Morning Market Update

GDP Not as Bad as Feared, Traders Await Bernanke Speech

Stocks are higher after concerns about the large downward revision to 2Q GDP in the US turned out to be overly pessimistic, as consumer spending was better than expected, and Treasuries are lower. However, markets are looking to a speech at 10 a.m. EST that Fed Chair Bernanke will give from a meeting in Jackson Hole to clarify the Fed’s position about the economy and any action they plan to take to address the recovery. In equity news, Boeing announced another delay for the 787 Dreamliner and the bidding war for data storage company 3PAR continues, with Dell matching Dow component Hewlett-Packard’s $27 cash per share bid made late yesterday. In earnings news, J. Crew Group and Tiffany & Co. beat estimates, but J. Crew Group gave disappointing guidance. Overseas, Europe is higher, and stocks in Asia rose on optimism over potential action to stem the rise in the yen.

As of 8:53 a.m. ET, the September S&P 500 Index Globex futures is 8 points above fair value, the Nasdaq 100 Index is 12 points above fair value, and the DJIA is 57 points above fair value. Crude oil is higher by $0.16 at $73.52 per barrel, and the Bloomberg gold spot price is up $1.90 at $1,239.50 per ounce.

Boeing Co. (BA $61 ¹) reported that it is postponing delivery of the first 787 Dreamliner, already over two years late, by several weeks after a Rolls-Royce Group Plc (RYCEY $43) engine blew up in testing on August 2. The first plane is now scheduled to be delivered in the middle of 1Q 2011 to All Nippon Airways (ALNPY $7), who called the delay “regrettable.” This setback comes after Boeing reported a delay last month related to horizontal stabilizers and instrumentation.

The duel for data storage company 3PAR Inc (PAR $29) continues, after yesterday’s morning bid from Dell Inc (DELL $12) for $24.30 cash per share was raised by Dow component Hewlett-Packard Co (HPQ $38) after the bell to $27 cash per share, or $1.8 billion net of 3PAR’s cash, and this morning Dell is matching the $27 cash per share offer, as Dell has matching rights, or the ability to counter any offer within three days. The board of 3PAR approved the revised agreement and 3PAR said the termination fee remains unchanged at $72 million, payable in the event 3PAR receives and accepts another unsolicited acquisition proposal that the board determines to be superior to Dell’s increased offer.

J. Crew Group (JCG $31) posted 2Q EPS of $0.53, seven cents higher than analysts estimates as revenue grew 14% to $407.5 million, also above the consensus estimate. However shares are lower after the retailer forecasted 3Q earnings of $0.55-0.60 per share, while the Street had been estimating $0.71 per share. CEO Micky Drexler said that “While we are really pleased with the second quarter, it is more critical than ever to continue to move forward and invest in our business for quality, long term, earnings growth.”

Tiffany & Co (TIF $42) reported 2Q earnings per share of $0.53, in line with Street estimates, as revenue grew 9.2% to $668.8 million, and the company raised its full year earnings forecast to $2.60-2.65 per share, from a previous estimate of $2.55-2.60 in earnings per share.

Second reading on GDP beats, markets await Bernanke speech

The second look at 2Q Gross Domestic Product , the broadest measure of economic output, was released this morning and showed a 1.6% annualized rate of growth, compared to the downward revision to 1.4% expected by a survey of economists by Bloomberg, as personal consumption was upwardly revised to 2.0% from 1.6%, and was expected to remain unadjusted.

The GDP Price Index rose 1.9%, above the consensus of economists, which called for the number to remain at 1.8%, and the core PCE Index, which excludes food and energy, increased 1.1%, inline with estimates of an unrevised figure. Treasuries moved lower following the GDP report.

Later this morning, the economic calendar will yield the final version of the University of Michigan’s Consumer Sentiment Index, forecasted to remain at the 69.6 initially reported for August, which was an uptick from the 67.8 reading in July that was the lowest since November 2009.

However, market movement for the day is likely to be highlighted by the speech from Fed Chair Ben Bernanke to be delivered at 10 a.m. EST at the annual economic symposium held in Jackson Hole, Wyoming. The topic is “The Economic Outlook and the Federal Reserve’s Policy Response,” and there is no Q&A expected. Additionally, European Central Bank (ECB) President Jean-Claude Trichet is scheduled to speak over lunch at 2:50 p.m. EST.

Europe watches US GDP and Jackson Hole meeting for direction

Stocks in Europe are higher after receiving the better-than-expected US GDP figure, moving off an early loss, while markets are watching comments from both Fed Chair Bernanke and ECB President Jean-Claude Trichet later in the day. The heads of the two banks have differing views on the rate of economic recovery, with data in the US coming in weaker than expected, while the recovery in the euro-zone has surprised to the upside, led by growth in Germany on the back of a declining euro. Additionally, the two central banks have slightly different mandates, with the US targeting maximum employment with low inflation, while the ECB focuses solely on price stability.

European banks are in focus in trading today, after Italy’s Banca Popolare di Milano Scrl fell after missing earnings, and Italy’s Banca Monte dei Paschi SA profit beat forecasts, while Germany’s Commerzbank AG is lower after a report in Handelsblatt said the bank plans to sell new shares as early as autumn this year to exit government support, and may sell 5 billion ($6.35 billion) euros or more if the market can support it, citing unidentified people close to the company’s CEO. The industrials sector is also in view, as Les Echos reported that European Aeronautic Defence and Space Co (EADSY $22) reduced its production targets for the A350 to 10 from 18 in 2013, and also made cuts to 2014 and 2015 forecasts.

In European economic news, the UK released revised 2Q GDP data, saying the economy rose 1.2% quarter-over-quarter as construction expanded faster than previously estimated, with gains also coming as inventories rose, and consumer spending gained 0.7%, offsetting declines in fixed investment.

The UK FTSE 100 Index is higher by 0.7%, Germany’s DAX Index is up 0.6%, France’s CAC-40 Index is rising 0.7% and Italy’s FTSE MIB is advancing 0.6%.

Asia higher on optimism over yen action

Stocks in Asia were higher, led by a 1.0% gain in the Nikkei 225 Index after Japan’s Prime Minister Kan said the government is “ready when necessary to take bold measures,” as the near 15-year high on the yen versus the dollar and eight-year high relative to the euro hurts the prospects of the nation’s exporters. Kan said he expects the Bank of Japan to implement monetary policy “swiftly,” and that he will be speaking with the central bank governor Shirakawa soon after he returns from the Jackson Hole meeting in the US. After markets closed, Kan added that stimulus measures will be outlined on August 31, as the nation faces a difficult economic situation, highlighted by reports today that consumer prices fell for a 17th month and household spending rose less than forecast. Kan’s government is under pressure ahead of elections next month.

Elsewhere in Asia/Pacific, earnings were in focus in China, after Industrial & Commercial Bank of China Ltd (IDCBY $36), the world’s largest lender by market value according to Bloomberg, rose after beating earnings estimates as loan profitability and fees increased, and while the bank’s capital adequacy ratio was below the regulated minimum, capital raising plans had been previously announced. Additionally, smaller rival Bank of China reported a 27% increase in profits, matching expectations, property developer Hendersen Land Development Co Ltd (HLDCY $6) fell after reporting a steeper decline in profits versus estimates, China Unicom Ltd (CHU $14) rose after the China Business News reported the carrier may start selling Apple Inc’s (AAPL $240 ) iPad in mid-to-late September, citing an unidentified person at the company, and Brilliance China Automotive Holdings Ltd, which makes vehicles with Bayerische Motoren Werke AG (BAMXY $17) reported strong profits. China's Shanghai Composite Index rose 0.3%, while Hong Kong’s Hang Seng Index lost 0.1%. Elsewhere, India’s BSE Sensex 30 Index declined 1.3%, the South Korean Kospi Index was flat, and Australia’s S&P/ASX 200 Index rose 0.3%.