Morning Update

Data Heavy, Volume Looking Light

Crude prices continue to descend amid nervousness that worldwide demand will keep shrinking, while stocks are slightly higher in what is expected to be a light day of trading in an abbreviated session. Equity news is sparse but there is plenty of economic data to digest. Consumer spending and income fell, durable goods orders were mixed, and jobless claims rose to a fresh 26-year high. Meanwhile, Micron Technology reported a worse-than-expected loss. The market will close at 1 p.m. ET today and will be closed tomorrow for the Christmas holiday. The bond market closes at 2 p.m. ET today.

As of 8:44 a.m. ET, the March S&P 500 Index Globex futures at fair value, the Nasdaq 100 Index is 4 points above fair value, and the DJIA is 20 points above fair value. Crude oil is down $1.77 to $37.21 per barrel, and gold is unchanged at $838.10. The overnight LIBOR rate rose 3 bp to 0.15%, and the three-month LIBOR rate was unchanged at 1.47%.

Micron Technology (MU $2) reported its 1Q loss ex-items widened from $0.28 per share in the prior quarter to $0.72 per share, surpassing the Reuters estimate of a $0.43 per share loss. Sales of memory products fell 4% sequentially due to "significant decreases in market selling prices" caused primarily by an oversupply of computer chips. The maker of DRAM chips used in PCs and NAND flash chips used in MP3 players and digital cameras said it expects to cut capital expenditures in fiscal 2009 from $1.0-1.3 billion previously projected to $650-750 million but its cash levels remain in "pretty good shape."

Spending declines, durables mixed

Durable goods orders fell 1.0%, versus the Bloomberg estimate of a 3.0% decline, but October was revised from -6.2% to -8.4%. Ex-transportation, orders increased by 1.2%, compared to the consensus of a 3.0% decline but October was also revised much lower. And ex-defense, orders were down 0.9%; however, nondefense capital goods orders ex-aircraft, a measure of business spending, jumped 4.7%.

Personal income fell 0.2% in November, below the Bloomberg estimate of unchanged, and October was revised lower. Personal spending fell 1.6% in November following a 1.0% plunge in October as the recession continued to encourage savings, which rose from 2.4% to 2.8%, but the drop in spending came in just above an expected decline of 0.7%. The PCE Price Index, which is released with the income and spending data, fell 1.1% in November. The core PCE Price Index, which excludes food and energy, was unchanged. Year-over-year, core prices are up 1.9%.

Weekly initial jobless claims rose by 30,000 to 586,000, above the Bloomberg forecast of 558,000 and a fresh 26-year high. The four-week moving average rose 13,750 to 558,000, but continuing claims fell by 17,000 to 4,370,000.

Treasuries are slightly higher and were little affected by the data. The bond market will close today and Friday at 2 p.m. ET and will be closed on Thursday in observance of Christmas.

Falling mortgage rates sparked a 62.6% jump in the US MBA Refinance Index to 6758.6 in the latest week, the highest level in over five years. The Purchase Index also improved, rising 10.6% to 316.5, but it remains near a cyclical low. The rate for the 30-year fixed mortgage has fallen to near 5%, sparking a refi boom, but it is not yet enticing many homebuyers.

Quiet day in Europe

Most European markets are closed today for the Christmas holiday, while London and Paris traded down in a holiday-shortened session that was marked by light volume. Energy shares were among the losers as oil briefly dipped below $37 per barrel. But the downside was limited by a rise in defensive and computer service issues.

Japan leads slide, reacts to Toyota and Bridgestone

Traders in Japan are coming back from a holiday yesterday and had their first chance to react to Bridgestone's (BRDCY $26) profit warning and Toyota's (TM $60) stunning admission that it will report an operating loss. Shares of the world's largest tire maker fell 4.7% and Japan's largest automaker shed 5%. The reduced outlooks are highlighting the impact from faltering economies around the world and the surge in the yen. Lingering worries about the global economy also weighed on most Asian markets. South Korea's Kospi Index lost 1.3% and was hampered by a 13% drop in number-two memory maker Hynix Semiconductor (HXSCL $33). A larger-than-expected loss at Micron Technology and fears that an equity offering will dilute existing shareholders pressured the stock.