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Clarity on Debt Talks; Economic Concerns Persist

Bob Pisani is off; this post was written by CNBC producer Robert Hum.

The stock market continues to be very sensitive to headlines on EU and U.S. debt talks this week. The Dow is up over 140 points as of this writing and is just shy of this month’s highs. The blue chip index is now just less than 100 points below its 3-year high set back at the end of April.

Before the open, futures had moved about 7 points higher on headlines that the Eurozone appears to have agreed on a draft for a Greek aid package. That apparent development pushed the euro significantly higher, enabling it to recover all of earlier losses. As the dollar moved lower, commodity prices got a lift, most notably with West Texas crude oil, which is once again approaching $99/barrel.

As discussions continue at the EU summit on Greece, borrowing costs in Spain remain elevated. Spain sold EUR 2.6 billion of 10-year and 15-year bonds. But it paid dearly to investors, giving them the highest rates since 1997. The average yield on 10-year bonds and 15-year bonds were 5.896 percent and 6.191%, respectively.

But don’t get too optimistic over today’s big gain in the stock market. While there seems to be a bit more clarity on the debt talks abroad in Europe and here in the U.S., there continues to be uncertainty on the current state of the global economy as poor manufacturing data and weak corporate outlooks were headlines this morning.

Weak manufacturing data was seen in China and Europe today. China’s HSBC flash PMI hit a 28-month low and showed contraction for the first time in a year. Over in Europe, Eurozone PMI was barely above 50, but that reading disappointed economists with the biggest month-to-month drop since November 2008 (from 53.3 in June to 50.8 in July).

Meanwhile, Singapore hiked its inflation forecast to up 4-5 percent this year. But the country put its GDP growth forecast on review, warning that the higher inflation could be a risk to growth in the 2nd half. Singapore’s economy has been one of the faster-growing economies in recent years.

Although most commodities are up on the day, base metals like copper, aluminum, zinc, and nickel are all down 1.0-1.5 percent largely on concerns of the weaker growth in Asia.

Manufacturing data in the U.S. remained fairly lackluster too. Philly Fed data for July came in at 3.2, better than estimates and higher than last month’s abysmal negative 7.7 reading. That showed stabilization, but also reflects growth is slow and is still far from any robust levels.

Concerns in the economy weren’t limited to macro headlines though. A number of companies across a variety of industries gave tempered outlooks on their business and/or their industry:

a) Whirlpool misses estimates ($2.76 vs. $2.83 consensus) on disappointing sales and higher costs. U.S. shipments were the big problem, falling 10 percent. 2011 U.S. shipments are now expected to fall by 1-2 percent. CEO Jeff Fettig cautioned “we expect to continue to see demand volatility as consumers around the world remain impacted by economic uncertainties and high inflation.”

b) Ingersoll-Rand also misses estimates ($0.88 vs. $0.93 consensus) as “softening end-market activity” hurt its residential segment’s performance (think air conditioners, security locks). The company’s Q3 guidance is quite weak – $0.85-$0.95, below $0.98 expected by the Street.

c) LG Display saw a 96 percent plunge in Q2 profits. The TV maker disappointed the Street with its 3rd straight operating loss. Results were impacted by poor LCD TV demand in U.S. and Europe. CFO James Jeong noted that “uncertainties over market demand persist in the third quarter” and that “it is difficult to expect a dramatic upturn in the supply and demand balance.”

d) Tech giants Intel and Qualcomm gave cautious outlooks too, reflecting weakness in business with that sector. Intel reduced its industry PC shipment growth expectations to 8-10 percent from low double-digit gains. At the same time, Qualcomm cut its chip shipment forecasts, citing particular weakness in Europe.

Elsewhere:

1) Pharmacy benefits manager Express Scripts buys rival Medco Health for $29 billion in cash and stock. Medco shareholders get $71.36 per share, a 28 percent premium from yesterday’s close. The combined company would be the biggest pharmacy benefits company, and the deal could receive heavy antitrust scrutiny, with the only other major competition being CVS Caremark .

2) Union Pacific beats estimates by a penny on better-than-expected revenues thanks to higher volumes and pricing. Putting some pressure on margins was a 44 percent rise in fuel prices, but the railroad say great strength in agriculture and chemicals shipments. CEO Jim Young on second half: “we expect stronger performance despite some economic uncertainties and ongoing flood challenges.”

3) Morgan Stanley shares jump after the financial reported a much narrower-than-expected loss (loss of $0.38 vs. loss of $0.64 consensus). Results were helped by strong performance at its equities and trading departments. Also a relief, just a 9 percent drop in Fixed Income, Currencies, and Commodities revenues — a much smaller decline than the 53 percent plunge Goldman Sachs saw at its unit in its report earlier this week.

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