Morning Market Update

Europe and GDP Report Pressure Stocks Before Bernanke

The US equity markets are under some pressure in early action as European markets are broadly lower, led again by Germany, while domestic 2Q GDP was revised lower and inflation reads were unexpectedly adjusted upward. Meanwhile, traders are waiting for Federal Reserve Chairman Ben Bernanke to give his highly anticipated speech in Jackson Hole, Wyoming, looking for any signs of changes coming in the near term to the Central Bank’s monetary policy. Treasuries are higher in morning trading following the GDP data, ahead of a final read on consumer sentiment for August. In equity news, Tiffany and Co reported better-than-expected 2Q results and raised its profit outlook, while Dow member Boeing Co announced that it will deliver its long delayed 787 Dreamliner aircraft in late September. Elsewhere overseas, Asian equity markets finished mixed, but snapped a string of weekly losses.

As of 8:50 a.m. ET, the September S&P 500 Index Globex future is 10 points below fair value, the Nasdaq 100 Index is 11 points below fair value, and the DJIA is 76 points below fair value. WTI crude oil is $1.60 lower at $83.70 per barrel, and the Bloomberg gold spot price is down $6.35 at $1,768.10 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.2% to 74.07.

Tiffany and Co. (TIF $63) reported 2Q earnings ex-items of $0.86 per share, above the $0.70 consensus estimate of analysts surveyed by Reuters, with revenues rising 30% year-over-year (y/y) to $873 million, exceeding the $786 million that the Street was looking for. 2Q same-store sales—sales at stores open at least a year—gained 22% y/y, due to “strong growth in all geographic regions.” Also, the upscale jewelry and department store retailer said it has been able to absorb precious metal and gemstone cost increases while improving its gross and operating margins. TIF raised its full-year profit guidance to reflect its 2Q results.

Dow member Boeing Co. (BA $61) announced that it is set to deliver its first 787 Dreamliner aircraft after several delays as it received certification to fly by the FAA. BA said Japan’s All Nippon Airways Co. (ALNPY $6) will be the first to receive the aircraft in late September.

2Q GDP revised lower, Fed Chief’s speech and consumer sentiment later this morning

The second look at 2Q Gross Domestic Product, the broadest measure of economic output, showed a smaller rate of expansion than initially reported as quarter-over-quarter (q/q) annualized growth was adjusted from a rise of 1.3%, to a pace of 1.0%. This compared to the modest 0.4% increase in 1Q, and the 1.1% growth that was forecasted by a Bloomberg survey of economists. However, personal consumption was revised higher than expected, gaining 0.4%, from the initial 0.1% increase, down from the 2.1% that was posted in 1Q, and compared to the 0.2% growth that was forecasted.

The GDP Price Index was unexpectedly adjusted upward to a rise of 2.4%, compared to the unrevised 2.3% increase that economists anticipated, and the core PCE Index, which excludes food and energy, was surprisingly revised higher to a gain of 2.2%, compared to the unchanged gain of 2.1% that was expected.

Treasuries remain higher following the GDP data, with the yield on the 2-year note down 1 bp to 0.20%, the yield on the 10-year note 4 bps lower to 2.19%, and the 30-year bond rate declining 5 bps to 3.55%.

Later this morning, the US economic calendar will yield the release of the final University of Michigan Consumer Sentiment Index for August, projected to be revised slightly higher from 54.9 in the preliminary report to 55.8.

However, the highlight of the economic day, and possibly the week, will come in the form of the 10:00 a.m. ET speech by Federal Reserve Chairman Ben Bernanke at the Fed’s annual gathering in Jackson Hole, Wyoming. Although Bernanke used the Jackson Hole meeting last year to signal that further quantitative easing, or QE2, was on the way, this year, the Fed Chief may refrain from introducing QE3 despite the recent volatility in the markets and some further weakness in economic data since the Central Bank’s early August monetary policy meeting.

Europe under pressure as financials move lower

The equity markets in Europe are broadly lower in afternoon trading, led by financials amid lingering concerns about the eurozone debt contagion and uncertainty regarding a potential return to recession in the US and Europe, ahead of US Federal Reserve Chairman Bernanke’s speech. The weakness in financials comes even as France, Italy, and Spain extended their bans of short selling, according to Bloomberg. Meanwhile, traders digested UK GDP figures and a read on services. The UK 2Q GDP was left unrevised from its initial report, showing a 0.2% q/q rate of growth after expanding by 0.5% in 1Q, inline with expectations. On a year-over-year basis, UK GDP grew at a 0.7% pace, also unrevised, after rising 1.6% in 1Q. Moreover, a gauge of UK services activity declined 0.1% month-over-month (m/m) in June, after increasing 1.6% in May. In other economic news, German import prices rose 0.8% m/m in July, compared to the 0.3% gain that economists expected, after falling 0.6% in June. On a year-over-year basis, Germany’s import prices was 7.5% higher, versus the 7.0% rise that was expected and the 6.5% gain that was seen in June.

The UK FTSE 100 Index is down 1.1%, France’s CAC-40 Index is declining 1.5%, Germany’s DAX Index is falling 2.2%, Italy’s FTSE MIB Index is decreasing 1.1%, and Spain’s IBEX 35 Index is dropping 1.4%.

Asia mixed ahead of Bernanke’s speech

Stocks in Asia finished mixed in cautious trading before Fed Chairman Bernanke’s speech on Friday morning in the US, but most major markets snapped a string of weekly losing streaks. Japan’s Nikkei 225 Index gained 0.3%, posting the first weekly increase in five weeks, per Reuters, on the heels of a report that showed the nation’s consumer prices unexpectedly rose in July. Meanwhile, South Korea’s Kospi Index increased 0.8% to cap off its first weekly gain in four weeks, while Australia’s S&P/ASX 200 Index dipped 0.3%. Elsewhere, the equity markets in China finished lower, as the Hong Kong Hang Seng Index dropped 0.9% and the Shanghai Composite Index inched 0.1% lower. However, both indices were higher for the week after piling up four weeks of losses.