Morning Update

Auto Package Expectations Spur Gains

News that the White House will make an announcement just before the market opens regarding the automakers is lifting market sentiment following yesterday's big decline that occurred in the final couple of hours of trading. In other news, Oracle matched the Street's profit forecast, Research in Motion and Accenture topped analysts' estimates, but CarMax posted a loss. Treasuries are slipping following recent gains, and markets around the world are lower.

As of 8:33 a.m. ET, the March S&P 500 Index Globex futures contract is 8 points above fair value, the Nasdaq 100 Index is 12 points above fair value, and the DJIA is 96 points above fair value. Crude oil is down $0.01 to $41.66 per barrel, and gold is down $23.00 per ounce at $837.60. The overnight LIBOR rate was unchanged at 0.10%, and the three-month LIBOR rate eased by 3 bp to 1.50%.

President George W. Bush plans to make an announcement about the US automakers shortly before the market opens. Press reports suggest the government will provide low-interest rate loans to keep companies operating until the new administration takes office. General Motors (GM $4) and Ford (F $3) reacted favorably in pre-market action. Yesterday, shares came under pressure after the White House said it did not want a "disorderly bankruptcy" but there was an orderly way to handle bankruptcies that might limit any damage to psychology.

Oracle (ORCL $17) reported 2Q EPS ex-items increased 9% to $0.34, in line with the Reuters estimate, and revenues increased 6% to $5.6 billion. The largest maker of database software said the strong dollar lopped three cents per share off earnings and sales of new software fell versus a year ago for the first time in five years. But a strong focus on costs helped to support the bottom line.

Research in Motion (RIMM $38) announced 3Q revenues climbed 8% to $2.6 billion, the company added 2.6 million net new BlackBerry subscribers during the quarter, and EPS ex-items of $0.83 topped the Street's view by two cents. RIMM expects revenues and profits to exceed the consensus forecast for 4Q and sales momentum for new products has been strong during the holiday period but the company noted that some customers are delaying purchases.

Treasuries slip

There are no major economic reports that will be released today. Following big gains in Treasuries in recent days, bonds are coming under pressure as traders take profits.

Economic headwinds hinder Europe

Recession worries in Europe are back at the forefront and pushing stocks much lower following afternoon losses in the US yesterday, but shares are off the lowest levels of the day. Economically-sensitive mining and steel firms are under the heaviest pressure after losses in these groups on Wall Street on Thursday, while energy companies sink amid weakness in crude prices. ThyssenKrupp (TYEKF $25), Germany's largest steel producer, said it plans to reduce employee hours and could cut steel output next year if demand remains weak.

Business confidence in France fell more than expected in December, falling to the lowest level since 1993. And the production outlook indicator plunged to the lowest reading in more than 30 years as the recession in the US steepens and the global outlook continues to deteriorate. So far, the eurozone's second-largest economy has managed to avoid a recession based on the technical definition of two-consecutive quarters of negative GDP. But today's figures suggest that the economy will probably see an extended period of diminishing activity and follow the rest of the world's major economies into a recession.

Separately, the European Central Bank cut the rate on deposits held at the bank from 2.0% to 1.5% late yesterday as many had expected. The ECB is trying to encourage interbank lending and reduce the incentive to keep deposits at the central bank. It is also trying to discourage the inflow of euros that has sent the currency soaring in recent days since the central bank has the highest rates among G-7 nations.

BoJ follows Fed and cuts key rate

Following a plunge in Japanese business confidence reported earlier in the week and a larger-than-expected rate cut by the Federal Reserve, the Bank of Japan cut its overnight lending rate from 0.3% to 0.1% as it hopes to cushion quickly deteriorating economic conditions in Japan and alleviate upward pressure on the yen. The BoJ said the economy has been deteriorating and is likely to increase in severity in the immediate future, but members also expressed doubt whether the small rate cut will do much to bolster demand in the short term. The BoJ's governor did not signal that the central bank will embark on a policy of quantitative easing and said its policy is not designed to increase the balance sheet, but it does plan to begin purchasing government bonds and temporarily buy commercial paper.

Despite the cut in rates, economic concerns dominated the session and the Nikkei 225 Index fell 0.9%. The yen, which stumbled yesterday against the dollar, is little changed in choppy trading.