Morning Update

New Week Starts Poorly

The first full week of trading in the US is starting on a down note as traders take profits following recent gains, offsetting talk that President-elect Barack Obama will offer big tax cuts as a part of his stimulus plan. Crude oil has slipped into the red and copper prices are down modestly, while precious metals are coming under heavy pressure. Meanwhile, the dearth of major equity news continues. Walgreen reported same-store sales and Navistar International offered soft guidance. Treasuries remain under pressure and global markets are mixed.

As of 8:28 a.m. ET, the March S&P 500 Index Globex futures is 10 points below fair value, the Nasdaq 100 Index is 20 points below fair value, and the DJIA is 89 points below fair value. Crude oil is down $0.71 to $45.63 per barrel, and gold is down $25.60 at $853.90. The overnight LIBOR was unchanged at 0.12%, and the three-month LIBOR rate increased 1 bp to 1.42%.

Walgreen (WAG $26) reported same-store sales grew 4.9% in December, with pharmacy sales rising 8.5% and front-end sales increasing by 0.4%. The company said that a shift in the calendar positively helped same-store sales by 2.0 percentage points.

Navistar International (NAV $24) is under pressure after saying it expects fiscal 2009 profits of $5.10-5.60 per share, below the Reuters estimate of $6.08. The maker of trucks and engines said it is experiencing a weak North American climate.

Yellen urges fiscal support

Federal Reserve of San Francisco President Janet Yellen urged Congress to pass a fiscal stimulus package because the current recession threatens to be longer and deeper than what the country has seen in recent years. Yellen said on Sunday that inflation is likely to fall to undesirably low levels and we will probably see an extended period of economic weakness.

What is shaping up to be the worst recession since at least 1982 has had a major impact on the job market, especially in the last few months of 2008. December is likely to be no exception when the government reports nonfarm payrolls on Friday, with an expected 500,000 decline in jobs on top of November's huge loss of 533,000. Payrolls tend to be a lagging indicator, confirming the direction of the economy. But it is clear that the latest flare-up in the credit crisis in mid-September that choked off credit to much of the economy has had a detrimental impact on economic activity and the labor market. The unemployment rate is expected to rise from 6.7% to 7.0%.

The minutes from the Fed's historic December 16 meeting that produced a target range for the fed funds rate will also capture plenty of attention when it is released on Tuesday afternoon as traders look for more insights from the FOMC on what is happening in the economy. Tomorrow's economic data will also include that latest look at the service sector, pending home sales, and factory orders. The ISM non-Manufacturing Index is expected to show that the service sector continues to contract at a fast pace.

Other reports out this week include construction spending at 10 a.m. ET today followed by monthly auto sales for December, which are typically released early in the afternoon. Weekly jobless claims released on Thursday are expected to show a rebound following an unexpectedly large dip last week.

Europe tepid but Asia starts week favorably

European markets started the first full trading week of 2009 in a positive fashion against the backdrop of the belief that massive fiscal and monetary stimulus plans around the world that are in place and are being proposed will eventually spark an economic recovery. Shares held onto gains in early afternoon trading but are now starting to succumb to early morning uncertainty in the US. Telecom service and equipment companies along with construction firms are the biggest winners, while automakers are struggling. Equity news remains light and is not influencing today's trading.

European Central Bank Vice President Lucas Papademos reiterated that the central bank may ease if downward risks to price stability persist but he did not indicate whether policymakers are considering a rate cut at the January 15 meeting. Separately, the government in the UK conceded that a second half recovery in 2009 that had been forecast by the Treasury Department is looking uncertain.

Elsewhere, the first trading day of the new year for all the major markets in Asia began on an upbeat note, with the Nikkei 225 Index finishing up 2.1%, while South Korea gained 1.4% and Hong Kong and China advance almost 3.5%. General optimism that the pessimism seen in late 2008 will mark the bottom aided sentiment. Still, the economy remains under stress and Japan's finance minister encouraged the quick passage of a stimulus plans because the economy is "worsening."