Overnight gains in Asian markets pushed our futures higher by more than 7 points at 4:AM. China's lower manufacturing output released today was actually a relief for global investors because it meant there was less chance of China taking additional measures to slow their economy.

China said its Purchasing Managers Index (PMI) continued to show an expansion of manufacturing in China but at a lower rate than in January. The PMI came in at 52 for February, down from 55.8 in January. The PMI hit a high for this cycle in December at 56.6. The new orders component rose for the 11th consecutive month. The export orders component showed the strongest reading in nearly five years. The PMI is based on data collected from more than 700 companies across China.

PMI Chart

The Greek debt problem continues to be confusing. On Friday there were stories out that Germany and France were going to offer Greece a bailout package predicated on some stricter austerity measures. On Saturday German officials flatly denied the story saying there was no truth to the rumors. On Sunday the story resurfaced as a debt guarantee, then as a debt purchase by all the EU central banks.

Monday morning, Germany's chancellor reiterated the country's opposition to EU countries bailing out Greece. However, she did not rule out state-owned banks buying Greek debt. The EU Financial Affairs chief Olli Rehn pressed Greece on Monday to make additional cuts in spending to meet EU deficit targets before any aid could be discussed.

Copper prices soared because of the earthquake in Chile. Investors feared the damage to the country would prevent the copper from being mined or from making its way to export points. Copper futures rose 4.5% overnight but have fallen from their highs to only a +1.9% gain.

Copper Chart

British oil company BP Plc, saw its shares jump after it was upgraded to buy from neutral at Bank America Merrill Lynch. BAML said the recent sell off made it a compelling opportunity. BP has been under pressure as Russia tries to strong arm a takeover of the TNK-BP project. Russia has forced nearly every major oil company out of the country so local firms could have the benefit of the production. Russia does this with things like EPA violations or revocation of their franchise license for not producing enough even when there is no pipeline to accept the production. BP claims everything is under control but they have to say that to prevent a further meltdown of the stock and the situation.

Oil prices traded over $80.50 this morning as institutional traders continued to add to longs. The CFTC said Friday that traders added to net longs for the second straight week. Open interest in net long positions exceeded short positions by 85,352 contracts. That is a 25% rise from the prior week. Institutional investors increased net short positions in natural gas futures for the second week. Short contracts rose to 166,291 from 154,292. Traders have been net short since March 2007.

AIG said it was in advanced talks to sell its Asian insurance unit to Prudential for $35 billion. That would help ease the pain the government is feeing over the $182.5 billion investment in AIG. The government currently owns 80% of AIG. On Friday AIG said it lost $8.87 billion in Q4 due to a weak insurance market.

The ISM Manufacturing Index fell to 56.5 in February from 58.4 in January. This is still in expansion territory but the decline was larger than anticipated. The weakest components were the new orders and production. New orders hit a five-year high in January at 65.9 so a decline in February to 59.5 is not that bad. On the positive side the employment component rose from 53.3 to 56.1 and that suggests the nonfarm payroll report on Friday may not be as bad as some expected.

ISM Chart

Other economic reports showed personal income rose only +0.1% in January compared to +0.4% in December and estimates for a +0.4% gain. Construction spending fell by -0.6% in January compared to a -1.2% drop in December and consensus estimates for a -0.7%.

Transunion said customers at least 60 days past due on their mortgage payments rose to a new record high in Q4. The credit reporter said 6.89% of all borrowers were at least two months behind. It was the 12th straight quarter of rising delinquencies. Transunion monitors 27 million consumer records.

Despite the solid gains in the market today the indexes remain under strong resistance. The S&P rose to 1115 and that is the 50% retracement level from the March 2009 lows. This proved to be strong resistance back in Nov/Dec and again in February. A move over 1115 would be bullish and should bring more buyers in from the sidelines.

S&P Chart

Oil prices rose to $80.62 overnight and there were several pieces of good news from Rowan (RDC) and El Paso (EP) but it was not enough to keep oil prices up. As of 1:PM crude has declined to $78.50 and is continuing to fall. There has not been any specific news and this is probably just profit taking after having stalled at $80.50 several times over the last week.

Jim Brown