Morning Update

Upcoming events

Like last week, the focus on the action in the credit markets and the government's proposed rescue package designed to support confidence in the financial system may take priority over economic reports this week, though a couple of notable reports on the housing sector may get some attention. Existing home sales will be out on Wednesday followed by new home sales on Thursday. Other reports this week include durable goods orders and weekly jobless claims on Thursday and the final look at 2Q GDP on Friday.

What is likely to get plenty of attention is Tuesday's testimony from Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke before the Senate Banking Committee on the government takeover of Fannie Mae (FNM $0.69) and Freddie Mac (FRE $0.55 1) and the recent turmoil in the credit markets. On Wednesday, Bernanke and Paulson will testify before the House Financial Service Committee on the government's proposal to intervene in the capital markets.

Asia gains but Europe unsteady

Following Friday's surge in stock prices, European markets are falling and are tracking US equities in choppy trading as traders await approval of the plan to unfreeze the clogged credit markets and assist financial institutions, which have been bogged down by toxic real-estate related debt. Further gains in oil and commodity prices are lifting energy and mining companies; however, the recent sharp gains are stoking concerns about inflation and the potential impact on spending, sending retailers and automakers lower.

Despite the US government's proposed rescue package, credit markets are still not fully functional but conditions have eased somewhat. The overnight Libor rate in dollars fell from 3.25% to 2.97%, while the three-month rate fell by just one basis point to 3.20%, suggesting that banks continue to hold onto excess cash.

Asian shares rallied sharply in the wake of the steep gains in Europe and the US on Friday. Australian stocks surged 4.5% after regulators instituted a rule banning short selling in the equity markets. Taiwan, which announced new restrictions on selling short, closed up over 2%. The unprecedented bailout plan also lifted stock in Japan, which finished up 1.4%. China's Shanghai Composite Index was the top performer, gaining 7.8%. Shares were supported by the announcement by regulators that it plans to waive rules regarding stock buybacks, removing barriers to share repurchases.