Morning Update

Creeping Skepticism Still Weighing On Markets

Markets are lower today, continuing last week's negative trend after the long weekend. Ongoing recession fears, fueled by last week's economic data that showed further job losses, are still weighing on commodity prices and dragging down share prices of energy and materials stocks. Meanwhile, Treasuries are mixed as traders await this morning's reading on the US services sector. In equity news, a bankruptcy court judge has approved General Motors' request to sell assets to a new government-backed company, while a host of US companies are in Russia to announce investments in the country as part of President Obama's summit with Russian President Dmitry Medvedev. Overseas, markets are mostly lower due to weakness in commodity-related stocks.

As of 8:44 a.m. ET, the September S&P 500 Index Globex futures contract is 7 points below fair value, the Nasdaq 100 Index is 7 points below fair value, and the DJIA is 45 points below fair value. Crude oil is down $3.04 at $63.69 per barrel, while gold is down $9.25 at $923.00 per ounce.

General Motors (GMGMQ $1) is making progress towards a timely exit from bankruptcy proceedings after a judge approved the ailing automaker's plan to sell its assets to a new government-backed firm. Under the proposed plan, the government will own more than 60% of the new firm, with the Canadian government holding a 12% stake, and the remainder split between union workers and former bondholders. Today's announcement comes as the July 10 deadline imposed by the US government looms. The Obama administration has threatened to withdraw its financing of the reorganization if GM has not completed its bankruptcy proceedings by Friday.

Several American business leaders are in Russia to attend a Kremlin summit between President Barack Obama and Russian President Dmitry Medvedev. While business links between the nations is not the sole purpose of the talks, a host of US companies such as Deere & Co. (DE $39), PepsiCo (PEP $56), and Boeing (BA $41 ¹) will announce investment deals in Russia totaling more than $1.5 billion during the visit. Agricultural machinery manufacturer John Deere expects to invest $500 million in the next six years in the country, while beverage group PepsiCo will invest $1 billion over three years. Boeing plans to announce a joint venture with VSMPO-Avisma, the world's biggest titanium producer, according to Reuters, citing an unnamed source. Other US companies expected to attend the meetings include commodity producers Exxon Mobil (XOM $68), Chevron (CVX $64), ConocoPhillips (COP $41), and Alcoa (AA $10).

Treasuries mixed ahead of reading on the services sector

The ISM Non-Manufacturing Index for June will be released this morning at 10:00 a.m. ET, with economists predicting an improvement to 46.0 from the level of 44.0 seen in May, which would mark the best reading since last fall, although still below the level of 50 that marks the separation point between contraction and expansion in the index. The services sector makes up almost 90% of the US economy so traders will pay attention to this report, although the ISM indices have not been a good predictor of turns in economic activity this recession, as this downturn has been led by a reduction in consumer wealth and spending, instead of the corporate sector.

Despite the strong rebound in the market, cash levels remain elevated, with the AAII survey on asset allocation showing 35% exposure to cash as of May 31. The AAII sentiment survey indicated that while sentiment is not at an extreme low, bearish investors (48%) still well-outnumber bullish investors (28%). We may be transitioning from the liquidity-driven phase to the earnings-driven phase of the market rebound. The 2Q earnings season unofficially begins Wednesday after the close, with Alcoa's earnings report.

While the reading on the services sector is the only release on today's economic calendar, later in the week markets will have a variety of reports to consider, including weekly MBA Mortgage Applications, consumer credit, weekly initial jobless claims, wholesale inventories, the trade balance, and the University of Michigan consumer sentiment.

Also likely to draw investor interest will be this week's meeting of the G8 industrial nations. The summit is being held in Italy and is expected to acknowledge some signs of stabilization in the global economy, while still encouraging further stimulus efforts to prevent a reacceleration in the economic downturn. Any signs of increasing trade protectionism during the summit will be of particular interest, with some countries such as China recently criticizing a US proposal to impose tariffs on imports from nations that refuse to cut emissions of gases blamed for global warming.

Negative US sentiment carries over to Europe

European markets are underwater in afternoon trading, led by commodity-related issues and financials. Bank stocks are under pressure despite an announcement from Societe Generale (SCGLF $56) that it expects to report "slightly positive" net income in 2Q. France's second-largest bank added that the impact of assets at risk should be limited, as it continues to lower the amount of risky assets it holds on its balance sheet. Elsewhere, a carryover from the negative sentiment in US markets last week is dragging on energy and materials stocks, with most European indexes suffering losses of more than 1%. Meanwhile, a strong day from easyJet (EJETF $5) is not enough to keep UK stocks out of the red. EJETF is up nicely after reporting that its passenger numbers rose almost 1% last month to approximately 4.2 million.

Deficit concerns sink India

Shares in Asia were broadly lower overnight, led by India's BSE Sensex 30 Index down almost 6% after the country announced an expansionary budget including a major rural spending initiative. Indian Finance Minister Pranab Mukherjee said the country's budget deficit may grow to a 16-year high of almost 7% of gross domestic product (GDP) this year. The sell-off mirrors similar reactions to swelling government debt loads in other regions in recent trading. Elsewhere in Asia, falling commodity prices dragged down shares of energy and materials stocks due to a continuation of the creeping doubts regarding the likelihood of a rapid recovery in the global economy that have led to a three-week sell-off in US equity markets. One bright spot in the region was South Korea, with the Kospi Index gaining less than 1% following an announcement from Samsung Electronics (SSNLF $441) that it will earn more money this year than it did last year. Also bucking the negative trend was China, with the Shanghai SE Composite gaining approximately 1% after news that toll road operator Sichuan Expressway is planning to come public, marking the first major IPO since last Septembe