Morning Update

Mixed Morning after Yesterday's Mortgage Report Resiliency

Stocks are slightly mixed in early action following yesterday's late-day resiliency, which erased a triple-digit loss, on a report that the Obama Administration was considering a mortgage subsidy plan to help struggling homeowners. Also, traders are looking at the G7 conference in Rome for any details as the industrial powers discuss the struggling global economy, as well as expecting Congress to pass the President's economic stimulus package today. On the equity front, PepsiCo matched earnings expectations and Abercrombie & Fitch easily beat the Street's profit forecast. Treasuries are mostly lower in a shortened session ahead of a key reading of consumer sentiment. Overseas, markets are higher.

As of 8:49 a.m. ET, the March S&P 500 Index Globex futures contract is 1 point below fair value, the Nasdaq 100 Index is 1 point above fair value, and the DJIA is 1 point below fair value. Crude oil is up $0.65 to $34.63 per barrel, and gold is off $8.20 at $940.30.

PepsiCo (PEP $52) reported 4Q EPS ex-items of $0.88, in line with the Reuters estimate as revenues grew 3% to $12.7 billion. The company said the stronger dollar negatively impacted results as overall 4Q volume rose 2% in its snack business and 1% in the drinks business. The company said it is prudent to give a wide range in its guidance with all the uncertainties in the economic environment and commodity costs and foreign exchange rates will present the most difficult year-over-year comparisons, particularly in 1Q. PEP said it expects full-year revenue and EPS guidance of mid-to-high-single-digit growth. Shares are up in early trading.

Abercrombie & Fitch (ANF $21) is gaining ground after posting 4Q EPS ex-items of $1.10, well above the Street's view of $1.01, as revenues fell 19% to $998 million, while same-store sales fell 25%. The teen retailer said 4Q "proved to be a catastrophe for the retail industry; a nightmare that included unprecedented promotional activity by other retailers in the malls and consumers who continued to show reluctance to spend." But the company said it was pleased with the results despite the "unprecedented volatility."

G7 meeting begins

The seven global industrialized economic powers have gathered in Rome to discuss the global economic crisis. US Treasury Secretary Timothy Geithner will hold a press conference tomorrow and is expected to discuss his recently unveiled bank rescue package aimed at unlocking the financial markets.

Five of the seven nations participating in the meetings have technically slipped into a recession. Canada and France are the two countries that have not officially entered a recession, defined by two consecutive quarters of economic contraction. Typically the meetings don't usually yield any groundbreaking headlines, but given the struggling global economy, traders may be looking closely at what may transpire from the get together of the World powers. Protectionism is likely to be the hot button issue that has the potential to grab the lion's share of attention.

At 10 am ET today, the economic calendar will yield preliminary University of Michigan consumer sentiment, expected to decline further from 61.2 in January to 60.2, as mounting job losses, falling home prices, and continued weakness in equities contribute to the mounting pressure consumers are facing.

Treasuries are mostly lower in early action and the bond markets will close at 2 pm ET today and all US markets will be closed on Monday in observance of the President's Day holiday.

Euro zone output contracts more than expected

Stocks in Europe are posting solid gains in afternoon action despite a gloomy GDP report on the region, led by financial issues amid the carry-over enthusiasm from the rebound in US stocks yesterday. The euro zone economy contracted 1.5% from last quarter, more than the 1.3% decline economists surveyed by Bloomberg expected and the most since records began in 1995. Germany, Europe's largest economy, led the drop as output fell 2.1%, while France reported a 1.2% drop in output, but remains technically out of a recession. The worse-than-expected output readings may be increasing expectations that the European Central Bank may need to become more aggressive in fighting worsening economic conditions in the Euro region.

On the corporate front, ThyssenKrupp (TYEKF $24), Germany's largest steelmaker is up almost 3.0% after reporting 1Q profits fell 59% to 168 million euros on lower demand, but the results topped the 135 million euro analyst consensus. Michelin (MGDDF $43) is gaining ground after the tire maker said it will focus on "improving its profitability and preserving its robust financial position." Pernod (PDRDY $12) is up 7.0% after the liquor company said first-half profits rose 15% on Asian demand, prompting an analyst upgrade.

Asia advances despite more earnings gloom

Stocks in Asia were broadly higher following the late-day resiliency on Wall Street and general optimism toward the global economic stimulus efforts. China led the way as the Shanghai Composite rose 3.2% and the Hang Seng Index rose 2.5% as economists suggest that the country's $585 billion stimulus package is beginning to work its way to promote economic growth. In Japan, the Nikkei 225 Index gained about 1.0% as the weaker yen helped export-related issues, helping offset a couple of gloomy reports on the corporate front. Pioneer Corp. (PNCOF $2) tumbled 20% after yesterday's announcement that it expects a wider net loss and said it will exit its unprofitable television business. The electronics firm projected a net loss of 130 billion yen ($1.44 billion), topping its previous 78 billion yen loss it estimated last fall. Life insurer, T&D Holdings (TDHOF $35) fell about 15% about the company revised its full-year forecast from a profit to a loss, while the Nikkei newspaper's report that it may sell shares to raise capital added to the pressure on shares. The company did not comment on the newspaper report. Meanwhile, Australian shares rose 1.3%, aided by its Senate approval of a $28 billion stimulus package.