Morning Update

Looking to Snap-Back from Yesterday's Crack-Back

After yesterday's final hour demise that sent the S&P 500 Index crashing below the tech bubble low it set in October 2002 and the lowest level in over 11 years, stocks are poised to rebound in the early going. However, caution remains on the Street as traders have seen solid moves wiped away recently, especially in the afternoon, as economic woes have swiftly dampened sentiment, turning gains into steep losses in a matter of minutes. Dell Inc's better-than-expected earnings and chatter Citigroup may be mulling a sale of the company are providing some of the early enthusiasm. In other equity news, Wal-Mart named a successor to its current CEO. Treasuries are under pressure amid the early optimism as traders book some profits from yesterday's historic run, but LIBOR rates have moved higher, suggesting elevated uneasiness in the credit markets. Overseas, markets are mixed.

Treasuries under pressure after historic day

Treasuries are under pressure in early action after plunging in late-day trading yesterday amid a rush-to-safety as equities tumbled on fears about the economy. In the final hour of trading, the three-month Treasury traded near zero, the rate on the two-year note fell below 1% for the first time ever, and the 10-year yield reached multi-decade lows. The precipitous decline in commodities have translated into disinflation, as evidenced by the record drops in key inflation gauges such as the PPI and CPI this week, awakening some fears about deflation. Schwab's Chief Investment Strategist Liz Ann Sonders has believed in the rising possibility of deflation for some time and provides her thoughts on the prospect of a fall in the broad price level in her analysis entitled Arc of a Diver: Inflation Succumbs to Deflation. It can also be viewed at www.schwab.com/marketinsight. There are no major economic reports scheduled for release today.

Europe gives up early gains

Stocks in Europe, which were cautiously higher in afternoon action and bargain hunting, have turned lower. However, mining shares are higher as traders pick through the rubble after the MSCI World Materials Index has lost over 20% this month alone, according to Bloomberg, amid the exacerbated fears about the impact of a recession on demand. In equity news, favorable analyst comments and an upgrade is supporting the UK's largest electronics retailer, DSG International (DSITY $0.50), which has been ravaged by fears of the company's survival recently. Shares are up over 30% after Credit Suisse said "The risk of a near-term financial failure is in our view being overly discounted by the market."

Oversold sentiment, bank M&A chatter, and BoJ comments snap losing streaks in Asia

Stocks in Japan received a dose of resiliency as the Nikkei 225 snapped a three-session losing streak with a solid rally in late-day action, led by financials helped by the chatter that Citigroup may be discussing a merger. A bout of bargain-hunting also supported shares, while weakness in the yen versus the dollar helped issues that rely heavily on exports to the US as the weaker domestic currency could boost profits. Additionally, the Bank of Japan left its key interest rate at 0.3%, after cutting the rate from 0.5% last month for the first time in seven years, and said that it is looking at new ways of pumping money into the financial system to encourage lending and help stave off a severe recession. Elsewhere, stocks in South Korea led the way in the Asia Pacific region, with the Kospi Index gaining almost 6% after falling for the past eight sessions.