Morning Update

Global Markets Rise

Credit markets are slowly unfreezing again, and bargain hunting across Asia and Europe is spreading to US shares in early action. But traders remain cautious and 4Q outlooks continue to suggest that demand is anemic. US Steel, Whirlpool, and Valero Energy topped the Street's profit estimates but offered cautious outlooks going forward, while Occidental Petroleum reported better-than-expected earnings. Overseas, Honda warned. Treasuries are lower.

As of 8:32 a.m. ET, the December S&P 500 Index Globex futures contract is 25 points above fair value, the Nasdaq 100 Index is 36 points above fair value, and the DJIA is 202 points above fair value. Crude oil is up $1.47 to $64.69 per barrel, and gold is up $2.20 per ounce at $745.10. The overnight LIBOR rate slipped 3 bp to 1.24%, and the three-month LIBOR rate fell 4 bp to 3.47%.

Confidence on the schedule

The Consumer Confidence Index will be released at 10 a.m. ET, and a drop from 59.8 in September to 52.0 in October is forecast. Tighter credit conditions, worries about the economy, and the slump in stocks prices have put heavy pressure on consumer sentiment and have likely offset the steep decline in gasoline prices. Treasuries are weaker amid the improved environment for equities.

Europe higher, Volkswagen soaring

Stocks are much higher in Europe and are finding support from overnight gains in Asia. Automakers are leading the pack as shares of Volkswagen (VLKAY $118) continue to soar after Porsche (POAHF $55) said it is increasing its stake in the automaker. Aided by massive short covering, Volkswagen surged over 120% yesterday and is adding another 60% today. According the Financial Times, analysts believe there may be hedge fund failures related to losses from the short squeeze that has caused shares to more than triple in recent days.

Shares of BP (BP $40) are trading higher after Europe's second largest oil company posted an 83% rise in 3Q net profits and beat the consensus forecast of $6.8 billion, per Dow Jones Newswires. SAP (SAP) posted 3Q net profits from continuing operations of 409 million euros, in line with expectations. But it cut the forecast for its 2008 operating margin and withdrew 2008 revenue guidance, sending shares lower. The world's biggest maker of applications software blamed uncertainties surrounding the business environment.

Meanwhile, Iceland asked the Federal Reserve and the European Central Bank for assistance as it muddles through its financial crisis. The country's central bank also hiked its main rate from 12% to 18%.

Hong Kong surges

Asian markets rebounded strongly and were led by a 14.4% surge in Hong Kong's Hang Seng Index, which was its biggest advance in 11 years, as volatility in the market continues. Shares had started the day in negative territory, but bargain hunting took over in afternoon action following huge losses yesterday. Banking giant HSBC Holdings (HBC $52 ¹) led the advance and rose 20%, but shares of some property developers were left out of today's rally.

A retreat in the yen from its 13-year high against the dollar and favorable sentiment across Asia sent Japan's Nikkei 225 Index up 6.4% as the key index rebounded from a 26-year low. Yesterday, the G7 issued an unexpected statement warning against excess volatility in the yen. Although there was no hint at intervention, finance ministers mentioned the currency by name - versus a vague reference to forex instability - and some observers believe the statement may be a precursor for intervention.

Elsewhere, Mitsubishi UFJ Financial Group (MTU $6) was down sharply in early trading after announcing its decision to raise capital but pared losses by the close. After the close, Honda Motor (HMC $19) reported net earning fell 41% to 123 billion yen. The higher yen and slumping sales hit the bottom line as Japan's second-largest automaker issued a profit warning for the full year, cut it sales outlook in Europe and North America, and warned that difficult business conditions could continue into 2010.

Separately, Indonesian stocks fell over 4% after the country's currency tumbled and the government threatened to take unspecified measures. The Australian dollar, however, was among the big winners after the Reserve Bank of Australia stepped in to support its currency.