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ADP Disappoints but Markets Stable

Wednesday, 1 Sep 2010 | 9:01 AM ET

With jobs and housing not recovering, traders are girding for a tough third quarter. With gridlock likely in Washington, a major stimulus program seems off the table. Renewal of the Bush tax cuts is likely, but will not be very stimulative by itself. Most traders are even doubtful that further quantitative easing by the Fed is unlikely to be a big help, as low rates are not producing buyers in housing.

Better news in China and Australia. A day after India reported strong GDP growth, Australia also reported growth of 1.2 percent in its GDP in the second quarter compared to the first quarter (3.3 percent year-over-year), above expectations and the fastest growth in three years.

China PMI, a manufacturing index, increased to 51.7 from 51.2, above consensus. This is a diffusion index, so above 50 means growth.

Speaking of growth in Asia and Latin America—Joy Global , a global manufacturer of mining equipment, reported earnings above expectations and raised its earnings and revenue guidance for the full year (there is only one quarter left). Management noted improved demand for coal and copper from China, Australia, Chile, and Russia.

Elsewhere:

1) Borders Group reported a much wider-than-expected Q2 loss(loss of $0.74 vs. loss of $0.13 consensus). Just like rival Barnes & Noble , sales at its retail stores struggled (comps down 6.8 percent) while its online sales continued to flourish (up 56 percent). Troublesome was the bookseller's nearly 4 percentage point decline in margins, which were impacted by greater discounting.

2) Heinzearnings beat estimates($0.75 vs. $0.73 consensus) despite revenues slightly missing expectations. Higher pricing and stronger demand helped boost organic sales grow 3.6 percent. The condiment & food maker's Asian and North American markets saw stronger volume and revenue growth, offsetting flat volumes and revenue declines in Europe.

Guidance for the full-year was reaffirmed, with sales seen up 3 percent to 4 percent vs. current consensus of up 1.3 percent.

3) Private Equity Considering a Whopper of a Deal? Burger King jumps 18 percent on reports that the fast food company has been discussing a potential sale of the companywith various private equity firms. No potential names or terms have been confirmed.

The fast food chain is had a history with private equity ownership before going public in 2006. In 2002, Bain Capital, TPG, and Goldman Sachs Capital Partners had purchased the company from Diageo for $1.5 billion. That group still owns nearly a third of the company.

Earlier this summer, CKE Restaurants, the operator of Carl's Jr. and Hardee's fast food chains, closed its $695 million sale to an affiliate of private equity firm Apollo Management.

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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