Morning Update

Bulls Not So Thankful

Stocks are near the lows of the day in early action after a string of advances this week. Traders are digesting a slew of economic data, which showed generally in-line personal income and spending, a drop in jobless claims, but sentiment is being soured by a much worse-than-expected reading in durable goods orders. In equity news, Deere & Co. reported EPS fell and issued disappointing guidance, and Tiffany & Co. lowered its full-year profit outlook. Treasuries are mixed and overseas, Japan was lower, China slashed rates, and Europe is under pressure.

As of 8:48 a.m. ET, the December S&P 500 Index Globex futures contract is 18 points below fair value, the Nasdaq 100 Index is 15 points below fair value, and the DJIA is 146 points below fair value. Crude oil is up $1.57 to $52.34 per barrel, and gold is down $1.50 per ounce at $817.00. The overnight LIBOR rate rose 6 bp to 0.99%, while the three-month LIBOR rate fell 2 bp to 2.18%.

Heavy dose of data

Durable goods orders for October fell 6.2%, more than double the expected drop of 3.0% per Bloomberg, and September was revised from a gain of 0.8% to a drop of 0.2%. Ex-transportation, orders were down 4.4%, much worse than the forecast of a 1.6% decline. September was revised lower by 1.2 percentage points. Nondefense capital goods orders ex-aircraft, a measure of capital spending, fell 4.0%.

Weekly initial jobless claims dropped 14,000 to 529,000, below the Bloomberg forecast of 535,000. The four-week moving average rose 11,000 to 518,000, and continuing claims declined 54,000 to 3,962,000.

Personal spending fell 1.0% in October, in line with the Bloomberg forecast. Personal income rose 0.3%, versus expectations of 0.1%, but September was revised lower from 0.2% to 0.1%. The core PCE Price Index, which is released in conjunction with spending and income, was unchanged, matching the consensus. Year-over-year prices fell from a downwardly revised 2.3% to 2.1%, as the recent decline in commodities is starting to show some signs of relief on pricing pressures.

Other reports out later this morning include the Chicago PMI, final University of Michigan Consumer Sentiment, and new home sales .

Treasuries are mixed in early action following the economic data. Please note that the bond market will close early today at 2 pm ET, all US markets will be closed tomorrow in observance of the Thanksgiving Day Holiday, and on Friday the equity markets will close at 1 pm and bonds will close at 2 pm ET.

Europe under pressure

After a couple of strong sessions, stocks in Europe are under pressure as traders look to book some profits and recessionary concerns linger. European Central Bank President Jean-Claude Trichet said that there is a possibility for "negative figures" for economic growth in the eurozone region next year. "We are currently experiencing an extraordinary and very challenging period," Trichet said, adding that, "Recently, the tensions have spilled over into the real economy and have dampened significantly global growth." To fight the deteriorating global growth environment, the European Union proposed a $259 billion stimulus package. The Commission president said the announcement is an "exceptional response" to an "exceptional crisis."

In equity news, the world's second-largest utility, GDF Suez (GDFZY $42), is solidly lower after it forecasted a shortfall in 4Q unless natural gas prices are raised. Porsche (POAHF $68) said it may delay taking control of Volkswagen (VLKAY $68) this year following a 15% drop in quarterly sales as "signs of a severe slump in demand in the global automobile industry are highly visible."

Auto downgrade dampens sentiment in Japan, China slashes rates

Stocks in Japan finished under pressure, led by transportation issues after Toyota Motors (TM $66) fell almost 5% following a downgrade of the automaker's debt rating from AAA to AA, by Fitch Ratings. The rating action was the first in 10 years for TM and Fitch slapped a negative outlook on the Japanese automaker, saying, "Toyota is suffering severely from the ongoing turmoil in the global automotive sector." Elsewhere, markets were mixed across Asia with Hong Kong rallying over 3%, South Korea up almost 5%, and Australia falling 2% as traders had a chance to react to the abandoned acquisition offer, which was in excess of $60 billion, from BHP Billiton (BHP $38) for Rio Tinto (RTP $96). Shares in China moved modestly higher but received governmental support following the close.

The Peoples Bank of China surprised investors by dramatically cutting its key lending rate by 108 bp to 5.58%, and slashed the deposit rate by the same amount to 2.52%. According to Bloomberg, the drop in rates is the largest for the region in 11 years. The announcement comes on the heels of China's $586 billion stimulus plan fewer than three weeks ago, today's action from the European Union, and yesterday's $800 billion US government backing of the consumer-finance and mortgage-backed securities markets. The moves illustrate that global central banks are using massive amounts of ammunition to try to stem the global recession.