Morning Update

Markets Pause to Digest Yesterday's Strong Rally

Futures are indicating a flat open, as traders look to pause after markets posted strong gains yesterday, and ahead of the release of pending home sales and factory orders slated to be released after the market open. Asian markets extended yesterday's gains, while European markets are mixed despite bullishness on the news that Irish banks may resolve their capitalization issues by the end of the first quarter. In equity news across the pond, the fate of Cadbury continues to be discussed, with Nestle bowing out of bidding after buying a division of Kraft and Berkshire Hathaway voting against Kraft's proposal to issue shares to fund the potential acquisition. US equity news is highlighted by reports of new product releases from two technology giants, with Google slated to introduce its Nexus One smartphone later today and the Wall Street Journal adding to rumors of a tablet PC to be unveiled later this month by Apple. Treasuries are higher.

As of 8:47 a.m. ET, the March S&P 500 Index Globex future is flat, the DJIA is 7 points below fair value, and the Nasdaq 100 Index is 1 point below fair value. Crude oil is down $0.05 at $81.48 per barrel and the Bloomberg gold spot price is lower by $1.10 at $1,120.10 per ounce. Elsewhere, the Dollar Index-a comparison of the US dollar to six major world currencies-is down 0.2% at 77.35.

Rumors of a tablet PC from Apple (AAPL $214) are getting a boost from a report in the Wall Street Journal, which is quoting a person familiar with the matter saying that the device will be unveiled later this month and will go on sale in March. A spokesman for the company said "We are not going to comment on rumors and speculation." The Journal also reported the company is buying Quattro Wireless for $275 million, a company that focuses on advertising on mobile phones.

Elsewhere in technology, Google (GOOG $626) is scheduled to introduce its smartphone today, based on the Android operating system. Code-named the Nexus One, the phone is expected to showcase possible capabilities when systems are open to developers. Google is aiming to boost usage of mobile phones to expand its market of selling ads for mobile search. The phone is expected to be "unlocked," where consumers would be allowed to choose their own carrier.

Pending home sales and factory orders to be released after the open

Two economic releases are slated after the market open, with factory orders forecasted to rise 0.5% month-over-month (m/m) in November, the third-straight monthly increase, and pending home sales expected to show the gauge of the pipeline of existing home sales fell 2.0% m/m in November.

European shares mixed

Stocks in Europe have pared early gains, with gains in financial stocks offsetting losses in health care shares, with financials taking cue from comments by Irish Finance Minister Brian Lenihan, who yesterday said that the capitalization of the country's banking system would be resolved by the end of the first quarter, with the government providing capital if the banks can't raise funds by themselves. Elsewhere, Cadbury PLC (CBY $51) is lower after Nestle SA (NSRGY $49) agreed to buy a pizza business from Kraft Foods Inc (KFT $27) and ruled itself out of bidding for the UK confectioner, while Kraft is raising the cash component of its offer using proceeds from the sale of the pizza business. Cadbury said the "tinkering" of terms, which does not change the value of the offer, remains "derisory with less than half the consideration in cash." Adding to the story, Berkshire Hathaway (BRK/A $99,600), the top shareholder of Kraft at 9%, has decided to vote against Kraft's proposal to issue new shares to fund the potential acquisition, saying offering Kraft's stock, which is undervalued, for a full price of Cadbury results in an "expensive currency" to be used in an acquisition. In other news of the region, Greece's debt manager said that the country may borrow directly through banks by the end of January, the second time in as many months, and may use a private placement rather than the bank syndicate previously considered, with the decision dependent on the European Central Bank and market reaction to the stability and growth program the country will provide tomorrow.

Asian markets extend gains on bullish economic indicators

Markets in Asia extended gains in the second trading day of the year, digesting news from the US that manufacturing purchasing managers in the States were the most optimistic in three years, which built on the news yesterday that Chinese manufacturing is slated to grow at the fastest pace in over five years, boosting optimism over the economic recovery story, and the Baltic Dry Index posted its first gain in a month. The Chinese economy was in view again today, after a senior government official said China may report 8.5% GDP growth in 2009. The Shanghai Composite was 1.2% higher, erasing yesterday's loss, with gains led by brokerages, after an official "familiar with the matter" yesterday said that the cabinet gave approval "in principle" to allow the introduction of futures contracts based on China's CSI 300 Index, which would give investors the ability to profit from declines in prices for the first time, and the ability to hedge risks. Aluminum Corp of China (ACH $30), also known as Chalco, jumped after reporting price increases for both aluminum and alumina, with alumina prices rising for the third time in five months. The Hong Kong Hang Seng surged 2.1%, led by materials and energy shares, and despite a report in the Shanghai Securities News that said China plans to expand a trial on a program to calculate real-estate taxes.

The Japanese Nikkei 225 Index was 0.3% higher, with exporters higher with the weakening yen, while banks pared gains after Reuters reported that Sumitomo Mitsui Financial (SMFJY $3), Japan's second-largest bank by market value, may raise 800 billion yen ($8.72 billion) from selling stock, which would increase the number of shares outstanding by 30%, while the company said it hasn't made a decision. Elsewhere, the Nikkei newspaper reported that a subsidiary of Elpida Memory (ELPDF $14), Japan's largest computer-memory chip maker, would invest 40 billion yen to convert all its production lines to Elpida's new 45-nanometer chip technology and double production in fiscal 2010, while the company did not comment on the report. Elsewhere in Asia, South Korea's Kospi Index fell 0.3%, India's BSE Sensex 30 Index gained 0.8%, and Australia's S&P/ASX 200 Index rose 1.0%.