Morning Update

Looking to Repair Some of Yesterday's Despair

Stocks are higher in early action, looking to recover somewhat from yesterday's solid declines, which took the Dow and S&P 500 to the lowest levels in nearly 12 years amid exacerbated concerns about the ailing global economy. Ahead of a busy day on the economic data front, equity news is providing some relief as JPMorgan Chase cut its dividend and offered relatively optimistic comments, and Home Depot and Macy's topped the Street's earnings forecasts, which are offsetting Target's lower-than-expected bottomline. Treasuries are mixed before data on housing and consumer confidence, and speeches from Fed Chief Ben Bernanke and President Barack Obama. Overseas, markets are lower after yesterday's slide on Wall Street.

As of 8:50 a.m. ET, the March S&P 500 Index Globex futures contract is 4 points above fair value, the Nasdaq 100 Index is 12 points above fair value, and the DJIA is 29 points above fair value. Crude oil is up $0.11 to $38.55 per barrel, and gold is up $0.20 at $994.70.

Dow member (JPM $20) JPMorgan Chase is higher after the company announced that it will reduce its quarterly common stock dividend from $0.38 to $0.05 per share, and the company's Board anticipates maintaining this level for the time being. JPM said the action will enable it to retain an additional $5 billion in common equity per year. The company added that 1Q financial performance quarter-to-date is "solidly profitable" even after significant additions to reserves, and the outlook for the quarter is roughly in line with analyst expectations.

Fellow Dow component (HD $19) Home Depot reported 4Q EPS ex-items fell 52.5% versus last year to $0.19, but four cents ahead of the Reuters estimate, as revenues decreased 17.3% to $14.6 billion. The number one home improvement retailer said it made important progress in key areas, despite the difficult economic conditions. HD maintained "sound inventory control," launched an effective new lower price campaign, and significantly reduced square footage growth, which will better position it for the future. The company issued full-year 2009 EPS guidance ahead of the Street's forecasts, but said it expects the home improvement market during the year to be just as challenging as in 2008.

(TGT $28) Target announced 4Q earnings fell 34.4% to $0.81 per share, two cents shy of the Street's estimate, as revenues declined 1.6% to $19.0 billion, due to a 5.9% decline in same-store sales. TGT said the 4Q gross margin rate decreased 1.4 percentage points, driven by increases in markdowns combined with the mix impact of faster sales growth in non-discretionary, lower margin-rate categories.

(M $7) Macy's posted 4Q EPS ex-items of $1.06, topping analysts' estimates of $1.01, as revenues fell 7.7% to $7.9 billion as same-store sales fell 7.0%. The company said as the economy weakened further in the quarter, the company outperformed most major competitors on value, quality and fashion delivered through the holiday season. The company issued 2009 EPS guidance in line with the Street's forecast.

Treasuries mixed ahead of busy economic slate

Treasuries are mixed as traders gear up for some housing and consumer sentiment data, as well as testimony from the chairman of the Federal Reserve on Capitol Hill.

The S&P/CaseShiller Home Price Index will be released just prior to the opening bell and an 18.3% drop in home prices in December versus a year ago is anticipated (economic calendar). Prices fell 18.2% year-over-year in November. Consumer confidence will be reported for February at 10 a.m. ET and is expected to fall from 37.7 January to 35.0 in February, a fresh all-time low amid growing job losses and a quickly deteriorating economy.

Against the backdrop of the flood of stimulus efforts aimed at stemming the severe recession engulfing the US and global economies, Federal Reserve Chairman Ben Bernanke will begin his semi-annual Humphrey-Hawkins testimony before the Senate Banking Committee at 10 a.m. ET. The Fed Chairman is expected to present the central bank's forecast for economic growth, unemployment and inflation, but traders may be focusing on details on the expanding Fed balance sheet and when/if the Federal Open Market Committee will purchase long term Treasuries. Tomorrow, the Fed Chief will testify before the House Financial Services Committee.

The Fed continues to purchase mortgage-backed securities (MBS) while also keeping the option of purchasing Treasury securities open. The primary goal of this action would likely be to lower interest rates on Treasuries, thereby pushing mortgage rates lower and making housing more affordable. When the Fed first floated this idea, the response was quick, yields fell and mortgage rates followed.

However, lately, for a variety of reasons (including the welcome step of some risk tolerance re-entering the market), Treasury yields have started to move back up—taking mortgage rates with them. These recent moves could force the Fed to move more quickly than it would have liked as it appears Fed members' words have stopped having the impact they did earlier in the crisis.

Also, traders are waiting to hear President Barack Obama's speech in front of Congress tonight at 9 p.m. ET, where one of his main topics will be to address the issues that are hampering the health of the economy.

German business confidence falls

Stocks in Europe are under pressure in afternoon action as the slide in US equities amid economic and financial uncertainty is weighing on sentiment overseas, exacerbated by a disappointing read on German business confidence. Germany's Ifo Index fell from 83.0 to 82.6 in February to the lowest level in 26 years, according to Bloomberg, as the recession is fostering production and job cuts. Economists surveyed by Bloomberg called for the index of business sentiment in Europe's largest economy to remain unchanged. The equity front is doing little to repair sentiment as Switzerland's second-largest drug maker, (NVS $40) Novartis is down almost 3% after its CEO said the global recession and the aging population will lead governments and payers to put pressure on drug prices and patents. Also, Europe's largest maker of car navigation devices (TMOAF $4) TomTom is down over 5%—and in the red for the ninth-straight session—after it posted a loss and its CEO said room in its loan covenants is "not tremendously big."

Wall Street slide leads to Asian adversity

Stocks in Asia we broadly lower as the sell off in the US carried over to trading in the region. The Nikkei 225 Index fell 1.5%—almost breaching the 26-year low it reached in October—although the three-month low in the yen helped limit some losses as export-related issued faired relatively well. China's Shanghai Composite Index fell 4.6% and Hong Kong's Hang Seng Index shed 2.9% amid the pessimism toward financials and the weakness in crude oil. South Korea's Kospi Index was also weighed down by the exacerbated economic sentiment, losing 3.2% amid more weakness in the won. In equity news, Japan's largest brokerage firm, Nomura Holdings (NMR $4) fell 9.3% on dilution concerns and an analyst price target downgrade after its announcement that it will sell 291.2 billion yen ($3.1 billion) to replenish it capital structure.