Morning Update

Dark Opening

Markets around the world are under severe pressure, and US equity futures are down their daily limits as economic fears engulf equity markets while hedge fund liquidations, deleveraging, and the re-alignment of currencies in favor of the dollar continues. OPEC's emergency meeting produced a 1.5 million barrel per day reduction in its quota but the global sell-off is overwhelming any support from production limits. The ongoing slide in precious metals and most commodities remains intact. Profit reports from 3Q remain on the radar, but today's market action is putting discussion and analysis on the backburner. Microsoft and ITT Corp. topped on the bottom line but issued weak guidance, and Burlington Northern Santa Fe and Western Digital posted better-than-expected profits. Treasuries are much higher on flight-to-quality buying.

Treasuries benefit from turmoil

Treasuries are higher as investors seek safety. Meanwhile, existing home sales will be out later this morning and a 0.8% rise to 4.95 million units is forecast. Sales of existing homes have held in a narrow range since the start of the year, suggesting the market has been trying to put in a bottom. But inventories remain high and prices continue to fall. And the fallout from the credit crisis will probably not be accounted for in today's report since sales in September reflect contracts in prior months.

Waves of selling swamp world markets

European stocks are down roughly 8% in afternoon action, and the dollar is surging in flight-to-safety buying versus the euro and the pound after a rout in stocks that began in Asia spread westward. Shares of Peugeot (PEUGY $23) are down sharply after the automaker reported lower 3Q sales and plans to slash output by 30% amid the "collapse" in auto sales. Volvo (VOLVY $6) is also under very heavy pressure following the announcement that orders for heavy trucks fell from almost 42,000 a year ago to just 155 vehicles.

Dreary economic data is adding to the bleak mood. The eurozone PMI, which looks at manufacturing activity, fell from 45.0 in September to 41.3 in October, well below the forecast of 44.0 and the lowest on record since reporting started ten years ago. A reading below 50 indicates contraction. In the UK, advance 3Q GDP fell 0.5% from the prior quarter, below the estimate of a 0.2% drop. The worst-than-expected reading and growing indications that the UK's economy has entered its first recession in over a decade is sending the pound down to a 6-year low versus the greenback.

Emerging markets aren't fairing any better, with stocks in Eastern Europe down roughly 10%, while Russia halted trading after falling nearly 11%. And the dollar's surge has not been limited to the major currencies as investors continue to flee emerging markets for the safety of the US dollar. Earlier in the week, Hungary raised its key rate by 300 basis points to support its currency, and Pakistan and Belarus asked the IMF for support. Fears are rising that the dislocations seen in emerging equity markets are now beginning to hit the broader economies, and growth in Asia may be poised to sharply decelerate.

Sony's (SNE $21) profit warning yesterday and the continuing surge in the yen and the unwinding of the carry trade rocked shares in Tokyo, sending the Nikkei 225 Index 9.6%. After yesterday's close, Sony more than halved its full-year profit forecast amid headwinds from the rising yen and slower LCD TV and digital cameras sales. Shares of the world's second-largest maker of consumer electronics tumbled over 14% to trade at its lowest level in over 13 years.

On the heels of Sony's profit warning, South Korea's Samsung Electronics (SSNLF $626) reported a 44% drop in 3Q net profits because of falling prices for memory chips and flat screen TVs and a drop in the operating margin from its cell phone division. Samsung plans to pull back on capital spending, does not see a bright holiday-shopping season, and failed to provide an outlook for next year. Shares plunged and helped send South Korea's Kospi Index down 10.6%. South Korea also reported that its economy expanded at the slowest pace in four years.