Morning Update

Subdued Start to Today's Session

Stocks have pared early gains and are nearly unchanged in morning action as the Street digests a flat reading of consumer prices, while gearing up for a key report on industrial output and consumer sentiment. Treasuries are higher after extending gains following the inline inflation report. In equity news, Boeing is under pressure after reports exposed another flaw in its 787 Dreamliner, and JC Penney posted better-than-expected 2Q results but issued disappointing guidance. Overseas, markets are mostly higher, but China fell on equity valuation concerns.

As of 8:48 a.m. ET, the September S&P 500 Index Globex futures is 2 points above fair value, the Nasdaq 100 Index is 4 points below fair value, and the DJIA is 7 points above fair value. Crude oil is up $0.20 at $70.72 per barrel, and gold is up $2.42 at $957.37 per ounce.

Dow member Boeing (BA $47 ¹) is under pressure after the Wall Street Journal reported the company stopped work in June at an Italian plant that was making parts for its 787 Dreamliner after wrinkles in the fuselage skin were discovered. The aforementioned flaw was found on the same day that BA delayed its first test flight for a fifth time on June 23rd, due to a separate structural flaw where the wings met the body of the aircraft. A BA spokesperson said a solution has been designed and "its not expected to be a long time" before patches are applied to all the planes built so far. The company has not rescheduled the Dreamliner's first flight or updated its delivery schedule.

Retailer earnings reports continue to pour in, headlined by today's announcement from JC Penney (JCP $33), where the department store reported flat 2Q EPS, versus the Reuters forecast, which called for the company to report a loss of $0.01 per share. Total sales in the quarter fell 7.9% to $3.9 billion, matching the Street's estimate and same-store sales fell 9.5%—compared to the company's guidance calling for 2Q same-store sales to decline between 9.5-10.5%. JCP said the strongest merchandise results were in shoes and women's apparel, and geographically, the best performance was in the southwest region of the country. The company said the weakest results were in children's apparel and in the southeast region. JCP issued 3Q EPS guidance that came in below analyst expectations. Shares are lower.

Consumer prices flat, factory and sentiment data on tap

The Consumer Price Index showed prices were flat in July, inline with what economists surveyed by Bloomberg had anticipated. The core rate, which strips out food and energy, rose 0.1% in July, also in line with the Street's forecast. While food and energy is the smallest component in the CPI basket, at 23%, it tends to be the most volatile and often explains a majority of changes in the index at the headline level. On a year-over-year basis, consumer prices were down 2.1% in July, compared to the -1.9% expected, and the core CPI is up 1.5% year-over-year, versus expectations that called for the core rate to be up 1.6%. Treasuries are higher after extending gains following the report.

Later today, more data is on the way as industrial production and capacity utilization will be released, forecast to increase 0.4% and tick higher to 68.3%, respectively (economic calendar). The recession has caused a sharp contraction in industrial production, which has shrunk 17 times in the last 18 months. Economists are predicting that with production now at depressed levels and inventory balances across the economy at very lean levels, some expansion is possible again. Government stimulus such as the Cash for Clunkers program is also having an impact, as seen in yesterday's production increase announcements from Ford (F $8) and GM.

Additionally, the preliminary University of Michigan Consumer Sentiment Index will hit the Street, and is expected to increase from 66.0 in July to 69.0 in August.

Modest gains in Europe

Stocks in Europe are slightly higher in afternoon action as gains in the oil & gas sector are being somewhat offset by weakness in telecom issues. Bank of America cut its recommendation on European phone stocks, pressuring the group, which is the worst performing sector across the pond. Basic material stocks are also helping stocks trade to the upside after ThyssenKrupp (TYEKF $31) announced a smaller-than-expected quarterly loss, sending shares of Germany's largest steelmaker solidly higher. In other equity news, the world's largest watchmaker, Swatch (SWGAF $186) is surging after it posted a better-than-expected first-half profit and said sales "show signs of recovery." In economic news, the eurozone CPI fell more than expected, and Spain reported that its 2Q GDP contracted 1.0% quarter-over-quarter, compared to the 0.9% drop that economists surveyed by Bloomberg has forecast.

Asia higher but China stalls

Stocks in Asia were mostly higher as more earnings reports came in on the positive side, while a key GDP report in the region helped support sentiment. Japan's Nikkei 225 index rose 0.8% and Australia's S&P/ASX 200 Index gained 0.6%, buoyed by an upbeat profit forecast from Leighton Holdings (LGTHF $22)—the nation's biggest construction company. However, China's Shanghai Composite Index fell almost 3% as traders reassessed whether the prospects for corporate earnings in the region warranted the surge in the index this year. Elsewhere, Hong Kong's Hang Seng Index advanced 0.2%, led by a 9% jump in shares of exporter Li & Fung (LFUGY $3) after it posted better-than-expected earnings. Meanwhile, after trading closed, a report showed Hong Kong's 2Q GDP rose more than expected on a quarter-over-quarter basis.