Morning Update

Unpleasant Employment Data Sours Sentiment

Macro-economic worries are once again influencing shares and sending the market lower after ADP reported a larger-than-expected drop in private sector payrolls, raising fears that Friday's government report may provide more sobering data that the steep recession is forcing huge layoffs. Meanwhile, Alcoa became the latest major firm to announce layoffs and production cuts, but Monsanto raised guidance and Family Dollar Stores topped the Street's profit estimate. Treasuries are gaining ground, and markets overseas are mixed.

As of 8:35 a.m. ET, the March S&P 500 Index Globex futures contract is 14 points below fair value, the Nasdaq 100 Index is 24 points below fair value, and the DJIA is 131 points below fair value. Crude oil is down $0.54 to $48.04 per barrel, and gold is down $0.40 at $865.60. The overnight LIBOR dipped 1 bp to 0.11%, and the three-month LIBOR rate dipped 1 bp to 1.40%.

Dow member Alcoa (AA $12) is under pressure after taking a number of actions to counter the economic downturn and falling aluminum prices. The leading US aluminum producer plans to further reduce output and bring total production cuts to 18%, reduce headcount by 15,200 - about 15% of its workforce, sell four non-core businesses, and cut capital spending by 50% in 2009. The actions are designed to conserve cash, cut costs, and improve competitiveness.

Monsanto (MON $73) is trading higher after raising full-year profit guidance from $4.20-4.40 per share to $4.40-4.50 due to greater demand in Latin America. The maker of Roundup posted 1Q EPS ex-items of $0.90 on a 29% rise in net sales of $2.6 billion. The Street had expected profits of $0.59, according to Reuters.

Family Dollar Stores (FDO $24) reported 1Q EPS improved by five cents from a year ago to $0.42, topping the consensus estimate of $0.40 per share, as same-store sales improved by 2.1%. The discount retailer touted its "value" offerings for helping to increase market share and traffic in the difficult economic environment. Family Dollar Stores provided 2Q profit guidance that exceeded the Street's forecast.

Depressing jobs report

ADP reported that private sector jobs fell 693,000 in December, worse than the Bloomberg estimate of a loss of 495,000 jobs, while November was revised downward from -250,000 to -472,000. ADP said the data includes methodological improvements intended to improve the correspondence between its numbers and the data published by the government. ADP has consistently understated job losses over the past year when compared to the nonfarm payroll report released by the Bureau of Labor Statistics.

Meanwhile, a slight increase in mortgage rates led to a 12.3% decline in the US MBA Refinance Index to 5904.5, but the index remains near a five-year high as 30-year fixed mortgages hover near 5%. The Purchase Index increased by 7.3% to 344.2.

Record drop in eurozone wholesale inflation

Wholesale inflation in the eurozone economy fell at its sharpest pace since records began back in 1981. The Producer Price Index slid 1.9% in November, well below the Bloomberg estimate of a 1.0% decline, which could help clear the way for the European Central Bank to cut interest rates at its January 15 meeting. A rate cut is not a sure thing, however, since officials last month suggested the bank may pause at its upcoming meeting; however, a leading central bank official recently said that policymakers will not allow inflation to fall to undesirably low levels.

Stocks in Europe showed little reaction to the report and are off early lows. But sentiment remains torn between the possibility the economy will rebound later in the year, compliments of global rates cuts and fiscal stimulus, versus the continued stream of bad economic news, poor guidance, and news of layoffs, including the latest from UK retailer Marks & Spencer (MAKSY $7), which plans to close stores and cut jobs. In afternoon action, mining shares are under pressure from Alcoa's announcement, while energy shares are giving up some of their recent gains.

Accounting scandal rocks India

India's BSE Sensex 30 Index tumbled 7.3% after Satyam Computer Services (SAY $9), one of the country's leading software/outsourcing firms, said it has been inflating revenues and profits for several quarters, forcing the company's chairman to resign. The revelation hammered confidence in the country's market and shares of Satyam plunged nearly 80%. Elsewhere around Asia, shares were mixed, with losses in Hong Kong and China offset by solid advances in South Korea, Taiwan, and Japan. The Nikkei 225 Index in Tokyo registered its seventh-consecutive rise, advancing 1.7% and closing at a two-month high. Continued talk of stimulus around the world and the weaker yen bolstered sentiment.