Morning Update

A Breather

As the White House and lawmakers inch toward an agreement to help the automakers, stocks are down following the strong rally in recent days as traders look to book profits, digest the latest warnings, and assess the economic damage to the economy from job cutbacks, falling consumer spending, and plans by businesses to reduce capital spending. FedEx, Texas Instruments, and Broadcom reduced their forecasts, and National Semiconductor missed on the bottom line. Treasuries are up and world markets are mostly higher.


As of 8:35 a.m. ET, the December S&P 500 Index Globex futures contract is 4 points below fair value, the Nasdaq 100 Index is 15 points below fair value, and the DJIA is 70 points below fair value. Crude oil is down $0.13 to $43.59 per barrel, and gold is down $3.90 per ounce at $765.40. The overnight LIBOR rate fell 5 bp to 0.14%, and the three-month LIBOR rate dipped 2 bp to 2.16%.

Treasuries inch ahead

Treasuries are up slightly ahead of the release of pending home sales for October. Sales are expected to be down 3.0% following a 4.6% decline in September. The report is likely to show some of the impact on potential buyers from the latest flare-up in the credit crisis and tightening lending standards on home sales.

Europe extends gains

Stocks in Europe are cautiously higher after a key indicator of German economic sentiment unexpectedly improved. Germany's ZEW indicator improved from -53.5 in November to -45.2 in December, ahead of the consensus of -57.0. Deep cuts in interest rates around the world and announcements of stimulus packages in Europe and Asia have modestly alleviated investor worries but overall outlook remains grim as there is no near-term catalyst that might support economic activity. Sentiment may have found modest support in Germany but manufacturing production in the UK fell for the eight-straight month, its longest contraction in 28 years. Output dropped 1.4% in October, much more than an expected 0.5% decline.

Japan in recession

Japan's economy has entered a recession after recording its second-straight drop in GDP and registering a larger-than-expected decline in 3Q total output, but stocks managed to push ahead following the strong rally in the US yesterday that was inspired by a proposal to spend more on infrastructure in the US. Final GDP in Japan fell at an annualized rate of 1.8%, double the expected decline of 0.9%. The downward revision suggests that economic conditions are worsening at time when economic turmoil in developed and emerging economies are deteriorating. And Japan's export-dependent economy is unlikely to find much support from its neighbors as growth in China is quickly slowing and the eurozone and the US are in a recession.

Sony (SNE $20) said it plans to cut 8,000 jobs, or about 4% of its workforce, in a bid to cut cost by $1.1 billion as it deals with the global downturn and a major retrenchment in consumer spending in the US. The number two producer of consumer electronics goods in the world has also been hard hit by the steep rise in the yen and the company said it may consider revising its profit margin target.