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Morning Intelligence: Merger Cheer and Credit Worries

Mergers and acquisitions and a generous portion of quarterly earnings along with OPEC news is turning the stock market picture back to the plus side after Friday's selloff, though looming in the background are credit market concerns.

Even as traders are inclined to bid shares higher this morning, they'll be keeping a wary eye on credit market indexes, which slumped on Friday. On the subprime front, the new ABX BBB- 07-2, which is tied to loans made in this year's first half which, finished Friday down at 47-cents on the dollar. And the LCDX index, which tracks credit default swaps on leveraged loans,slid to 94.8 cents on the dollar, according the Markit.com, the web site that maintains the indexes.

"I'm not going to use the word subprime anymore; we don't think it encompasses what's really going on," says Kevin Ferry of Cronus Futures Managment. "It's more of a general debt view, watch the corporate market, and then of course the dollar. There were very volatile swings in the dollar last week. Those will be still be big plays in the outside of the market this week."

The Dollar index was little changed on Monday and the 10-year Treasury yield held below the 5% following a flight to quality into both the 10 year and German bunds on Friday.

A decline in light sweet crude is a positive for Wall Street's bulls after OPEC expressed concern over near record prices and said it was prepared to pump more crude if needed.

Gold also rallied Friday, receiving some flight to quality money flow. The yellow metal

The economic calendar is quiet today ahead of major reports on GDP and home sales later in the week.

On the corporate calendar, members of the Bancroft family are expected to meet in Boston today to decide whether to give final approval or rejection to News Corp's proposed buyout of Dow Jones .

M&A

Offsetting ongoing concerns about the credit market is merger-Monday news. In the offshore drilling industry, Transocean is buying smaller rival GlobalSantaFe, creating a $53 billion company. In banking, British bank Barclays has raised its bid for Dutch group ABN Amroto $93 billion. In leveraged buyouts, equipment rental company United Rentals has accepted a $4 billion takeoverbid from private equity fund Cerberus Capital Management. Computer and printer maker Hewlett-Packard announced two buyouts: It's acquiring data center automation software maker Opsware for $1.6 billionand Neoware, a thin client computing company, for $214 million.

There are also potential deals that getting attention. A report on TheStreet.com says Tellabs is considering a bid from a jointe venture of Nokia and Siemens for up to $17 a share. UBS has already commented that such a buyout would make sense and could pressure Nortel into looking at acquiring 3com or Sonus Networks.

In upgrading Anheuser-Busch to Hold from Sell, Citigroup says there's a more than 70% chance 'BUD' could merge with Belgium based brewer Inbev in the next two years.

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Earnings

On the drugs front, Merck earningsbeat the street by 10 cents a share as second quarter revenue rose to $6.1 billion versus consensus estimates of $5.7 billion on higher sales of its new vaccines and medicines. Merck also lifted its 2007 profit forecast amid continuing strong demand for the medicines. Schering Plough beat street estimates by 6 cents a share on strong sales of its cholesterol drugsand treatments for arthritis and allergies.

Hasbro posted earnings 6-cents a share above estimates and exceeded revenue estimates by more than $43 million.

Taser zapped shorts with stronger than expected earnings of 6-cents a share. Analysts were forecasting 4-cents out of the stun gun maker.

Other Upgrades and Downgrades

Citigroup upgraded Amgen from Sell to Hold on an improving risk-reward profile. Price target increased to $60 from $52.

Matrix citing valuation downgraded Freeport-McMorRan to Buy from Strong Buy.

Stifel has lifted its price target on beverage company Hansen Natural from $46 to $52 a share on expectations for continued market share gains.

Kaufman likes TiVo shares and has upgraded them from Sell to Buy. The firm lifted its price target on Tivo from $5 to $9 citing a changing business model.

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