Morning Update

Auto Aid Rejection Injects Some Pessimism

Stocks are solidly lower in early action as the Street is reacting to the decision by President Obama's auto task force to reject more taxpayer aide to US automakers GM and Chrysler, and accessing the impact of the failure of the firms could have on the economy. Meanwhile, financial fears are resurfacing, courtesy of US Treasury Secretary Timothy Geithner saying some firms may need large amounts of assistance, while Europe is under pressure after several central banks intervened to support the collapse of some firms across the pond. Treasuries are higher as traders gear up for a busy economic week. In other overseas action, Asian markets fell amid the uncertainty in the US auto industry and exacerbated financial fears.

As of 8:46 a.m. ET, the June S&P 500 Index Globex futures contract is 15 points below fair value, the Nasdaq 100 Index is 18 points below fair value, and the DJIA is 143 points below fair value. Crude oil is down $1.83 to $50.55 per barrel, and gold is down $9.10 at $914.10 per ounce.

Dow member General Motors (GM $4) is sharply lower after President Barack Obama's auto task force rejected GM's and privately held Chrysler's turnaround plans. The Obama administration said it would pledge to fund GM's operations for only the next 60 days while the automaker constructs a sweeping restructuring plan, instead of granting GM's request for up to $16 billion in more loans per Reuters. For Chrysler, Obama's team gave the car company 30 days to try to complete an alliance with Italy's Fiat (FIATY $7) or face a shut off of government funds to the firm, which could lead to the demise of the company. An Obama administration official said GM and Chrysler must overhaul their recovery plans with deeper concessions to justify further taxpayer aid, and bankruptcy may ultimately be their best chance, according to Bloomberg.

Additionally, GM's CEO Rick Wagoner was forced out at the request of the President's auto task force and a majority of the automaker's board will be replaced. GM President and Chief Operating Officer Fritz Henderson was named the new CEO.

Heavy economic horizon ahead

Treasuries are higher amid the uneasy sentiment in early action as there are no major economic reports due today, but the economic calendar this week will have plenty for the Street to chew on, highlighted by Friday's labor report.

Nonfarm payrolls are expected to have fallen by 660,000 positions in March according to a survey of economists by Bloomberg, after falling 651,000 in February. The unemployment rate is expected to rise to 8.5% from 8.1% in February. The trend in weekly initial jobless claims data has remained elevated around 650,000.

The slowing pace of decline measured by recent economic reports has been greeted warmly by investors. The steep fall in spending and manufacturing post-Lehman was so dramatic, that it could not be sustained. After recovering from a state of paralysis, where decisions to spend were simply at a stand-still, some pent-up demand built up. The question that investors face is the sustainability of demand from here, and whether monthly reports will translate into improving trends. However, the path to recovery will likely not be in a straight line. Despite this, waiting for a confirmation of an economic turnaround could be detrimental to your portfolio's return, as the market is a forward-looking mechanism. And the unemployment rate tends to lag economic activity by about seven months, as businesses tend to wait for confirmation of lower demand before furloughing workers.

The S&P/Case-Shiller Home Price Index for January will kick things off tomorrow, and prices are expected to have fallen 18.6% year-over-year. The index is a three-month rolling average, and through December had fallen 26.7% from its peak in 2006. Steeply falling prices have catalyzed recent sales for both new and existing homes. Housing affordability is up through a combination of lower prices and mortgage rates. However, "real" mortgage rates are stratospheric in some markets due to the deflator. As home prices continue to depreciate, the real mortgage rate has in some cases skyrocketed to 20%, through the combination of borrowing money at 5% to purchase an asset declining at a 15% rate. However, if the pace of inventory declines keeps up, the light at the end of the tunnel should get brighter.

The ISM Manufacturing Index will be released on Wednesday, and is expected to improve to 36.0 in March from 35.8 in February, according to a survey of economists by Bloomberg. The ISM Non-manufacturing Index will be released on Friday, with the expectation that conditions improved to 42.0 in March from 41.6 in February. The separation point between contraction and expansion for both readings is 50. The indices are expected to show an economy that is still in decline, but declining at a slower pace. The ISM indices are closely watched, as they are forward-looking barometers and are monitored by the Federal Reserve as a measure of economic growth.

Other reports on the economic calendar this week include the Chicago PMI and consumer confidence on Tuesday, MBA Mortgage Applications Index, the ADP Employment Change, pending home sales, and construction spending on Wednesday, while initial jobless claims and factory orders on Thursday will precede the labor report.

Europe lower as confidence falls and bailouts evolve

Stocks in Europe are lower in afternoon action after eurozone economic confidence fell more than expected, and as financials are leading the decline after some central banks intervened. Weakness in commodity prices, which are weighing on the basic materials group, and fears about the future of the US auto industry are helping drag down stocks across the pond. The Eurozone Economic Confidence Index fell from 65.3 in February to 64.6 in March, versus the forecast of 65.4, and the lowest level on record per Bloomberg. Meanwhile, uneasiness is being amplified by the announcement that the German government's rescue fund, called Soffin, will acquire 20 million shares of Hypo Real Estate (HREHY $2), giving the state an 8.7% stake in the company and the fund aims to take full control at a later stage, the company said in a statement. Elsewhere, the Bank of Spain announced it has appointed administrators to run savings bank Caja Castilla-La Mancha, with the central bank guaranteeing as much as 9 billion euros ($12 billion) of its liabilities. Also, Britain's largest customer-owned lender Nationwide Building Society will purchase the $3.3 billion in retail deposits and 1 billion pound prime mortgage book of Scotland's Dunfermline Building Society, in a government-arranged deal to stave off a collapse of the company.

Asia tumbles on auto and financial troubles

Stocks in Asia were solidly lower across the board, led by financials on worries more will need to be done in the group before stability can be seen, while fears about the possible demise of some US automakers weighed on trading in the region. Japan's Nikkei 225 Index fell 4.5% and the broader Topix Index dropped 4.2% as the soured sentiment was exacerbated by strength in the yen-weighing on export issues-and a larger-than-expected drop in industrial production. The Trade Ministry in Tokyo said industrial production fell 9.4% in Febraury, versus the -9.1% decline economists surveyed by Bloomberg forecast and on top of January's decline of 10.2%. Elsewhere, Hong Kong's Hang Seng Index fell 4.7%, Korea's Kospi Index declined 3.2%, and China's Shanghai Composite Index was 0.7% lower. In equity news, Aluminum Corp. of China (ACH $17) was about 12% lower after the company, also known as Chinalco, said its annual profit fell 99.9% in 2008 and it forecasted a 1Q loss, due to lower prices for the metal and softening demand. Chinalco also said it will cut capital spending by 34% this year and limit spending on acquisitions.