Morning Update

Back from Break but Week Starts Bleak

Stocks are much lower in early action as traders return from the long weekend only to be greeted with more worries about the health of the global economy. The pressure this morning comes despite better-than-expected profits from the world's largest retailer Wal-Mart and as President Barack Obama is set to sign his economic stimulus package into law. In other equity news, Transocean matched profit forecasts. Treasuries are higher amid the global economic uneasiness, and the Empire Manufacturing Index dropped more than expected. Overseas, markets are in the red.

As of 8:45 a.m. ET, the March S&P 500 Index Globex futures contract is 25 points below fair value, the Nasdaq 100 Index is 38 points below fair value, and the DJIA is 190 points below fair value. Crude oil is down $1.86 to $35.65 per barrel, and gold is up $25.00 at $966.50.

Dow member Wal-Mart(WMT $47) reported 4Q EPS ex-items of $1.03, four cents above the Reuters estimate, as revenues rose 1.7% to $108 billion, about $1 billion ahead of analysts' forecasts. US sales rose 6% in 4Q as the world's largest retailer continued to attract consumers looking to save money amid the adverse economic conditions. However, the stronger dollar led an 8.4% slide in international sales. WMT said its performance relative to competitors was exceptionally strong in the quarter and it expects this momentum to continue. The company issued 1Q EPS guidance in line with the Street's consensus, and provided a full-year outlook that topped analysts' expectations.

Offshore drilling contractor, Transocean (RIG $60) reported 4Q EPS ex-items of $3.69, matching the Street's forecast, as revenues came in at $3.3 billion, which was generally in line with expectations.

Short week but long on data

Although the week will be one session short, the economic calendar will likely provide plenty for traders to chew on. Today, President Barack Obama is expected to sign his $789 billion economic stimulus package in Denver, Colorado, and on Wednesday is reportedly going to announce the details of a foreclosure mitigation plan. Housing data will likely make more headlines this week with housing starts and building permits due out on Wednesday. The Bloomberg survey of economists is expecting starts fell 3.6% month-over-month to an annual rate of 530,000 units, while permits, an indicator of future projects, is expected to have declined 4.0% to an annual rate of 525,000. The drop in starts and permits may be welcome news on the Street as home prices are unlikely to stabilize while supply remains elevated at nine months for existing homes and 12 months for new homes in December (versus the 5-6 months that is considered normal).

The minutes from the January FOMC meeting are expected on Wednesday. Of particular interest will be the discussion behind Jeffrey M. Lacker's dissention with the Committee's decision to use targeted credit programs, preferring to expand the monetary base by purchasing U.S. Treasuries.

Industrial production and capacity utilization will also be reported on Wednesday, and industrial production is expected to decline 1.5% in January, and capacity utilization is expected to be 72.4%. In response to slower consumer and business spending, manufacturers have been working down inventory levels to conserve cash, and are ordering fewer replacement goods.

Inflation data will also likely garner attention this week with the releases of the Producer Price Index and the Consumer Price Index for January, which are both expected to increase on the headline and core readings, amid the recent increases in commodity prices and possibly easing concerns at the Fed as it has expressed some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

Other releases this week include weekly MBA mortgage applications on Wednesday, weekly initial jobless claims on Thursday, and the Philadelphia Fed survey on Friday.

Meanwhile, the week kicked off with the first read on economic conditions in February as the Empire Manufacturing Index, a measure of manufacturing in New York, fell from -22.20 to -34.65, wider than the estimate of -23.75. A reading of zero suggesting conditions are neither contracting nor expanding. Treasuries are higher amid the lingering fears of the depth and duration of the global recession.

Europe under pressure on fears of eastern exposure

Stocks in Europe are under solid pressure, led by financials after Moody's Investors Service warned that some of the banks with units that do business with Eastern European economies could be downgraded. Moody's said it sees "continuous downward rating pressure" in the region due to worsening asset quality. Automakers are also under pressure as Daimler (DAI $31) posted a larger-than-expected 4Q net loss, saying shrinking car markets will impose "substantial burdens" on earnings this year and cause sales at its Mercedes-Benz cars division to fall. Also, Fiat (FIATY $6) is down sharply after the Italian carmaker denied reports that it was seeking 2 billion euros through a rights offering to help its capital position amid falling demand. Fiat called the report "totally groundless."

Asian stocks fall as recession fears freeze sentiment

Stocks in Asia were broadly lower, led by financials as worries about the impact of the global recession whipped sentiment. In Japan, the Nikkei 225 Index declined 1.4% and the broader Topix Index finished 1.8% lower for the session that followed the government report that the Japanese economy contracted the most since 1974, according to Bloomberg. Yesterday the government reported that Japan's GDP shrank 12.7% on an annualized basis last quarter. Meanwhile, Japanese Finance Minister Shoichi Nakagawa resigned following allegations that he was drunk at a G-7 summit press conference over the weekend. Elsewhere, South Korean shares led the decline, falling over 4%, as Woori Finance (WF $15) fell almost 7% following its banking unit's decision to tap the government's bank recapitalization fund.