Morning Update

Positive Start to the Week

Government actions to ease lending conditions are helping to stabilize credit markets, which is aiding US and global stock markets. Profit reports were fairly light this morning, with upbeat numbers from Halliburton, Ericsson, and Hasbro, but Mattel missed. However, 3Q earnings season will quickly ramp up this week, and the results and any guidance provided will give us a better picture of the economic landscape. Traders will also be glued to testimony from Fed Chairman Ben Bernanke later this morning. Treasuries are falling, while in China, GDP growth slowed to a five-year low.

Waiting on Ben

Fed Chairman Ben Bernanke will testify about the economy before the House Budget Committee at 10 a.m. ET this morning. Following his remarks last week on economic activity, Bernanke will probably warn that the economy faces a period of instability and a recovery may take some time. As always, his remarks will be followed closely by the Street and may overshadow Fed Atlanta Chief Dennis Lockhart, who will speak on the economy later this afternoon.

Other than Bernanke's testimony this morning, economic information will be very light this week. The Leading Index will be out at 10 a.m. ET this morning, and the index designed to forecast economic activity is expected to fall for the fourth month in five. The next major release will be weekly jobless claims on Thursday followed by existing home sales on Friday. Sales, which have steadied in recent months, are expected to be up 0.8%. Lower prices have attracted some buyers, and the credit crisis, which hit in mid September, is not expected to have much of an impact on sales since contracts were likely signed in July or August.

Profits, easing credit conditions fuel Europe advance

Stocks in Europe are following overnight gains in Asia and are up close to 2% as credit markets continue to improve and Ericsson (ERIC $7) records strong profits. The top maker of wireless infrastructure posted 3Q net earnings of 2.8 billion kronor, beating the consensus view of 2.3 billion kronor. Ericsson said sales were up in all regions except Western Europe, while cost cuts also bolstered profits. The company is planning for a flat market next year, and it is not sure how the credit crisis may impact customers, but most of its operators are financially strong. Shares are up over 20%. ING Groep (ING $11) is also posting a gain in excess of 20% after receiving a 10 billion euro cash injection to shore up its finances from the Dutch government.

Asia improves

Japan's Nikkei 225 Index jumped 3.6% and was helped by a drop in the yen and reports from the Nikkei newspaper that earnings from key companies may impress. The respected financial daily said Panasonic (PC $15), formerly known as Matsushita Electronic Industrial Co., Nippon Steel (NISTY $32) and JFE Holdings(JFEEF $21) will post strong profits. Nonetheless, the Bank of Japan cut its view on the economy. Meanwhile, diminishing fears over the credit crisis also aided shares across Asia, with Hong Kong rising over 5% and Australia closing up over 4%. Seoul's Kospi Index advanced 2.3% after the South Korean government became the latest to offer support in the form of loans and liquidity. Some analysts, however, thought the $130 billion aid package did not go far enough.

China's GDP slowed from the 2Q year-over-year pace of 10.1% to 9.0% in 3Q, below the forecast of 9.7% and the slowest in five years. World demand has slowed and commodity prices have come well off their highs, and most observers expect the weakness in the US, Europe, and Japan to remain a headwind for economic activity. In response, China's State Council will take pro-active measures to stimulate the economy, including infrastructure investments and incentives to help home buyers.