Morning Update

Sentiment Flees Aided by Losses Overseas

Stocks are poised for a solidly lower open as pressure on overseas trading has made its way across the pond and uncertainty on the composition and Capitol Hill's acceptance of the Obama Administration's plan to buy bad banking assets to free up lending is pressuring sentiment on the Street. Personal consumption data came in lower than expected as households continue to increase savings amid the recession. On the equity front, Humana topped earnings expectations and reported a gain in revenues, but Mattel missed the Street's profit projections. Treasuries are higher.

As of 8:43 a.m. ET, the March S&P 500 Index Globex futures contract is 14 points below fair value, the Nasdaq 100 Index is 16 points below fair value, and the DJIA is 111 points below fair value. Crude oil is down $0.67 to $41.01 per barrel, and gold is down $15.40 at $911.90.

Humana (HUM $38) reported 4Q EPS fell from $1.43 last year to $1.07, which reflects higher stand-alone prescription drug plan claim expenses and excludes $0.04 per share in other-than-temporary investment impairments. The Reuters estimate called for $1.06 per share. Revenues grew 18% to $7.5 billion, as total premium and administrative services fees were up 19% versus last year, driven by a 24% increase in average Medicare Advantage membership. HUM reaffirmed its 2009 EPS guidance.

Mattel (MAT $14) is under pressure after reporting 4Q EPS of $0.49, well below the Street's view of $0.71, as revenues fell 11% to $1.9 billion. The company said sales in its Barbie unit were down 21%, Hot Wheels declined 22%, and its core Fisher-Price fell 9%. MAT said its business was not immune from the deteriorating economic environment of 2008.

Personal outlays lower, labor data on deck

Personal income fell 0.2% in December, below the Bloomberg estimate of -0.4%, and November was revised lower. And personal spending fell 1.0% in December, versus expectations of a 0.9% decline as the recession continued to encourage savings. The savings rate rose from 2.8% to 3.6%. The PCE Price Index, which is released with the income and spending data, increased 0.6% in December. The core PCE Price Index, which excludes food and energy, was flat. Year-over-year, core prices are up 1.7%. Treasuries remain higher after the consumption data.

At 10:00 am ET today, the ISM Manufacturing Index will be released along with construction spending, kicking off a busy economic week, dominated by labor data, culminating with Friday's labor report.

Nonfarm payrolls for January are expected to fall 530,000, after December's 524,000 job decline and the unemployment rate is expected to increase from 7.2% to 7.5%. The unemployment rate could reach 9%, which doesn't bode well for consumer sentiment or spending. We will likely see a deep and extended recession, not a depression, and while we could retest the lows reached in November 2008, stocks appear to have already priced in much of the bad news. Wednesday's release of the ADP employment change and Thursday's weekly initial jobless claims report, accompanied by nonfarm productivity and unit labor costs, will get the labor market analysis rolling on the Street.

Other reports that will most likely contribute to the economic sentiment include, pending homes sales on Tuesday, the ISM Non-Manufacturing Index on Wednesday, and factory orders on Thursday.

Europe in the red as banks lead the dread

Stocks in Europe are solidly lower in afternoon action, led by banking shares and more pessimism toward the uncertainty of the depth and duration of the global recession. Financials are under heavy pressure, led by an almost 12% drop in shares of Barclays (BCS $6) after Moody's cut the UK firm's debt rating. Moody's said the downgrade reflects expectations of potentially significant further losses at BCS as a result of writedowns on credit market exposures as well as an increase in impairments in the UK, which could weaken profitability and capital ratios.

Profit pessimism pressures Japan

Stocks in Japan moved solidly lower in a broad-based decline as worries about the global economy weighed on sentiment, exacerbated by some key earnings warnings. The Nikkei 225 Index fell 1.5% and the broader Topix Index moved 2% lower as hard-disk drive maker Hitachi (HIT $30) fell about 17% after it warned that it expects to report a fiscal-year loss of 700 billion yen, compared to its 15 billion yen profit forecast in October, according to Bloomberg. The company also announced it may cut about 4,000 jobs at its automotive-system operations and 3,000 from its television business. Additionally, Panasonic (PC $12), the world's largest consumer-electronics maker declined 3% after the Nikkei newspaper said the company may report a 300 billion yen net loss for its fiscal full-year. Panasonic did not comment. Elsewhere, Rio Tinto (RTP $87) moved solidly higher on reports that Chinalco (ACH $11), a Chinese state-owned aluminum producer, is in talks to buy some of RTP's assets, which would help it reduce about $8 billion in debt, according to Reuters. Talks are in the initial stages and RTP and Chinalco both said there was no certainty the sale would take place.