Morning Update

Outlooks, Economic Concerns

Stocks are resuming yesterday's slide and Treasuries are higher in early action as bleak guidance overshadows some upbeat results. Recession fears continue to intensify, keeping commodity prices in a downward trend, but oil is modestly lower as OPEC gets set to meet. Meanwhile, Amazon.com, United Parcel Service, and Black & Decker topped the Street's profit forecasts but issued sluggish outlooks, Dow Chemical reported a smaller-than-expected drop in profits, while Allstate missed, and Sony cut its outlook. In economic news, jobless claims rose more than expected, and world markets are under heavy pressure.

Jobless claims rise

Weekly initial jobless claims rose 15,000 to 478,000, above the Bloomberg forecast of 468,000. The four-week moving average fell 4,500 to 480,250, and continuing claims dipped 6,000 to 3,720,000. Overall, the trend remains to the upside, suggesting economic activity is diminishing and the labor market is weak.

Treasuries are extending gains amid weak economic conditions and a flight to safety. The improving conditions in the credit markets stalled today after the overnight LIBOR rate increased and the drop in the three-month rate stalled. Moreover, swap spreads in the US increased.

Falling earnings ratchet up recession worries

The market in Europe managed to open on a slightly favorable note, but selling quickly ensued and the recent losers, manufacturing, mining, and steel, are among the biggest decliners amid concerns that a global recession will hamper demand for commodities. Rio Tinto (RTP $143) noted that the big drop in nickel prices is starting to hurt some producers in Australia, and copper, which is a key industrial metal and a good gauge of economic activity, is extending steep losses. Auto shares are also under very heavy pressure after Daimler (DAI $30) reported smaller-than-expected profits and warned that full-year earnings would not meet earlier targets.

Fiat (FIATY $9) is also feeling the sting of depressed worldwide auto sales after posting a smaller-than-expected rise in 3Q earnings and warning of weak conditions in 2009. And ABB (ABB $14), the Swiss maker of electric grids that has benefitted greatly from the infrastructure boom, is down sharply after missing profit expectations and talking cautiously about the short-term outlook because of the credit crisis. Nestle (NSRGY $37), however, is trading higher and reported 9-month sales that exceeded the Street's forecast and raised its outlook for 2008 organic (internal) sales growth. Higher prices helped the chocolate maker, and Nestle said the last 18-month rise in commodity prices should not be repeated.

Asia pressured by global issues

The big drop in the US yesterday reverberated thru Asia, while the steep rise in the yen also hampered stocks in Japan. The Nikkei 225 Index fell 2.5%, with shares of Sony (SNE $23) losing 6.3% on top of a 9.2% decline yesterday. The second-largest maker of consumer electronics reduced its full-year profit forecast by 57% to 200 billion yen after the close and blamed the stronger yen and slowing demand for LCD TVs and digital cameras. Meanwhile, concerns that the world economy is entering a recession intensified, sending the commodity-dependent Australian stock market down 4.4% and South Korea's Kospi Index down a steep 7.5%.

Taiwan's AU Optronics(AUO $7), the third largest maker of LCD screens, posted a worse-than-expected 96% drop in 3Q earnings to $96 million, and the 4Q outlook is poor amid economic weakness.