Markets Meet Week With Optimism

Traders remain optimistic after two weeks of stock market gains. U.S. major markets are brushing aside the Greek debt crisis, tighter credit rules in China and a surprise change in the discount rate at the Federal Reserve.

This will be a busy week for news with plenty of news on the economy, a flurry of retail company earnings reports, and a controversial health care summit.

U.S. stocks are up in the pre-market in anticipation of a positive week, particularly for retail company earnings.

Market Review

In overseas equity markets this morning, major Asian markets were generally higher. Japan's Nikkei 225 index rose 2.7 percent today on improved export news riding on the shoulders of a weaker yen.

China's Shanghai Shenzen index dropped 0.6 percent on concerns that the Chinese government would tighten policy significantly in coming months following the People's Bank of China raising reserve requirements by 50 basis points on February 12. Today was the first day investors in China have been able to react to the news after a week-long Chinese New Year holiday.

Hong Kong's Hang Seng was higher by 2.4 percent.

South Korea’s Kospi Composite gained 2.1 percent.

The Australian ASX 200 market was up 1.7 percent.

European equity markets advanced on Monday. The German DAX index is higher by 0.3 percent. Britain's Footsie 100 index gained 0.4 percent.

U.S. stock futures are higher by 0.4 percent in Monday's pre-market action.

Oil futures are flat this morning, with the March contract trading just under $80 a barrel this morning.

Spot gold is also flat, trading at just over $1,120 an ounce this morning.

Despite the continued debt crisis in the eurozone, the euro was slightly higher versus the U.S. dollar at $1.3619, versus $1.3603 late Friday. The dollar index, a basket of market weighted currencies, is at 80.49 just before U.S. markets open this morning.

Euro Still At Risk

Financier George Soros writes in the Financial Times "A makeshift assistance should be enough for Greece, but that leaves Spain, Italy, Portugal, and Ireland. Together they constitute too large of a portion of euroland to be helped in this way."

Currency traders are also signaling that the euro is likely to continue to drift downward regardless of European Union actions. Aggressive deficit reduction in debt challenged European nations would reduce economic growth. A bailout by Europe would set a precedent for larger countries that could lead to a monetary "printing press" spiral increasing inflation. Either way, the euro is expected to continue moving lower over the long-run against the U.S. dollar.

Obama Proposes Price Controls on Health Insurance

Health insurers are likely to take a hit this week as President Obama is expected to introduce price controls on health insurance premiums as part of a White House revision to the Senate health care reform bill.

The proposal comes on the heels of political criticism of Anthem Blue Cross of California raising health premiums an average of 25 percent. Anthem is a subsidiary of the nation's second largest health insurance WellPoint Inc. (WLP). UnitedHealth Group (UNH) is the largest health insurer by revenue.

This proposal comes in advance of an election-year summit convened by the White House for Thursday, February 25. The summit is controversial because the President wants to start the debate based on the Senate bill while Republicans want to start over on a health care bill.

Economists are skeptical about price controls in general, with a reduction in access to health services and reduced quality of care as likely outcomes of setting prices in markets.

GlaxoSmithKline Drug Safety Concern

GlaxoSmithKline’s (GSK) shares could take a hit today as the New York Times is reporting that the company's diabetes medicine Avandia weakens the heart, increasing chances of heart failure. The Times reported, “If every diabetic now taking Avandia were instead given a similar pill named Actos, about 500 heart attacks and 300 cases of heart failure would be averted every month because Avandia can hurt the heart.”

More on the Fed Exit Strategy

Federal Reserve Chairman Ben Bernanke heads to Capitol Hill on Wednesday and Thursday to testify in his semi-annual report on the state of the economy and monetary policy. Given the move in the discount rate last Thursday, everyone will be looking for more clues on the Fed's exit strategy.

Economic Preview

On the economic front, the U.S. government will auction off $126 billion in notes and bonds today. Observers are curious to see what price and yield the bonds will receive given the recent hike in the Fed's discount rate from 50 basis points to 75 basis points.
Durable goods orders for January will be released on Thursday. The consensus expectation is for a 1.5 percent jump in durable goods, up sharply from the 0.3 percent increase in December.

The fourth quarter GDP number will be revised on Friday. No change is expected from the preliminary number with a consensus annualized growth rate of 5.7 percent.

Also on Friday, existing home sales for January will be released. Economists are estimating the annualized sales rate was 5.5 million last month.

Earnings Review

This week has several major retail earnings reports on the heels of disappointing first quarter guidance from the world's largest retailer Wal-Mart (WMT) last week. The company reported adjusted earnings of $1.17 per diluted share, beating analyst estimates of $1.12 last week. JC Penney also beat the street with $1.02 in profits per share on expectations of 82 cents per share.

Home improvement giant, Lowe's Companies (LOW) reported 14 cents per share profits this morning before the market opened with analyst estimates of 12 cents per share. The company indicated costs cutting and modest sales improvement boosted fourth-quarter profits. The company also forecast first-quarter earnings guidance short of analyst expectations, with first-quarter earnings of 27 to 29 cents per share. Analysts were forecasting 33 cents per share.

Constellation Energy (CEG) reported fourth-quarter earnings of 30 cents a share, missing street estimates of 31 cents per share. The company reaffirmed its guidance of $3.05 to $3.45 a share for 2010 and provided 2011 guidance of $3.45 to $3.85 a share profits.

Earnings Preview

Nordstrom (JWN) is scheduled to report later today after the market closes with analysts expecting earnings per share of 79 cents per share.

Forest Oil Corp. (FST) is forecast to report earnings of 61 cents a share in the fourth quarter.

Home Depot (HD) will report on Tuesday before the market opens with expectations of 17 cents per share. Also reporting earnings early on Tuesday is Macy’s (M) with a per share target of $1.32 and Target (TGT) with expectations of $1.16 profits per share.

TJX Companies (TJX) will release earnings on Wednesday before the market opens. Current consensus earnings estimates are for 91 cents per share.

Kohl's (KSS) will report on Thursday before the market opens with earnings expectations of $1.37 per share.

Human Genome (HGSI) is expected to report after the close on Thursday with consensus estimates of minus 11 cents per share.

Dryships (DRYS) is expected to report after the close on Thursday with consensus estimates of minus 23 cents per share.

On Friday before the market opens, Ship Finance (SFL) is expected to report earnings per share of 48 cents per share.

Frontline Limited (FRO) will also report on Friday with expectations of 11 cents per share.

Other companies reporting earnings this week include the Gap (GPS), Chico’s (CHS), Barnes & Noble (BKS), Safeway (SWY), Blockbuster (BBI), Office Depot (ODP), and Saks (SKS).

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