Morning Update

GDP Contraction Less than Forecast

Stocks bounced off lows after advance 4Q GDP fell less than forecast, suggesting that the difficult recession the US economy is experiencing may not be as severe as some analysts had been anticipating. The Nasdaq Composite is also receiving some support after Amazon.com easily beat the Street's profit forecast, but a weak forecast from Procter & Gamble and an earnings miss from Broadcom are limiting the advance. Separately, Honeywell International matched earnings expectations, and Exxon Mobil topped. Treasuries are mixed, and overseas, Japan came under pressure from very weak economic data and a raft of corporate warnings.

As of 8:40 a.m. ET, the March S&P 500 Index Globex futures contract is 1 point below fair value, the Nasdaq 100 Index is 5 points above fair value, and the DJIA is 20 points below fair value. Crude oil is up $0.68 to $42.12 per barrel, and gold is up $14.70 at $919.80.

Shares of Amazon (AMZN $50) are up solidly after the company reported 4Q EPS increased four cents to $0.52, well ahead of the Reuters forecast of $0.39, and net revenues grew 18% to $6.7 billion. US sales increased 18% and international sales, including a 13 percentage point reduction due to the stronger dollar, grew 19%. The company credited low prices for attracting customers, and the online retailer added that 2008 was its best ever holiday season.

Dow component Procter & Gamble (PG $58) reported fiscal 2Q net earnings of $1.58 per share, in line with expectations, but net sales fell 3% to $20.4 billion and came in a little below the Street's forecast. The consumer products maker cited lower volume and an unfavorable foreign exchange rate for the decline and added that it expects the environment will remain "difficult and highly volatile," at least in the near term. P&G sees 3Q profits of $0.78-0.86 per share, versus the Street's view of $0.85, and it reduced its full-year outlook for organic (internally-generated) sales, but it is comfortable with the full-year profit forecast by analysts.

Honeywell International (HON $33) reported 4Q EPS increased 7% to $0.97, matching the Street's forecast, and net revenues fell $600 million to $8.7 billion. The company acknowledged that the operating environment was tough last year and 2009 will be more challenging. But Honeywell reaffirmed 2009 profit guidance of $3.20-3.55 per share.

Dow member Exxon Mobil (XOM $77) posted 4Q net income of $7.8 billion and EPS of $1.55, ten cents above the Street's estimate. This compares with net earnings of $11.7 billion, or $2.13 per share, one year ago, and $14.8 billion, or $2.86 per share, in 3Q. Quickly falling oil prices have weighed heavily on the profits of the major integrated oil companies.

Broadcom (BRCM $17) reported 4Q net revenues fell 13% to $1.1 billion and posted earnings excluding items of $0.08 per share, well below the consensus forecast of $0.26 per share. The chipmaker said it expects the current economic slowdown will continue to negatively impact business as demand continues to fall and settle into new levels.

GDP contracts but tops estimates

Advance Gross Domestic Product, the broadest measure of economic output, fell at an annualized 3.8% in 4Q, well above the Bloomberg forecast of a 5.5% decline but an acceleration from a 0.5% decline in 3Q. Personal consumption was down an expected 3.5%. Real final sales, which exclude changes in inventory, declined 5.1%, underscoring the weakness in the final quarter of last year.

Pricing pressures slowed markedly, with the GDP price Index declining 0.1%, compared to 3.9% in 3Q and the forecast of 0.4%. The core PCE Index, which excludes food and energy, was up just 0.6%, below the estimate of 1.0%, signaling that price pressures are disappearing amid falling commodity prices and declining aggregate demand. The rate now sits below the Fed's implied target of 1-2%. Elsewhere, the Employment Cost Index rose 0.5%, below the estimate of 0.7%.

Europe languishes

Shares are lower in Europe as economic woes are keeping pressure on the mining group, while a hostile bid by Roche (RHHBY $34) of $86.50 per share for the 44.2% of the shares of Genentech (DNA $84) that is does not already own is boosting drug companies. The offer replaced a proposal made by Roche in July of $89 per share. Roche said that it is taking its offer directly to shareholders because of a lack of progress toward agreeing to a transaction since Genentech's rejection of the original bid in August.

In economic news, the sharp deterioration in economic activity and the huge drop in oil prices are now showing up in the form of much lower inflation. The preliminary estimate for the eurozone CPI fell from 1.6% year-over-year (y/y) in December to 1.1% y/y in January, below the forecast of 1.4%. Inflation is well below the European Central Bank's target of "close to, but below 2%." However, European Central Bank President Jean-Claude Trichet hinted on Wednesday that the ECB may not cut rates next week but may be looking to ease policy in March. Separately, unemployment in the eurozone rose from an upwardly revised 7.9% in November to 8.0% in December, the highest in over two years as falling domestic and global demand forces companies to release workers.

Bad data, earnings pound Tokyo

The largest drop in industrial production ever recorded in Japan and another round of corporate warnings conspired to pull the Nikkei 225 Index down 3.1%. Preliminary data showed that industrial production in December fell a worse-than-expected 9.6%, eclipsing November's record decline of 8.5%. Japan's economy is heavily dependent upon exports. With demand around the world drying up in the wake of the September credit squeeze, the Japanese economy appears poised to fall into the worst recession since World War II.

Meanwhile, shares of Toshiba (TOSBF $4) tumbled over 15% after warning is will report the largest full-year loss ever and may spin off a portion of its chip business. Toyota (TM $65) lost 4% after the Nikkei business daily said its full-year loss is likely to rise to 400 billion yen from an expected 150 billion yen loss the automaker projected about a month ago. Toyota did not comment. And shares of Nintendo (NTDOY $39) stumbled by 12.3% following yesterday's announcement that sales of its Wii gaming consoles will not reach its prior target.

After the close, Hitachi (HIT $34) warned it expects to report a 700 billion yen loss (about $8 billion) in the fiscal year, the largest ever by a Japanese manufacturer. Previously, the company had anticipated a 15 billion yen profit. Hitachi blamed a "rapid drop-off" in demand. NEC Corp.(NELTY $3) also warned of a large loss and said it plans to cut 20,000 jobs.