Morning Update

Employment dips, credit markets still frozen

The ADP Employment change showed private sector payrolls fell 8,000 in September, above the Bloomberg estimate of a 50,000 drop. Through much of the year, the government's report, which is out on Friday, has shown greater losses than ADP's report. Additionally, much of the data collected by ADP was gathered before the latest credit crunch and may not be giving an accurate picture of the current job market.

The ISM Manufacturing Index will be released at 10 a.m. ET, and 0.4 point decline in September to 49.5 is forecast. Like the ADP report, the report may appear stale since much of the activity measured is likely to have occurred before the latest flare-up in the credit crisis.

The overnight Libor lending rate fell sharply but remains elevated after central banks continued to flood the financial system with cash. The three-month Libor rate, however, rose 10 basis points to 4.15%, signaling that credit markets remain frozen as the high level of fear encourages financial institutions to hoard cash and avoid intra-bank lending.

The US MBA Purchase Index fell 10.9% to 304.8, the worst reading since February 2002. The weekly index of home purchases can be volatile, but the unprecedented volatility in the credit markets and uncertainty among potential homebuyers was likely responsible for the decline. If credit markets remain frozen for much longer, we may see further declines in housing as well as in aggregate output.

Europe holds onto gains

Stocks in Europe opened on a positive note following Tuesday's rebound on Wall Street, with mining and steel companies adding to Monday's advance, while banking shares gained ground amid expectations that US lawmakers will soon pass a financial rescue package. But weakness in autos and disappointing economic data countered the upbeat sentiment seen early this morning and the market has pared gains.

Porsche (POAHF $107) is down sharply after reporting revenues for fiscal 2008 rose 1.3% to 7.5 billion euros and declined to give a forecast due to the uncertain outlook in the economy. Daimler (DAI $51) is also lower, despite denying market chatter that it plans to issue a profit warning. Platinum producer Lonmin (LNMIY $41) is off close to 20% after Xstrata (XSRAY $7) backed away from its bid to buy the company and cited that a lack of clarity regarding the availability of credit increased the financing risks. Since making its unsolicited offer in early August, platinum prices have dropped 35%

The unemployment rate in the eurozone rose from an upwardly revised 7.4% in July to 7.5% in August, the highest rate since April 2007 and north of the forecast of 7.4%. The larger-than-expected rise in the jobless rates indicates that businesses are seeing depressed demand amid sluggish growth in overseas markets, tight credit, and still-high oil prices. The rise is also a concrete sign European business confidence is waning. Meanwhile, European Central Bank President Jean-Claude Trichet urged the US Congress to pass the bailout plan. Trichet said on Bloomberg TV that he is confident the package will pass, noting that it has to be approved, "for the sake of the US...and global finance."

Australia recovers but Tokyo lags

Stocks in Australia surged 4.2% in the wake yesterday's gains in New York, erasing Tuesday's steep slide that was tied to the US House's rejection of the rescue plan. But gains in Tokyo were much more muted after a key survey on economic sentiment limited the advance in the Nikkei 225 Index to 1.0%. The Tankan Large Manufacturers Index fell from 5 in 2Q to -3 in 3Q, below the forecast of -2 and the first time the index has fallen below zero in over 5 years. The Non-Manufacturing Index fell much more than expected, indicating confidence in the economy is low amid deteriorating global credit conditions and stalled activity in the US and Europe.