Market Update

{+++}Courtesy Trade the News

US Market Update

Dow +129 S&P +16.8 NASDAQ +43
– US equity indices are making strong gains this morning thanks to multiple big merger deals and strength in the leading bank stocks. Other asset classes are ascending with equities, as Treasuries, the greenback, front-month crude and gold are all posting gains. One notable exception to the bullish environment includes natural gas, which is down 5%, and industrial metals like copper and aluminum. Note that Former Fed Chairman Greenspan said last night that in the next two to three years we are going to have serious problems, warning that inflation will be a “great cost for the US and its trading partners.” Nevertheless bond prices continue to move higher in tandem with equities. Goldman Sachs analysts have forecasted the 10-year benchmark yield to fall below 3.25% while the long bond future trades up 20 ticks this morning with the cash yield heading back towards 4%.

– Financials are leading the gains in equity markets this morning following a raft of moderately positive press for the industry over the weekend. The FT wrote that the recent rally in markets for “toxic securities” could help boost the banks’ Q3 earnings, if they choose to book gains on mortgage-backed securities. The Wall Street Journal wrote that the US Treasury is planning new liquidity and mortgage bond purchase program tailored for state finance agencies. Under the plan, the Treasury would provide as much as $15B in new liquidity to help low-income home buyers. The program may be run by the US GSEs. Goldman Sachs may hire as many as 200 asset managers. “We are moving back on the offensive,” Goldman’s Marc Spilker told the Financial Times.

– A burst of deals announced over the weekend and this morning has some saying that Merger Monday is back. Xerox said it would acquire Affiliated Computer Services for $63.11/shr, in a deal valued at $6.4B in cash and stock deal. Xerox sees the deal as accretive in year one and believes the deal will accelerate its growth in an expanding market for business process management. Share of ACS are up 15%, while shares of XRX are down by 15%. After earlier speculation in the weekend paper, Abbott said it would buy Solvay’s prescription drug unit and vaccines business for €4.5B in cash. Abbot sees the deal as $0.10 accretive to EPS in 2010 and more than $0.20 by 2012; shares of ABT are up 4%.. The transaction also includes payments of up to €300M to Solvay if certain sales milestones are met between 2011 and 2013. GenTek agreed to be acquired by private equity firm American Securities for $38/shr in deal valued at $673M; GETI is up a whopping 40% on the news. Aspect Medical said it was being acquired by Covidien for $12/shr in cash, in deal valued at $210M. ASPM is up 55%.

– In currencies, price action in the greenback continues to be heavily influenced by equity movements. EUR/USD tested the 1.4660 area as the S&P Dec futures went over the 13 handle higher at 1,054. The Euro ignored commented from Germany’s Chancellor Merkel, who noted that there would not be no new tax cuts before 2011. The ECB’s Nowotny reiterated the view that the region’s growth would remain sluggish, but did note that the dramatic decline seen in Eastern Europe had bottomed out. Canada’s Liberal Party said it would submit a no confidence letter on Monday related to a budget issue and would hold the vote later this week once the new month begins. Liberals need the support of both the NDP and the Bloc Quebecois to topple the government and it remained unclear that it will get that support.Trade The News Weekly Update System.

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