DJIA is 57 points above fair value. WTI crude oil is $0.10 higher at $108.44 per barrel, and the Bloomberg gold spot price is up $3.48 at $1,459.33 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.4% at 75.64.

Monsanto Co. (MON $73) reported fiscal 2Q EPS ex-items of $1.87, above the $1.84 consensus estimate of analysts surveyed by Reuters, with revenues rising 6.0% to $4.1 billion, compared to the $4.2 billion that the Street had forecasted.

Meanwhile, shares of American Superconductor Corp. (AMSC $25) are sharply lower after the global power technologies firm warned that its 4Q and full-year results will be lower than anticipated. AMSC said the results were impacted by a refusal by Sinovel Wind Group Co Ltd to accept contracted shipments of wind turbine electrical components and spare parts that the company was prepared to deliver.

Cephalon Inc. (CEPH $77) announced that after a thorough review, its Board of Directors has formally rejected Valeant Pharmaceuticals International Inc’s (VRX $54) unsolicited $73.00 per share ($5.7 billion) proposal to acquire the drugmaker. CEPH said the Canadian-based company’s proposal “does not fully reflect Cephalon’s standalone value.” VRX said it was disappointed by the rejection of its offer and it “remains committed to our process.”

MBA mortgage applications decline

The MBA Mortgage Application Index decreased by 2.0% last week, after the index that can be quite volatile on a week-to-week basis, declined by 7.5% in the previous week. The decrease came as the Refinance Index fell 6.2%, while the Purchase Index posted a 6.7% increase, and the average 30-year mortgage rate ticked higher by 1 basis point (bp) to 4.93%.

Treasuries are lower in morning action, with the yield on the 2-year note up 2 bps to 0.83%, the yield on the 10-year note gaining 3 bps to 3.51%, and the 30-year bond rising 2 bps to 4.53%.

Financials and German data drive Europe higher ahead of central bank policy meetings

The equity markets in Europe are higher in afternoon action, led by a solid advance in financials following some upbeat reports out of the sector and a favorable read on manufacturing demand in Germany—Europe’s largest economy. Financials are being supported by a solid gain in shares of Commerzbank AG (CRZBY $8) after the German bank outlined its plan to raise capital and repay the government. The company also said operating profit is “above plan,” per Bloomberg. Moreover, shares of Intesa Sanpaolo SA (ISNPY $18) is also moving higher to help the advance after it announced plans to raise funds to strengthen its capital position. The advance across the pond comes even as the European Central Bank (ECB) is highly expected to raise its benchmark interest rate by 25 basis points to 1.25% tomorrow, despite the festering debt crisis facing the euro-zone, with Portugal largely anticipated to be the next troubled peripheral euro-area nation to seek a bailout. Portugal sold nearly 1 billion euros in debt today and the yield demanded by lenders rose solidly again to 5.9% from 4.3% in a similar auction last month, per Bloomberg. The Bank of England (BoE) will also conclude it monetary policy meeting tomorrow, with economists expecting the central bank to keep its interest rate unchanged at 0.5%.

The economic front in Europe is also contributing to the advance in stocks, highlighted by a report showing German factory orders rose 2.4% month-over-month (m/m) in February, well above the 0.5% increase that was expected, and the y/y rate of orders rose 20.1%, exceeding the 17.4% increase the was forecasted. Other reports out today included: euro-zone 4Q GDP being unrevised at a 2.0% y/y increase, while UK home prices were below expectations, and UK manufacturing and industrial production missed expectations.

The UK FTSE 100 Index is up 0.7%, France’s CAC-40 Index is 0.1% higher, and Germany’s DAX Index is gaining 0.6%, while Portugal’s PSI 20 Index is down 0.1%.

Asia mixed following China rate hikes

Stocks in Asia finished mixed as Japan’s Nikkei 225 Index moved 0.3% lower amid continued concerns about the impact of March’s massive earthquake and tsunami that hit the nation, which caused damage to a nuclear facility north of Tokyo and a plethora of manufacturing halts in the region. The move in Japan came ahead of tomorrow’s conclusion of the Bank of Japan’s policy meeting, with some looking to see if the central bank will announce further measures to stimulate the economy in the aftermath of the tragedy. However, Tokyo Electric Power Co. (TKECY $6)—the operator of the damaged nuclear facility—announced that it has stopped radioactive water from leaking into the ocean, but shares continued to drop sharply. Meanwhile, stocks in China managed to gain ground after returning from a holiday, despite yesterday’s interest rate hikes by the government, with the Hong Kong Hang Seng Index rising 0.6% and the Shanghai Composite Index gaining 1.1%. Elsewhere, Australian stocks moved higher, with the S&P/ASX 200 Index increasing 0.3%, while South Korea’s Kospi Index declined 0.2% after reaching an all-time high yesterday. In economic news in the region, Australia’s home loans fell much more than economists forecasted and Japan’s Leading Index improved in the month preceding March’s disaster.