Morning Update

Flat in Morning Action after Another Look at 3Q Output

Stocks are nearly unchanged to follow yesterday's steep advances in the major equity markets, and after the first revision of US 3Q GDP matched expectations of economists. However, modest gains were given up after the nation's output report also showed that personal consumption was smaller than initially reported and short of expectations, while inflation readings came in below forecasts, which may have dampened some hopes that the Fed is close to beginning to tighten its monetary policy to stave off an overheating of the economy. Treasuries are higher after the report, and as the S&P/Case-Shiller Home Price Index fell slightly more than expected. However, more data is on the way later today, with the releases of the Consumer Confidence Index and the Fed's minutes from its last monetary policy meeting. In equity news, Dow member Hewlett-Packard announced earnings that matched its preliminary reading, while HJ Heinz topped analysts' expectations. Overseas, banking concerns weighed down Asia, while Europe has pared a majority of early losses following an upbeat German business confidence report.

As of 8:50 a.m. ET, the December S&P 500 Index Globex future is 1 point above fair value, the DJIA is 8 points below fair value, and the Nasdaq 100 Index is 3 points below fair value. Crude oil is lower by $0.18 at $77.38 per barrel, and the Bloomberg gold spot price is up $2.97 at $1,169.07 per ounce. Elsewhere, the Dollar Index-a comparison of the US dollar to six major world currencies-is unchanged at 75.11.

Dow member Hewlett-Packard (HPQ $51) reported fiscal 4Q EPS ex-items of $1.14, one penny ahead of the expectations of Wall Street analysts, with revenues falling 8% versus last year to $30.8 billion, but up 12% compared to last quarter and just above the $30.4 billion Street forecast. HPQ's performance matched the company's preliminary report that was released two weeks ago. The company's CEO said on a conference call with analysts that the economy remains challenging but it does see encouraging signs of recovery in certain markets. He also cautioned that Europe remains weak, albeit stable, and it was not clear when a recovery will take hold in the region. HPQ reaffirmed its 1Q outlook and raised its full-year 2010 guidance.

HJ Heinz (HNZ $43) reported 2Q EPS ex-items of $0.76, six cents above the Street's forecast, as revenues grew 2.5% versus last year to $2.7 billion, slightly above the $2.6 billion that analysts had expected. The condiment company said its revenue growth was led by double-digit organic growth in emerging markets, and it had its 18th consecutive quarter of overall organic sales growth. HNZ raised its full-year EPS outlook.

Another look at 3Q GDP matches expectations, home prices fall

The first revision of 3Q Gross Domestic Product, the broadest measure of economic output, was released this morning and showed a 2.8% annualized rate of growth, compared to the initial reading of 3.5%, and matching the Bloomberg forecast. Personal consumption rose 2.9%, lower than the 3.4% previously reported and the 3.2% that was forecasted. Real final sales, which exclude changes in inventory, were up 1.9%, versus the 2.5% that was reported in the first compilation of the report.

The GDP Price Index increased 0.5% versus the 0.8% initially reported and where it was expected by Bloomberg economists to remain. The core PCE Index, which excludes food and energy, increased 1.3%, versus expectations of 1.4% and the rate sits between of the Fed's implied target of 1-2%.

Meanwhile, just before the opening bell, the S&P/Case-Shiller Home Price Index was released this morning and showed a decline in home prices of 9.36% year-over-year (y/y) in September - slightly larger than the 9.10% fall that had been expected. Treasuries are higher after the GDP and housing reports.

The economic calendar will continue to yield more key data throughout the day, with the morning release of the Conference Board's Consumer Confidence Index, expected to tick lower from 47.7 in October to 47.5 in November.

However, later in afternoon action, the Street's focus will likely shift to the Federal Reserve's release of the minutes from the Federal Open Market Committee's (FOMC) last monetary policy meeting on November 4th.

Europe battling back after upbeat German data

Stocks in Europe are slightly lower in afternoon action after paring a majority of early losses that came from weakness in financials and profit-taking in commodity issues, following an upbeat report on business confidence in Germany-Europe's largest economy. The German Ifo Business Climate Index rose from an upwardly revised 92.0 in October to 93.9 in November, besting the 92.5 forecast of economists surveyed by Bloomberg and reaching a level not seen since August 2008. Shares of Lloyds Banking Group (LYG $6) are higher to help limit some of the pressure in the financial sector after the company set a price for the world's largest rights offering of 13.5 billion pounds ($22.3 billion), at about a 60% discount, which was within the range previously indicated.

There were plenty of other economic reports in Europe that were in focus, with the final revision of Germany's 3Q GDP remaining unchanged at a 0.7% quarter-over-quarter gain, UK mortgage approvals increasing to the highest level since January 2008, while Russia's central bank cut its key interest rate for the ninth time since April from 9.5% to 9.0%, to try to spur lending.

Banking concerns and profit-taking pressure Asia

Stocks in Asia were broadly lower, led by a 3.5% drop in China's Shanghai Composite Index on some profit-taking in the materials sector and amid worries that the region's largest banks may be forced to raise additional capital. Shares of Bank of China (BACHY $16) were lower after it said it is mulling "various options" to increase capital as the nation's third-largest bank by market value advanced the most loans among Chinese lenders in the first nine months of the year, per Bloomberg. The announcement comes after yesterday's media report suggested that the China Banking Regulatory Commission (CBRC) is pushing for major Chinese banks to increase their capital adequacy ratio-a key gauge of financial strength-from an average of 11% to 13%. The CBRC denied the report and posted a statement on its website that said the CBRC has no such requirements.

Japan's Nikkei 225 Index fell 1%-after being closed yesterday due to a holiday-bogged down by the aforementioned capital-raising concerns in the banking sector, and as the yen continued to strengthen versus most major currencies including the dollar, dampening concerns about the profit outlook of companies that rely heavily on sales in the US and elsewhere outside Japan. The profit-taking in resource-related issues, led commodity-rich Australia lower, with the S&P/ASX 200 Index falling 0.7%, but losses were limited by strength in shares of Harvey Norman after the nation's largest electronics retailer issued a favorable first-half profit. Elsewhere, Hong Kong's Hang Seng Index fell 1.5%, South Korea's Kospi Index declined 0.8%, while Taiwan's Taiex Index bucked the trend and gained 0.4%.