Trade the News Market Internals Update at 12:00ET

Dow -430 S&P -41 NASDAQ -80

***Economic Data***

– (US) MBA Mortgage Applications w/e Aug 5th: +21.7% v +7.1% prior
– (IR) Ireland Consumer Confidence: 55.9 v 56.3 prior
– (NO) Norway Central Bank (Norges) leaves Deposit Rates unchanged at 2.25%; Not expected (was expected to hike by 25bps)
– (MX) Mexico May Gross Fixed Investment: 9.1% v 9.0%e
– (US) Jun JOLTs Job Openings: K v 3.0K prior
– (US) Jun Wholesale Inventories: 0.6% v 1.0%e
– (US) Weekly DOE Energy Inventories: Crude: -5.2M v +1.5Me; Gasoline: -1.6M v 0e; Distillate: -740K v +1Me; Utilization: 90.0% v 86.7% w/w

– Trading has been extremely volatile in the US session, with issues in France in central focus this morning. The VIX has surged back over the 40 level as rumors and speculation force European equity markets down sharply, causing follow-on losses on US indices. The proximate cause today were fears about the French banks, as rumors made the rounds before the US open that executives from an unnamed bank were meeting with French President Sarkozy, preceded by rumors that France’s sovereign ratings would be imminently downgraded. The latter chestnut was quickly squashed by Moody’s reaffirming its AAA rating, however the bank rumors crushed SocGen, BNP and Credit Agricole, with shares of SocGen dropping more than 20% and the other two down in the double-digit percentage range. Later French officials said that Sarkozy had held no such meeting, while a SocGen spokesperson denied other rumors, but the damage was done. Spot gold is back at all-time highs above $1,780, while crude looks ready to drop below $80 again. The US long bond yield has slipped towards 3.5% while the2-year has touched fresh life time lows near 0.16%. After briefly touching the 2008 low at 2.03% the benchmark 10-year rate stands at 2.13%.

– Disney moderately exceeded expectations in its Q2, thanks to strong growth in parks and consumer product revenues. Note that Disney’s studio entertainment segment business contracted on a y/y basis. DIS is -10%. Department store Macy’s booked solid profits in its Q2 and raised its FY11 forecast. Ralph Lauren crushed expectations and also raised its FY11 outlook. Both Macy’s and Ralph Lauren said that cost inflation would be a major factor moving forward, and predicted that selective price adjustments would continue to cope with higher costs. RL is up 5% while shares of Macy’s are flat on the day.

– Sunpower’s Q2 losses were right in line with expectations, while Q3 guidance was notably weak. Sunpower and Ford unveiled the details of their effort to put solar panels on the roofs of Ford electric vehicles this morning. IT support firms Avnet and Computer Sciences Corp both beat earnings targets on in-line revenue totals. AVT is up 6%, while CSC is down 15%.

– The greenback benefited from risk aversion sentiment during the New York session aided by renewed rumors that France could be next on the sovereign downgrade theme. Despite reaffirms by all the three rating agencies of the AAA rating and stable outlook, the Euro could not ditch the lingering effects from the peripheral debt crisis. The fact that France President Sarkozy called a meeting today with central bank chief Noyer and government minister in a bid to deal with its finances as the fiscal crisis did not aid sentiment and threatened to undermine confidence further in core member states. EUR/CHF was lower by over 100 pips to move back below the 1.03 level. EUR/JPY was below levels last exhibited since the Japanese March earthquake/Tsunami disaster.

***Looking Ahead***

– 11:00 (MX) Mexico Central Bank 2Q Inflation Report
– 13:00 (US) Treasury to sell $24B in 10-Year
– 14:00 (US) July Monthly Budget Statement: -$135.0Be v -$43.1B prior

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