Morning Update

Stock Set to Drift Higher in Light Trading and News

Stock markets in the US look to open modestly higher while light trading is expected, extending gains from positive economic news in recent weeks, and after the smallest decline in housing prices reported since 2007. Companies that have received government assistance are in the news today, with General Motors said to be still considering the fate of the Saab brand while offering incentives to dealers to move vehicles from brands already discontinued, according to reports. The pay of executives of financial services companies continue to be in focus, with Morgan Stanley reported to be considering an overhaul in compensation packages for executives. Treasuries are mixed ahead of a report on consumer confidence and a 5-year note auction to be held later today. Overseas, European markets are higher, while Asian markets are mixed, with a heavy dose of Japanese equity news and a positive forecast for Chinese GDP growth in 2010.

As of 8:48 a.m. ET, the March S&P 500 Index Globex future is 4 points above fair value, the DJIA is 25 points above fair value, and the Nasdaq 100 Index is 2 points above fair value. Crude oil is flat at $78.77 per barrel, and the Bloomberg gold spot price is lower by $2.18 at $1,105.13 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.3% at 77.44.

General Motors is said to be waiting until next week before deciding on the fate of its Saab unit as it reviews bids, according to Paul Aakerland, a Saab board member who also heads the IF Metall union at Saab, saying that “It’s our understanding that if there’s a bid that GM finds sufficiently interesting, then the 31st of December is not a date that’s holy,” adding that “Spyker and others are very willing to buy Saab, so we’re still hoping for that solution.”

Elsewhere, the Wall Street Journal is reporting that GM is offering dealers hefty incentives to move leftover vehicles from discontinued Saturn and Pontiac brands, saying in a letter to dealers that it would pay them $7,000 for each car moved to rental-vehicle or service-vehicle fleets operated by the dealers, who can then sell them as used cars. If the dealers pass along all the new incentives to customers, car buyers could receive as much as 46% off the sticker price.

Morgan Stanley (MS $29) is set to overhaul the way it pays its most senior executives, deferring more compensation and benchmarking pay against competitor firms, according to a report in the Wall Street Journal, citing people familiar with the matter. The program would pay executives about one quarter of their 2009 pay in cash, with the rest in deferred stock. The report cites one idea under consideration is that most of the top 30 executives would submit 65% or more of their pay to deferrals or “clawbacks” – which would entail the possibility of returning money in the event of future losses. Morgan Stanley has not commented on the matter.

Housing prices fall at smallest rate since 2007, consumer confidence expected to improve

Just before the opening bell, the S&P/Case-Shiller Home Price Index was released showing a decline in home prices of 7.3% year-over-year (y/y) in October, versus the -7.2% that had been expected. Treasuries are mixed after the housing report, and ahead of a $42 billion 5-year note auction scheduled for 1:00 p.m. EST today.

The economic calendar will continue to yield more data later this morning with the release of the Conference Board’s Consumer Confidence Index, expected to improve from 49.5 in November to 53.0 in December.

Elsewhere, the Federal Reserve late yesterday proposed a program to sell term deposits to banks to drain some of the $1 trillion in excess reserves in the banking system. The plan is subject to a 30-day comment period, and “has no implications for monetary policy decisions in the near term” according to a statement released by the Fed.

European shares rise, sentiment biased to recovery

Stocks in Europe are higher, led by basic materials and energy shares as economic recovery continues to dominate the sentiment of traders. In equity news, Q-Cells SE (QCLSF $15) is higher after the German solar-cell maker said it plans to be profitable on an operating level in 2010 after a loss in 2009 that may exceed 1 billion euros ($1.4 billion). A few economic reports were reported out of Europe, including the final tally of French 3Q GDP, at 0.3% quarter-over-quarter, and an increase in business confidence in Italy. Russian markets are lower after Prime Minister Vladimir Putin said that new regulations would be put in place to limit the inflow of hot money into the country, while encouraging long-term investments. Putin said that “We now have conditions that attract inflows of speculative capital. We need to change the rules in order to make the country less attractive to speculators.” Putin did not specify the measures, but said that “We don’t plan on doing anything that will shake up the markets.”

Asian markets mixed

Markets in Asia were generally higher, led by Australia, while Korean shares fell, and export-dependent companies in Japan rose after the yen fell. Commodities names continued to benefit as bullish economic growth reports in recent weeks continue to support advances, and copper futures for March delivery advanced to the highest price in 15 months. In Japan, retail names posted gains after Shimamura Co reported net income grew 15% over the past nine months and received an analyst upgrade, boosting shares by 3.5%. Elsewhere in Japan, Sumitomo Mitsui Financial Group (SMFJY $3), Japan’s second largest bank by market value, fell 2.8% after saying it will consider whether it would sell more stock after regulators called for tighter capital standards and larger rival Mitsubishi UFJ Financial Group (MTU $5) raised 1 trillion yen ($11 billion). Meanwhile, shares of Japan Airlines Corp (JALSY $5) fell 8.3% after the Asahi newspaper reported the state-affiliated agency charged with rescuing the carrier was pursuing bankruptcy as the preferred option for the airline. Overall, the Nikkei 225 Index was flat on the day.

Elsewhere in Asia, the Shanghai Composite increased 0.7% after Chinese central bank adviser Fan Gang said the Chinese economy may grow between 8-9% in 2010 as property investment expands, but said that China needs to battle surges in asset prices and hot money inflows by keeping economy policy flexible to maintain economic stability. In other Asian markets, Australia’s S&P/ASX 200 Index rose 1.1% and India’s BSE Sensex 30 Index gained 0.2%, while South Korea’s Kospi Index fell 0.8%.