Morning Update

Profit-Taking Pressures Morning Action

Stocks are under pressure in morning action following yesterday's steep advance, despite better-than-expected earnings from key retailers such as Dow member Home Depot, and Target. However, both companies offered soft guidance that may be limiting the enthusiasm. Elsewhere, not even favorable holiday shipping comments from FedEx are helping keep stocks out of the red. On the economic front, the Producer Price Index came in cooler than expected, highlighted by an unexpected drop in core wholesale inflation. Treasuries are lower following the report and ahead of the releases of industrial production and capacity utilization, and a key gauge of homebuilder sentiment. Overseas, markets are lower, as traders are taking the opportunity to take profits as commodity prices pause from yesterday's sharp gains.

As of 8:52 a.m. ET, the December S&P 500 Index Globex future is 3 points below fair value, the DJIA is 36 points below fair value, and the Nasdaq 100 Index is 7 points below fair value. Crude oil is lower by $0.23 at $78.67 per barrel, and the Bloomberg gold spot price is down $7.28 at $1,131.93 per ounce. Elsewhere, the Dollar Index-a comparison of the US dollar to six major world currencies-is up 0.5% at 75.24.

Dow member Home Depot (HD $28) reported 3Q EPS of $0.41, five cents above the expectation of Wall Street analysts, as revenues fell 8% versus last year to $16.4 billion, slightly higher than the $16.3 billion that analysts had expected. The number-one home improvement retailer said same-store sales-sales of stores open at least a year-dropped 6.9%, with US same-store sales falling 7.1%. The company's CEO said, "There is still a great deal of pressure in the housing and home improvement markets, though there are some positive signs of stabilization." HD issued full-year EPS guidance that topped analysts' expectations, but its full-year revenue guidance came in short of the Street's forecasts.

Target (TGT $50) reported 3Q EPS increased 18.6% to $0.58, compared to the Street's forecast, which called for the retailer to post earnings of $0.50 per share. Sales rose 1.4% to $14.8 billion, missing analysts' expectations of $15.3 billion, as a 1.6% decline in same-store sales partially offset the contributions of its new store expansion. TGT said, "Profitability in our retail segment during the third quarter was well above expectations, and credit card segment profitability also improved due to continued thoughtful portfolio management in a challenging credit environment." TGT added that it believes it is well positioned to capture profitable market share during the holiday season. But, the company added that in light of the current and projected economic environment and expectations for a highly promotional holiday season, it remains cautious about 4Q performance and is planning conservatively.

FedEx Corp's (FDX $85) CEO told the Wall Street Journal that he expects holiday season volume to rise over 8% compared to last year, saying that, "Christmas won't be a disaster." During the Wall Street Journal's CEO Council conference, FDX's chief said the company already sees increased traffic volume, helped by the Asia/Pacific region and its shipping business "came to life" last month, while he sees a little improvement in the housing sector. He added that FDX plans to hire extra seasonal workers to handle the holiday volume, while declining to comment on plans for hiring permanent employees.

Producer prices rise but core rate unexpectedly falls, production data set to be released

The Producer Price Index showed prices at the wholesale level increased month-over-month (m/m) in October, rising 0.3% after declining 0.6% in September. The average economist forecast was for prices to increase by 0.5%. Meanwhile, the core rate, which excludes food and energy, unexpectedly fell 0.6% compared to the forecast for a 0.1% increase. On a year-over-year basis, headline producer prices were 1.9% lower, and the core rate was 0.7% higher. Treasuries are lower after the wholesale inflation report.

Later this morning, industrial production will be released and is expected to show a month-over-month increase of 0.4% in October. That would represent a small moderation from last month's report that showed a 0.7% gain, which was led by a jump in the auto sector. Not all of the improvement in this data series has been because of the auto sector though, as manufacturing ex-autos rose by 0.5% in September. Similarly, capacity utilization is forecasted to have risen to 70.8% from 70.5%. After falling sharply, capacity utilization has rebounded the past three months, and the improvement last month was even better than economists had predicted. Inventories though are still on the decline, and the report in August showed a 1.5% month-over-month contraction.

Meanwhile, the second half of today's trading session will bring the afternoon release of the NAHB Housing Market Index, and the gauge of homebuilder confidence is expected to increase from 18 in October to 19 in November. A reading below 50 means most respondents still view conditions as poor

Europe modestly lower as materials and banks wane

Stocks in Europe are modestly lower in afternoon action, led by weakness in basic materials as key metals and crude oil prices are lower in the wake of yesterday's steep gains. Financials are also among the leading decliners across the pond, as shares of Irish Life & Permanent (ILPMF $8) are sharply lower after forecasting larger-than-expected loan losses through 2011. Moreover, comments from well known banking analyst Meredith Whitney that there is "no way" the banking sector is well capitalized, is weighing on the financial sector, limiting enthusiasm from UBS' (UBS $17) CEO targeting annual pretax profit of 15 billion Swiss francs ($14.9 billion) in three-to-five years. In other equity news, shares of Accor (ACRFY $11) are up solidly after Europe's largest hotel company said its board expects to make a final decision on splitting up the company's two main businesses, hotels and pre-paid services-such as hotel vouchers and bank cards-by the end of the year. In economic news in Europe, the UK reported that its Consumer Price Index rose 0.2% month-over-month, above the 0.1% that economists surveyed by Bloomberg had expected, bringing its year-over-year rate to 1.5%, versus the consensus of 1.4%.

Asia slips as profit taking ensues

Stocks in Asia were mostly lower, with the exception of China's Shanghai Composite Index eking out a modest 0.2% gain, as traders took the opportunity to book profits from the recent run up in the equity markets. Commodity-related issues paced the decline as gains were harvested from gold's record high and as crude oil prices pulled back from yesterday's steep advance. Cautious commentary from US Federal Reserve Chairman Ben Bernanke on headwinds facing the global economic recovery-although he did suggest an economic recovery was likely sustainable-added to some of the incentive for traders to book profits, while contemplating the continuation of the economic recovery. Japan's Nikkei 225 Index declined 0.6% as yesterday's strength in the yen versus the dollar dampened hopes for profits of companies that rely on sales in the US and abroad, while banks weighed on trading in Australia, as its S&P/ASX 200 Index declined 0.5% amid uncertainty regarding whether the nation's central bank will raise rates again at its next meeting after boosting its key lending rate the past two meetings. Elsewhere, Hong Kong's Hang Seng Index dipped 0.1% and South Korea's Kospi Index fell 0.4%. Equity news was relatively light, as Canon (CAJ $38) rose solidly after it announced that it will purchase copier and printer maker OCE (OCENY $12) for 730 million euros ($1 billion).