Morning Update

Bulls Take Early Lead

Gains in Japan are extending into Europe and the US as investor optimism slowly improves, while an unconfirmed report in the Wall Street Journal suggests that the Treasury Department is considering expanding its rescue fund to a broad range of financial companies. Easing conditions in the credit markets continue to underpin sentiment. Meanwhile, the latest profit reports are sparking some interest in individual equities. MasterCard beat the Street's profit estimate and earnings at Archer-Daniels Midland more than doubled. But Dean Foods, Mohawk Industries and Louisiana-Pacific came up shy of the consensus views. Elsewhere, Treasuries are under modest pressure and Australia's central bank became the latest to slash rates.

As of 8:34 a.m. ET, the December S&P 500 Index Globex futures contract is 25 points above fair value, the Nasdaq 100 Index is 32 points above fair value, and the DJIA is 214 points above fair value. Crude oil is up $1.03 to $64.94 per barrel, and gold is up $18.90 per ounce at $745.70. The overnight LIBOR rate dropped 1 bp to 0.38%, and the three-month LIBOR rate fell 15 bp to 2.71%, the lowest rate in nearly five months.

Factory orders on tap

Factory orders for September will be out 30 minutes after the market opens. Following a downwardly revised 4.4% decline in August, another 0.8% drop is anticipated according to Bloomberg amid continued weakness in manufacturing. Treasuries are lower.

Europe pushes ahead

European markets are hoping to close higher for the sixth-straight day, with shares registering a broad-based advance following steep gains in Tokyo. Shares of BMW (BAMXF $26) are higher despite a 60% drop in operating profits to 387 million euros. The luxury automaker said business conditions are difficult and the volatile climate makes it nearly impossible to predict profits for 2008. Royal Bank of Scotland (RBS $1) reported smaller-than-expected write-downs for the quarter; but the UK-based bank issued a cautious outlook and shares are falling. Swiss Re (SWCEY $44) is also under pressure after posting an unexpected 3Q loss of 304 million Swiss francs and suspending its share buyback program.

Australia cuts rates

The Reserve Bank of Australia slashed its cash target rate by a larger-than-expected 75 bp to 5.25%, versus the forecast of 5.50%. The central bank said international economic data has continued to point to significant weakness in the major industrial economies, and there have been further signs that China and other parts of the developing world are slowing as well. Fiscal stimulus and a drop in the currency will assist growth, the bank said, but falling commodity prices and deteriorating international conditions will have a "dampening influence." Australia's main index finished marginally lower amid the poor sentiment expressed in the press release.

Markets were in a much better mood in Tokyo, which finished up 6.3% after returning from a holiday. Banks warmed to easier credit conditions, while takeover talk also lifted spirits. Over the weekend, media reports indicated that Panasonic (PC $16) was set to buy Sanyo Electric (SANYF $2), which sent shares of the battery maker up by over 30%. Panasonic also gained ground. Nissan Motor (NSANY $10), however, closed off 10.6% after getting rid of its dividend and cutting its outlook.