Morning Update

Back in the Green as Bulls Look to Take Another Swing

Stocks are moving higher in early action, following yesterday's slide on worries about the viability of the US auto sector and renewed uneasiness in financials. Sentiment is being supported by a rebound overseas in Europe, which is offsetting weakness in Japan and Australia on economic pessimism. Treasuries are lower ahead of housing, manufacturing, and consumer confidence reports that are set to be released later in morning action. In equity news, Lennar posted a larger-than-expected 1Q loss.

As of 8:46 a.m. ET, the June S&P 500 Index Globex futures contract is 9 points above fair value, the Nasdaq 100 Index is 13 points above fair value, and the DJIA is 80 points above fair value. Crude oil is up $1.34 to $49.75 per barrel, and gold is up $7.90 at $923.40 per ounce.

Homebuilder Lennar (LEN $9) reported a larger-than-expected 1Q loss of $0.98 per share on write-offs and other adjustments, versus the Reuters estimate of a $0.69 per share shortfall, as revenues fell 44% to $593 million. "The housing market continued its downward trend throughout our first quarter," LEN's CEO said. He added that despite historically low interest rates and some indicators pointing toward market stabilization, low consumer confidence, increased unemployment and growing foreclosure rates negatively impacted new home sales in most of its markets.

Housing data set to lead off economic docket

Treasuries are lower ahead of some key data on housing, manufacturing, and consumer sentiment.

The S&P/Case-Shiller Home Price Index for January will be released just before the market opens, 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. 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.

Other reports on the economic calendar that are due out later this morning include the Chicago Purchasing Manager survey, forecast to improve slightly from 34.2 February to 34.3 in March, and consumer confidence will be reported and is expected to rebound from the all time low of 25.0 in February to 28.0 in March, amid the recent rebound in stocks and increased optimism in financials supported by the announcement of Treasury's Private-Public Investment Program (PPIP), to rid the toxic assets from the balance sheets of some banks.

Even the optimists must concede that the rapidity with which the market rallied off its March 9 lows was extraordinary. A "catch its breath" phase is probably necessary for the stock market, even if the market is in a bottoming phase, which we believe it is. It's a time to evaluate your long-term strategic asset allocation and use likely volatility to stay around your equity target-particularly using periods of consolidation to bump your equity exposure back up if you're under plan.

Europe rebounding from yesterday's pounding

Stocks in Europe are broadly higher, posting solid gains in afternoon action after falling sharply yesterday amid fears regarding the future of the US auto industry and resurfacing woes in the financial sector. Helping stocks rebound across the pond, UK consumer confidence unexpectedly increased to -30 in March from -35 in February-the highest level since May-and better than the Bloomberg consensus that called for the reading to remain at -35. The level remains at severely depressed levels but the better-than-expected reading suggests sentiment may be beginning to warm up to the idea that the economy may benefit from the aggressive actions at the Bank of England, which has cut its key interest rates to historic lows and began deploying nontraditional efforts such as quantitative easing to help stimulate the economy.

The equity front is in focus with a plethora news, such as a source familiar with the matter said that Barclays (BCS $8) has entered exclusive talks with private buyout firm CVC Capital Partners to purchase a majority of Barclays' iShares business for about 3 billion pounds ($4.3 billion). Neither party involved commented on the report. UK's largest clothing retailer, Marks & Spencer (MAKSY $8) is up sharply after the upbeat UK consumer confidence data and after the company posted 4Q same-store sales that topped analysts' expectations. The auto sector is rebounding from yesterday's decline, amid worries that some US automakers may be forced to go through bankruptcy, led by Italy's Fiat (FIATY $6), after it was reported that Chrysler and its parent Cerberus Capital Management, have reached a "framework" for an alliance with Fiat, according to people familiar with the matter. None of the parties commented on the story. However, Porsche (POAHF $49) is under pressure despite a jump in first half profits, as the German automaker said vehicle sales decreased significantly and there is no question sales will fall short of prior-year figures.

Asian markets mixed as Japan and Australia lose ground

Stocks in Asia were mixed following yesterday's solid decline as gains in China, South Korea, and Hong Kong were met by weakness in Japan and Australia on some pessimistic economic reports from their respective regions. Australian shares finished lower after its central bank warned that, "There are limits on how much we can insulate ourselves from what is happening abroad, and therefore there are probably still some difficult times ahead." The central bank also added that its economy will probably contract for the first time in almost two decades, per Bloomberg, after it said Australia's GDP is "likely to fall in 2009," as the global economic softness continues to stymie demand for exports of commodity-related materials from the resource rich nation.

Elsewhere, stocks in Japan were solidly lower as the major averages such as the Nikkei 225 Index and the broader Topix Index fell 1.5% and 2.0%, respectively, despite weakness in the yen-which typically favors export-oriented companies-after some dismal employment data. The jobless rate in Japan increased from 4.1% in January to 4.4% in February, above the 4.3% Bloomberg forecast, and the job-to-applicant ratio fell to 0.59 from 0.67, the biggest drop since 1974, and also missing economists' expectations of 0.63. Additionally, wages fell much more than expected, falling 2.7% for a second-straight month as manufacturers slashed production amid weakness in exports, versus the -1.5% that was expected.

However, after the closing bell in Japan, Prime Minister Taro Aso said, "Japan is still in a condition that you could call an economic crisis," adding that further stimulus is needed to prevent the economy from falling through the floor-declining to give an amount, which is expected to be compiled by mid-April.