Morning Update

Buyers Beware

Yesterday's wave of buying is being met by renewed skepticism as G20 leaders gather in Washington over the weekend. Nokia reduced its outlook for industry-wide cell phone sales, while J.C. Penney, Nordstrom, and Kohl's all cut their respective profit forecasts heading into the Christmas shopping season. Meanwhile, retail sales fell more than expected in October and import prices plunged. Treasuries are pushing ahead, and world markets remain higher following the surge in US equities on Thursday.

As of 8:38 a.m. ET, the December S&P 500 Index Globex futures contract is 18 points below fair value, the Nasdaq 100 Index is 24 points below fair value, and the DJIA is 119 points below fair value. Crude oil is down $0.12 to $58.12 per barrel, and gold is up $41.40 per ounce at $746.40. The overnight LIBOR rate increased 1 bp to 0.41%, and the three-month LIBOR rate rose 9 bp to 2.24%. The three-month rate is up for the second day in a row following over a month of declines.


Sales fall, import prices tumble

Advance retail sales fell 2.8% in October, below the Bloomberg forecast of a 2.1% decline. Ex-autos, sales were down 2.2%, well below the estimate of a 1.2% drop. Both figures were the worst reading in at least 16 years. However, stripping away the 12.7% drop in gasoline station sales, sales ex-autos were down 0.5%.

The Import Price Index tumbled 4.7% in October, larger than an expected decline of 4.4%. Non-petroleum prices fell 0.9%, the third monthly decline. Year-over-year, import price gains have slowed dramatically and are up 6.7%. Treasuries are higher.

Europe jumps, Nokia cautious

Following yesterday's afternoon surge on Wall Street and an upbeat performance in Tokyo, stocks in Europe are broadly higher and are on track for snapping a three-day losing streak. But a warning from the number one maker of cell phones has tarnished some of the midday luster. Nokia (NOK $14) reduced its industry-wide outlook for handset sales in 4Q and said the global economic slowdown, combined with unprecedented currency volatility, has resulted in a sharp pull back in global consumer spending. Handset sales are expected to decline in 2009 versus 2008, Nokia said. It will take "decisive action" to significantly reduce its cost base.

Elsewhere, shares of EADS (EADSY $16) are gaining after the company returned to profitability in 3Q, reporting operating profits of 860 million euros and topping forecasts of 638 million euros, according to Dow Jones Newswires. The maker of the Airbus said it is facing challenges, but it will probably exceed its prior 2008 forecast and has benefitted from the dollar's appreciation. Credit Agricole (CRARY $6), the largest bank in France, is up after reporting a smaller-than-expected 62% drop in quarterly profits to 365 million euros. Meanwhile, Continental (CTTAY $39) is up over 30% after the privately-held ball-bearing maker Schaeffler Group said it will go ahead with its purchase of the tire maker and expects EU approval.

Eurozone slips into a recession as G20 eyed

The eurozone entered a recession for the first time since the multi-nation economy was formed almost a decade ago. European Union statistics agency Eurostat reported that advance data showed 3Q GDP contracted 0.2% quarter-over-quarter following a 0.2% decline in 2Q. The European Central Bank has cut interest rates twice and governments have proposed big fiscal stimulus plans to support growth. Washington will host a summit this weekend of G20 leaders aimed at seeking solutions to the world's biggest crisis in decades. No major breakthroughs on economic stimulus or a re-write of the rules of global finance are anticipated. And outgoing President George W. Bush is likely to resist a major intrusion on the free market. But smaller reforms and a framework going forward are within reach. The 20 nations represented at the conference make up almost 80% of the world's economic output.

Tokyo gains on Wall Street advance

Stocks in Japan surged at the opening in the wake of Thursday's sharp advance on Wall Street, but the Nikkei 225 Index pared early gains and finished up 2.7% amid lingering worries about the world economy. An advance in South Korea evaporated by the close and the Kospi Index ended the day nearly unchanged. Exporters staged a decent rally amid modest weakness in the yen, while traders await the outcome of this weekend's G20 meeting.