Morning Market Update

Bulls Trying to Get Back on the Winning Track

After snapping a three-session winning streak yesterday, US equity markets are modestly higher in early trading, aided by a favorable earnings reports from Target Corp, despite a hotter-than-forecasted read on producer prices and a lackluster outlook from Dell Inc. Treasuries are modestly lower in morning action following the inflation data, and as mortgage applications rose. In other corporate earnings news, Deere & Co topped the Street’s 3Q expectations but issued some cautious commentary. Overseas, Asia finished mixed, while European markets have pared early losses in the wake of yesterday’s eurozone crisis meeting between Germany and France.

As of 8:49 a.m. ET, the September S&P 500 Index Globex future is 3 points above fair value, the Nasdaq 100 Index is at fair value, and the DJIA is 31 points above fair value. WTI crude oil is $1.31 higher at $87.96 per barrel, and the Bloomberg gold spot price is down $1.12 at $1,784.43 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.4% at 73.66.

Target Corp. (TGT $49) reported 2Q earnings of $1.03 per share, above the $0.97 consensus estimate of analysts surveyed by Reuters, with revenues rising 4.6% year-over-year (y/y) to $16.2 billion, roughly inline with what the Street had forecasted. 2Q same-store sales—sales at stores open at least a year—rose 3.9% y/y. TGT issued full-year EPS guidance that topped expectations.

Dell Inc. (DELL $16) announced 2Q EPS ex-items of $0.54, exceeding the $0.49 that the Street was looking for, as revenues increased 1% y/y to $15.7 billion, compared to the $15.8 billion that analysts had expected. The company said growth in its enterprise businesses highlighted the quarter, with “solid demand” for its server, storage and services portfolio, while revenue for laptops and desktops rose 4%. However, DELL lowered its full-year revenue guidance, based on “strategic decisions to redirect resources from lower-to-higher value solutions and a more uncertain demand environment.”

Deere & Co. (DE $75) achieved fiscal 3Q profits of $1.69 per share, two cents above analysts’ forecasts, with net revenues increasing 24% y/y to $7.7 billion, exceeding the $7.5 billion that the Street had projected. The farm and construction equipment maker said it saw broad-based improvement on growth from all divisions, with a “healthy global farm sector” continuing to support performance. DE raised its full-year net income outlook, but said “concerns over the health of the global economy and recent turmoil in world financial markets have introduced an additional element of uncertainty into the near-term outlook.”

Producer prices come in hotter than expected, while mortgage applications rise

The Producer Price Index showed prices at the wholesale level rose 0.2% month-over-month (m/m) in July, after falling by an unrevised 0.4% in June, and compared to the 0.1% increase that economists surveyed by Bloomberg had forecasted. Also, the core rate, which excludes food and energy, increased 0.4% m/m, above forecasts of a 0.2% gain, after rising an unadjusted 0.3% in June. On a year-over-year basis, headline producer prices were 7.2% higher, versus the 7.0% increase that was projected, and the core rate was up 2.5%, above expectations of a 2.3% rise.

In other economic news, the MBA Mortgage Application Index rose 4.1% last week, after the index that can be quite volatile on a week-to-week basis, jumped by 21.7% in the previous week. The advance came as an 8.0% gain in the Refinance Index more than offset a 9.1% decline in the Purchase Index. The increase in refinancing activity accompanied a 5 basis point (bp) drop in the average 30-year mortgage rate to 4.32%.

Treasuries are modestly lower in morning action after the inflation data, with the yield on the 2-year note unchanged at 0.19%, while the yields on the 10-year note and the 30-year bond are gaining 1 bp to 2.23% and 3.67%, respectively.

Europe mixed following eurozone crisis meeting

The equity markets in Europe are mixed in afternoon action after paring some early losses that came from yesterday’s meeting between Germany and France amid the recent increase in eurozone contagion concerns. The meeting concluded with the two nations dampening expectations of the inception of Eurobonds in the near-term and downplaying the need to increase the size of the euro-area’s bailout fund, known as the European Financial Stability Facility (EFSF). The lack of any announcement of the creation of Eurobonds and an increase in the EFSF was likely expected, but financials in the UK are leading stocks in the nation lower today as Germany and France proposed a financial transactions tax in September. In equity news, the UK’s SABMiller Plc. (SBMRY $35) is moving higher after the brewer announced that it will take its $10 billion bid to acquire Australia’s Foster’s Group Ltd. (FBRWF $5) directly to shareholders after the offer was rejected by the board of Foster’s, which did not comment on the report.

In economic news, core eurozone consumer prices came in cooler than expected in July. Meanwhile, we got some data from the UK employment front, with the region’s jobless claims rising more than expected for July, while a separate report showed the UK unemployment rate moved higher. Finally, the Bank of England released the minutes from its early August policy meeting, which showed the first unanimous vote among policymakers to keep its benchmark interest rate unchanged at 0.5% since May 2010, per Bloomberg.

The UK FTSE 100 Index is down 0.3% and Germany’s DAX Index is declining 0.4%, while France’s CAC-40 Index is gaining 0.8%.

Asian stocks mixed on US and European data

Stocks in Asia finished mixed as traders digested yesterday’s upbeat US industrial production data and favorable earnings reports from Dow members Wal-Mart Stores Inc. (WMT $52) and Home Depot Inc. (HD $33), while grappling with Tuesday’s lackluster eurozone GDP reports. Japan’s Nikkei 225 Index declined 0.6% and China’s Shanghai Composite Index decreased 0.3%, while South Korea’s Kospi Index rose 0.7%. Meanwhile, Australian stocks moved to the upside, gaining 1.3%, following reports that showed the nation’s Leading Index rose in June, while 2Q wage costs increased 0.9% quarter-over-quarter, matching expectations, after advancing 0.8% in 1Q. Finally, the Hong Kong Hang Seng Index moved 0.4% higher, aided by a solid gain in shares of China Coal Energy Co. (CCOZF $1) after the company reported an increase in earnings.