Morning Update

Looking Higher Even as Economic Data is Dire

Stocks are looking higher after yesterday's volatile action amid financial industry uncertainty, as traders are shrugging off a much worse-than-expected drop in durable goods orders and an unexpected jump in initial weekly jobless claims. Financials are leading a solid advance in Europe, while economic concerns weighed on Asia. Treasuries are lower in early action but have recovered losses following the dismal jobs and manufacturing reports and as traders await more data on the housing market. In equity news, General Motors reported a huge loss and burned through $6.2 billion in 4Q, while Sears Holdings topped analysts' profit expectations.

As of 8:51a.m. ET, the March S&P 500 Index Globex futures contract is 8 points above fair value, the Nasdaq 100 Index is 6 points above fair value, and the DJIA is 62 points above fair value. Crude oil is up $0.76 to $43.26 per barrel, and gold is down $21.50 at $944.70.

Dow member General Motors (GM $3) reported an adjusted 4Q net loss of $9.65 per share, much worse than the Reuters estimate of a $7.40 per share net loss, as revenues fell 34% to $30.8 billion. GM said the drop in revenues was driven by the sharp decline in global industry volume. The company burned through $6.2 billion in cash for the quarter and the number one US automaker said the 1Q cash burn rate will be significant. GM said it expects the challenges it faced in 2008 will continue in 2009. The automaker said it expects receiving a "going concern" opinion from its auditors.

Sears Holdings (SHLD $36) reported 4Q EPS ex-items of $2.94, versus the Street's estimate of $2.68, as revenues decreased $1.8 billion to $13.3 billion as same-store sales fell 8.3% for the quarter. The company said 2008 was a very difficult year for the US economy, and its effect on consumer confidence reflects the turmoil that has enveloped the retail industry and its business.

Durable goods orders plunge, jobless claims unexpectedly jump

Durable good orders tumbled 5.2% in January, much worse than the expected drop of 2.5% and December's decline was revised sharply larger. Ex-transportation, orders fell 2.5%, versus the forecast of a 2.2% decline. December was also revised lower. Orders for non-defense capital goods ex-aircraft, which is considered a good indicator of capital spending, fell 5.4%, which was also revised largely to the downside.

Weekly initial jobless claims unexpectedly jumped 36,000 to 667,000, versus last week's figure that was upwardly revised by 4,000, and well above the Bloomberg consensus which called for claims to fall to 625,000. The four-week moving average rose 19,000 to 639,000, and continuing claims increased 114,000 to a fresh record high of 5,112,000. The unexpected jump in claims continue to show the large number of high-profile layoffs announced recently as each of the claims figures increased to severely elevated levels. Treasuries are lower, but came well off of the worst levels of early action following the dismal manufacturing and employment data.

Other economic news due to be released later in morning action is the new home sales report for January, and the expectation is that sales declined 2.1% m/m to 324,000 units on an annualized rate. The high rate of foreclosures and resultant lower prices on existing homes has attracted buyers at the expense of purchasing new homes. Additionally, despite declines in housing starts, the rate of new home sales has not kept up with increasing supply, and inventories in December rose to 12.9 months worth of sales, well above the 5 to 6 month supply that is considered a stable market. As a result, homebuilders have resorted to creative promotions intended to attract buyers. While builders have significantly slowed the pace of new home starts, hope for a near-term bottom in home prices is being stifled by still-high inventories of new and existing homes, tight lending standards and dour consumer sentiment.

Europe finds support from financials

Stocks in Europe are solidly higher in afternoon action, poised to snap a four-day losing streak, led by solid gains in financials amid a plethora of news in the sector. UBS (UBS $9) is up about 13% as Switzerland's largest bank's as traders cheer its announcement that it has appointed the former chief of rival Credit Suisse (CS $22) as its new CEO. Royal Bank of Scotland (RBS $7) is up about 23% after the firm reported a less-than-expected net loss-the largest in UK history, announced it will put 325 billion pounds ($462 billion) of investments into a state insurance program, and said that it will create a new unit to house about 540 billion pounds of toxic mortgage-related assets. Meanwhile, Europe's largest insurer Allianz (AZ $6) is up solidly despite reporting a bigger-than-expected 4Q loss, as the German firm announced that it disposed of struggling Dresdner Bank. Elsewhere, the world's largest chemical maker BASF (BASFY $27) is up over 6% after it announced that it will cut around 1,500 jobs and close more plants, while pledging to maintain its dividend, despite reporting its first quarterly loss in seven years.

The upbeat sentiment across the pond is overshadowing reports from the economic front that European consumer confidence fell to a record low in February, and the fourth-straight increase in German unemployment.

Asian shares come under pressure

Stocks in Asia were modestly lower as lingering concerns about the possibility of a deepening global recession weighed on sentiment. In Japan, the trading day started off on a positive note as the continued weakness in the yen buoyed sentiment, led by optimism that stocks that rely heavily on sales in the US and abroad will receive a boost to their top lines. However, stocks gave up solid gains in late-day trading and finished slightly lower as traders pared investments ahead of key reports on Japanese employment and inflation. Shares in China also had a volatile day, swinging from a gain to a loss as the Shanghai Composite Index finished 3.9% lower to lead the decline in Asia. On the economic front, Singapore's economy shrank the most in at least 33 years, according to Bloomberg, as its GDP declined at an annualized rate of 16.4% last quarter versus the previous three months. However, shares in Australia managed to eke out a 0.5% gain as the land from down under was one of the few markets in the region that finished in the green.

In equity news, the world's largest maker of memory-chip testing equipment, Advantest (ATE $14) fell about 13% after yesterday's announcement that its net loss will probably be 78 billion yen and that it plans to cut 25% of its workforce. Australia's largest telephone company, Telstra (TLSYY $12) fell over 2% after reporting a drop in first half profit and its CEO resigned without naming a successor. Nippon Steel (NISTY $25) rose 2% after the world's second-largest steel producer said a recovery in production may begin as early as next quarter. Nissan Motor (NSANY $6) gained solid ground for a second-straight session after the automaker said it will boost domestic production next month.