Morning Update

Shares Rebound

A solid advance in Asia and continued hopes that lawmakers and the White House will agree on the terms of a rescue package for automakers are helping US stocks and offsetting negative sentiment from another batch of warnings. Electronic Arts and Eastman Kodak backed away from previous guidance, and Praxair cut its outlook. Additionally, Rio Tinto announced large job cuts and a reduction in capital spending. Treasuries are down but the yield on near-term T-bills continues to hover near zero.

As of 8:35 a.m. ET, the December S&P 500 Index Globex futures contract is 10 points above fair value, the Nasdaq 100 Index is 12 points above fair value, and the DJIA is 106 points above fair value. Crude oil is up $2.07 to $44.14 per barrel, and gold is up $22.20 per ounce at $796.40. The overnight LIBOR rate fell 1 bp to 0.13%, and the three-month LIBOR rate dipped 7 bp to 2.10%, the lowest this year in anticipation of further easing by the Fed next week but the key rate remains well above its normal range, which is typically near the fed funds rate.

Mortgage refinancings ease

After tripling last week due to falling mortgage rates, the US Mortgage Bankers' Refinance Index edged down 0.9% to 3767.3. The Purchase Index, however, fell 17.4% as potential homebuyers remain reluctant to make the big commitment to a new home purchase amid the uncertain economic environment. Treasuries are lower.

Elsewhere, economic data will be light today, and the only major release scheduled will come at 10 a.m. ET when wholesale inventories are reported. A 0.2% decline in October is forecast.

The Wall Street Journal reported that the Federal Reserve is considering issuing debt for the first time in order to improve its flexibility as it tries to stabilize financial markets. The Fed's balance sheet has more than doubled since last August to more than $2 trillion as it props up commercial paper markets, takes actions to help troubled companies, and floods the system with cash in order to maintain liquidity. Fed officials did not comment.

Europe miners gain but economic fears limit advance

Steep gains by mining stocks in Europe are being offset by weakness in the retail and banking group as continued worries about the economy keep shares near the flatline. Rio Tinto (RTP $73 ) is posting a gain in excess of 15% and is leading miners higher after announcing it will slash 14,000 jobs, or about 13% of its workforce, and cut capital expenditures by slightly more than 50% to $4 billion next year. The company is making the move in response to the "unprecedented rapidity and severity" of the downturn around the world.

Economic data continues to suggest that economic activity is sliding in Europe. France reported manufacturing production tumbled by 8.4% in October, far below an expected 4.5% decline and the worst reading since 1981. Year-over-year, production also registered its biggest drop in at least 27 years, falling 8.4% amid faltering auto output. And the inflation threat that the European Central Bank was so worried about late in the summer has evaporated. Wholesale prices in Germany fell 3.3% in November, nearly triple the expected decline. Year-over-year, prices are now declining due to falling oil and diminishing aggregate demand.

Asia pushes ahead

Stocks in Japan hesitated at the opening following yesterday's big drop on Wall Street, but expectations of an auto bailout in the US and Sony's (SNE $21) restructuring move announced after yesterday's close bolstered shares and sent the Nikkei 225 Index up 3.2%. Automakers posted strong gains as Honda Motor (HMC $20) added almost 14%, while chip stocks reacted favorably to a solid performance by the group in New York on Tuesday, with Tokyo Electron (TOELF $26) climbing more than 10%.

China's benchmark Shanghai Index shrugged off another batch of worrisome data and added 2.0% amid hopes of further monetary easing and government actions to simulate demand. The Producer Price Index in China slowed from 6.6% y/y in October to 2.0% y/y in November, below the forecast of 4.5%. Quickly slowing inflation at the wholesale level is raising fears that China could soon slip into deflation. After the close, imports and exports slowed dramatically, raising worries that the once fast-growing economy may not be able to avoid a recession. Imports fell by 17.9% y/y last month, suggesting domestic demand is faltering. The reading was the worst since records began in 1995. And exports, which had been growing at a robust pace, slid 2.2% y/y in November as demand around the world slumps.