Morning Update

Looking for a Recovery

Stocks are higher in early action after yesterday's sharp slide that stemmed from the disappointment that US Treasury Secretary Timothy Geithner's bank rescue plan lacked details on how to rid the toxic banking assets from balance sheets to help thaw the frozen credit markets. The Street is also paying attention to President Obama's economic stimulus plan that passed the Senate yesterday and is being hammered out in Congress. In equity news, Research in Motion warned, Applied Materials reported profits in line with expectations, Ingersoll-Rand topped its previous guidance, while Nike announced a possible 4% workforce reduction. Treasuries are nearly unchanged and the trade gap narrowed, but less than expected. Overseas, markets are mostly lower.

As of 8:48 a.m. ET, the March S&P 500 Index Globex futures contract is 5 points above fair value, the Nasdaq 100 Index is 4 points above fair value, and the DJIA is 48 points above fair value. Crude oil is up $0.60 to $38.15 per barrel, and gold is up $8.90 at $922.60.

Research in Motion (RIMM $57) is sharply lower after it warned that 4Q EPS and gross margins are expected to be at the low end of the previously guided ranges. The maker of the Blackberry mobile device's disappointing outlook came despite saying it expects subscriber account additions for 4Q to be over 20% higher than the 2.9 million net subscriber account additions forecasted by the company last year.

Nike (NKE $45) announced corporate restructuring that may reduce its workforce up to 4%, but the exact number will not be known until a review is completed.

Ingersoll-Rand (IR $16) is higher after posting adjusted 4Q EPS of $0.53, which exceeded its revised guidance, while revenues, excluding the impact of currency exchange, fell by about 8% to $3.7 billion.

Trade gap narrows but less than expected

The trade deficit narrowed from a downwardly revised $41.6 billion in November to $39.9 billion in December, but came in wider than the Bloomberg estimate of $35.7 billion. Exports fell 6% to $133.8 billion and imports fell 5.5% to $173.7 billion.

In other economic news, the US MBA Refinance Index fell 30.3% to 2722.7 as the idea the government might step in to lower 30-year mortgage rates, the possibility of higher tax credits for home buyers in President Barack Obama's economic stimulus package, and the continued slide in home prices helped keep demand for refinancing subdued. The Purchase Index fell 9.8% to 235.9, the lowest since the end of 2000, and signaling that any recovery in housing has not yet begun.

With inventories of homes on the market remaining high, home prices are unlikely to stabilize, and reported inventory levels understate the problem, due to the practice of foreclosure properties being unrepresented in the released figures.

Treasuries are nearly unchanged as traders deal with the hangover from yesterday's sharp selloff in equities, which fostered flight-to-quality buying and took bond yields lower. The catalyst for the pressure on the stock market was due to disappointment with the lack of details in US Secretary Timothy Geithner's bank rescue plan. Furthermore, the plan failed to address a key issue in thawing lending: how to price the toxic assets on bank balance sheets, which would allow banks to stop hoarding cash in fear of future asset write-downs.

Mixed earnings in Europe

Stocks in Europe are lower in afternoon action as banking shares are leading the decline on more fallout from the US Treasury's bank rescue plan that traders believed lacked details and conviction. Also, Switzerland's second-largest bank, Credit Suisse (CS $26) posted a net loss of 6.0 billion francs ($5.2 billion), larger than the Bloomberg forecast of a 4.2 billion francs, which is doing little to help sentiment in the financial sector. But shares of CS have pared losses after coming under heavy pressure as the company's CEO said, "We have had a strong start to 2009 and were profitable across all divisions year to date." Elsewhere, the world's largest steel maker ArcelorMittal (MT $25) is up nicely despite reporting a 42% drop in core 4Q earnings as the results beat analysts' expectations. The company halved its dividend and said the economic situation is exceptional, and steel demand will fall 7-10% in 2009, but 1Q would be the low point in terms of profitability.

Meanwhile, Bank of England Governor Mervyn King said the UK is in a "deep recession" and further easing in monetary policy may well be required, likely including actions aimed at increasing the supply of money in order to stimulate nominal spending. Mr. King provided the comments after presenting the central bank's revised quarterly forecast, which showed the economy will contract at an annual 4% rate by the end of 1Q and inflation will slow to 0.5% at the end of next year.

Asia stumbles in reaction to US bank-plan pessimism

Stocks in Asia were broadly lower as traders had a chance to react to the sharp selloff on Wall Street yesterday on disappointment in the US Treasury's bank rescue plan. Markets in Japan were closed for a holiday, and Hong Kong's Hang Seng Index led the decline, falling 2.5%, as uncertainties regarding the duration of the global recession were exacerbated by the dismal reaction to the US bank plan, while an economic report in China showed exports fell by the most in almost 13 years amplified the fears of economic adversity. In equity news, shares of Rio Tinto (RTP $107) gained over 6% after reports that a person familiar with the matter told Bloomberg that the Aluminum Corp. of China (ACH $13), or Chinalco, is set to announce an investment to help RTP rid some of its $39 billion debt burden. None of the companies commented and the report said an announcement could come when RTP reports its earnings this week.