Morning Update

Pressure Persists as Rally Rests

Stocks are lower in morning action, following yesterday’s decline, with the dollar stronger to weigh on commodity issues, as traders continue to rein in risk appetites, while grappling with whether the economic recovery can continue. Treasuries are mixed, and although today’s economic calendar is void of any major releases, this week’s dose of data has been hard for the Street to swallow, exacerbating the economic uncertainty and prompting the pullback in risk-taking. Dell Inc’s worse-than-expected top-and-bottom-line performance is also dampening enthusiasm on the corporate front and in the technology sector to add to the negative sentiment on Wall Street. Gap Inc’s favorable earnings report and comments from Dow member Procter & Gamble are doing little to soothe sentiment. Overseas, markets are lower, with Europe giving up early gains on comments from European Central Bank President Jean-Claude Trichet.

As of 8:52 a.m. ET, the December S&P 500 Index Globex future is 6 points below fair value, the DJIA is 54 points below fair value, and the Nasdaq 100 Index is 11 points below fair value. Crude oil is lower by $0.61 at $76.85 per barrel, and the Bloomberg gold spot price is down $6.03 at $1,138.58 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.6% at 75.73.

Dell Inc. (DELL $16) reported 3Q EPS ex-items of $0.23, which fell short of the $0.28 that Wall Street analysts had expected. Revenues increased 1% versus last quarter to $12.9 billion, but represented a decline of 15% versus a year ago and also came up short the Street’s forecast, which called for the computer maker to post revenue of $13.1 billion. DELL said shipments were flat sequentially and down 5% versus the same period a year ago, though its large enterprise and small and medium business segments posted sequential improvements in shipments, revenue and operating income. The company’s CEO Michael Dell said, “We are seeing improvement in overall underlying IT demand that is continuing into the fourth quarter.” Looking ahead, DELL said it expects 4Q revenue to improve over 3Q and recent technology introductions, indications of improving economic activity and the prospect of a lift in associated IT spending position the company well. Shares are lower.

Gap Inc. (GPS $22) reported 3Q net earnings increased 25% to $0.44 per share, above the $0.37 per share that analysts had forecasted, with revenues increasing 1% versus last year to $3.6 billion, slightly higher than the $3.5 billion that the Street expected. Same-store sales at the company were flat compared to a 12% drop that it posted last year, led by a 10% increase in its Old Navy North American stores. Separately, GPS announced a new $500 million share repurchase program.

Dow member Procter & Gamble’s (PG $62) Chief Financial Officer noted he sees foreign exchange turning into a modest tailwind in the second-half of the fiscal year, and that he sees market growth of 1-2% in value, which is higher than his prior estimate. However, he did warn that uncertainty remains regarding market growth. The executive also said that acquisitions are not a core aspect of the company’s growth strategy and it does not pursue hostile acquisitions.

Treasuries are mixed as economic calendar it dormant

With no major economic reports on today’s economic calendar, Treasuries are mixed in morning action, extending Thursday’s gains, with the equity markets weaker again following yesterday’s slide as traders appear to be contemplating the sustainability of the global economic recovery. Economic data this week has done little to soothe these concerns as we have seen a slightly hotter-than-expected reading of prices at the consumer level, a smaller-than-expected increase in industrial production, unexpected declines in both housing starts and building permits, and a jobless claims report that failed to drop below the 500,000 mark as some had hoped.

Early advance thwarted by ECB comments

Stocks in Europe have erased an early advance and are lower in afternoon action following comments from European Central Bank President Jean-Claude Trichet regarding reining in stimulus measures to stave off a flare up in inflation. The ECB chief said, “Not all our liquidity measures will be needed to the same extent as in the past,” and he added that “Any non-standard measure whose continuation would pose a threat to the achievement of price stability must be undone promptly and unequivocally.” Financials are leading the decline along with weakness in oil and gas issues.

In equity news across the pond, Volkswagen’s (VLKAY $29) board approved final contracts of implementation, clearing the way for its takeover of Porsche (POAHY $8), saying these contracts “specify the binding provisions governing the organizational, structural and legal details of the union between the two companies.” In eurozone economic news, Germany reported that producer prices came in unchanged month-over-month in October, but the year-over-year decline of 7.6% for prices at the wholesale level came in slightly larger than the -7.5% that economists surveyed by Bloomberg had expected.

Asia lower following yesterday’s slide on Wall Street

Stocks in Asia were mostly lower, led by a 1.3% drop in Australia’s S&P/ASX 200 Index as the weakness in the US yesterday sparked some concerns about the sustainability of the global economy and the outlook for demand for commodities, which weighed on the resource-rich nation. Japan’s Nikkei 225 Index declined 0.5%, on the aforementioned uneasiness that followed yesterday’s action in the US, and as shares of Sony Corp. (SNE $27) came under pressure after the maker of TVs and video game consoles released a new business strategy, where it pushed its key operating profit target date from March 2011 to reaching it by March 2013, while also forecasting a net loss for this year. In economic news in Japan, the Bank of Japan kept its key interest rate unchanged at 0.1%, saying, “Japan’s economy is picking up mainly due to various policy measures taken at home and abroad, although the momentum of a self-sustaining recovery in domestic private demand remains weak.”

In other economic news, a Chinese central bank official said at the Businessweek CEO Forum in China that the nation must remain vigilant against excessive production capacity after its $586 billion economic stimulus plan helped spur urban investment, per Bloomberg news. China’s Shanghai Composite Index declined 0.4% and Hong Kong’s Hang Seng Index fell 0.8%. Elsewhere, South Korea’s Kospi Index finished flat, and Taiwan’s Taiex Index dropped 1.0%, while India’s BSE Sensex 30 Index rose a solid 1.4%.