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Pre-Market Primer: Stocks Rise Ahead of Simpson-Bowles Proposal; OfficeMax and Office Depot in Merger Talks

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M&A activity is increasing these days.

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With less than two weeks left before the date when the government budget sequester takes place, stocks are heading higher in pre-market trading.

Dow (INDEXDJX:.DJI) futures gained 0.09% at 13,961. Futures on the S&P 500 (INDEXSP:.INX) rose 0.16% to 1,519.50 and Nasdaq (INDEXNASDAQ:.IXIC) futures were up 0.24% to 2,768.00. The only major US economic data report on tap for today is the National Association of Homebuilders' February index, which economists expect to rise to 49 from 47 in January.

Investors are increasingly concerned about the still unsolved budget issues in Washington. On January 1, Congress temporarily staved off the self-imposed budget cuts and steep tax increases due because they could not resolve the "fiscal cliff" debate. Since then, American stocks have rallied more than 6%. The budget sequester will hit on March 1 if Congress does not succeed in passing a more suitable budget. Later today, Erskine Bowles and Alan Simpson, former co-chairs of the White House's deficit reduction panel, will unveil their plan for the tax code and fiscal cuts.

One sign that animal spirits are returning is an increased appetite for mergers and acquisitions. This morning, OfficeMax (NYSE:OMX) and Office Depot (NYSE:ODP) rose 20% and 34% respectively on reports in the Wall Street Journal that the two office supply retailers are in advanced talks to merge. Last week, Bloomberg reported that so far this month, $140 million of M&A deals were announced in February alone, and transaction volume is up 27% from the year-earlier period.

After the closing bell this afternoon, Herbalife (NYSE:HLF), the controversial multi-level marketing company, will report earnings. The stock has been under the radar since November, when activist investor Bill Ackman revealed that he had a massive short position on the company, which he believes is a pyramid scheme. Carl Icahn disagrees. He is long on the company. Herbalife is expected to report $1.03 per share in profit on $1.05 billion in sales for the fourth quarter.

Also after the bell, Dell (NASDAQ:DELL) is expected to report $0.39 per share of profit, down from $0.51 a year ago. The company is in the middle of a $24.4 billion deal to go private.

European stocks rose today. Good economic news came out of Germany, where the ZEW business expectation index for February came in stronger than forecast. While the surveys' index for current conditions declined by 1.9 points to 5.2, the more closely watched business expectations index rose to a three-year high of 48.2 from 31.5. Car sales in Europe fell 8.5% in January to 918,280, the worst January for sales since the Association of European Carmakers began keeping records in 1990.

Japanese stocks declined overnight after Finance Minister Taro Aso denied that the government is planning to purchase foreign bonds. The yen fell 0.45% against the dollar to 93.54.

Twitter: @vincent_trivett
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No positions in stocks mentioned.
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