Morning Update

Tech Firm Warns and Jobs Wane to Bring the Pain

Stocks are under pressure in early action after Research in Motion's lowered 3Q sales and profit outlook, and a worse-than-expected drop in private sector jobs. In other equity news, Freeport-McMoRan suspended its common stock dividend and cut production and capital expenditures. In other economic news, productivity unexpectedly rose and unit labor costs moderated. Treasuries are under pressure, while overseas markets are mixed.

As of 8:41 a.m. ET, the December S&P 500 Index Globex futures contract is 17 points below fair value, the Nasdaq 100 Index is 26 points below fair value, and the DJIA is 134 points below fair value. Crude oil is up $0.18 to $47.14 per barrel, and gold is down $14.30 per ounce at $767.00. The overnight LIBOR rate fell 12 bp to 0.88%, and the three-month LIBOR rate dropped 1 bp to 2.20%.

Productivity rises, jobs decline

Final nonfarm productivity increased from a preliminary reading of 1.1% in 3Q, to 1.3%, above the Bloomberg forecast of 0.9%. Companies cut back on hours worked, which fell more than the drop in output. Unit labor costs moderated from its initial jump of 3.6% to 2.8%, versus an unchanged estimate, as the softening labor conditions seem to be keeping labor costs subdued and the falling aggregate demand and growing pool of workers that are looking for employment are likely to keep wage pressure under control.

ADP reported that private sector jobs fell by 250,000 in November, larger than the Bloomberg estimate of a 205,000 job decline. Last month's figure was revised lower from a drop of 157,000 to a 179,000 decline. The report indicates the labor market continues to deteriorate amid the recession. The ADP report has been overstating the employment situation for most of the year when compared to the nonfarm payroll numbers reported by the Labor Department. Economists estimate that the government will report a 325,000 drop in nonfarm payrolls when the data is released on Friday.

The ISM Non-Manufacturing Index will be released later in the morning and a drop from 44.4 in October to 42.0 for November is anticipated. The separation point between contraction and expansion is a reading of 50, which suggests the contracting economy continues to be reflected in the data, joining the lowest reading since 1982 of 36.2 for the ISM Manufacturing index reported on Monday.

Treasuries are under pressure in early action and yields are moving higher but remain near record lows. Along with continued flight-to-safety buying, the latest drop in yields has come on the heels of the Fed's announcement that it may begin to aggressively purchase longer-term Treasuries and last week's $800 billion Term Asset Backed Securities Loan Facility.

Techs pressure shares in Europe

Stocks in Europe are under pressure in afternoon action, led by technology shares following a couple of major tech firms' worse-than-expected earnings reports. Shares of Infineon (IFX $2) are down sharply after the eurozone's second largest maker of semiconductors posted a 4Q net loss of 763 million euros, larger than analysts' forecast of a 321 million euro loss, and it said it sees full-year 2009 sales down at least 15% versus this year. The company's chief executive said "The financial crisis and economic slowdown have already impacted the worldwide semiconductor market, which is reflected in significantly weakened demand in all of our target markets." Research in Motion's reduced revenue and profit guidance is also weighing on the sector and sentiment in Europe. Elsewhere, the economic data continues to be gloomy as the PMI for services, a key measure of business conditions in the sector, came in at 40.1 for November, versus the forecast of 41.2, and the lowest level since the gauge began in 1996.

Retailers run to lead the way in Asia

Stocks in Asia were mostly higher after yesterday's sharp declines. Shares in Japan received a boost from retailers after clothing firm Fast Retailing (FRCOY $10) jumped over 10% after it said November sales at its existing shops advanced 32%, a monthly record according to Bloomberg, led by strong sales of winter clothing. Additionally, shares of Seven & I (SVNDY $54) surged almost 12% after an analyst upgraded the parent of 7-Eleven stores and Japan's largest convenience store chain, saying the company will benefit "as consumers tighten their purse strings." However, gains were limited by weak automakers after the major firms reported dismal November vehicle sales results.