Trade the News Market Internals Update

Dow -33 S&P -1.5 NASDAQ +8

***Economic Data***

– (PO) Portugal Aug Construction Works Index: 62.4 v 68.7 prior
– (IS) Israel Sept Trade Balance: -$1.8B v -$1.7B prior
– (IS) Israel Q2 Final GDP 3.7% v 3.5% prelim
– (US) Sept NFIB Small Business Optimism: v 89.0e
– (BR) Brazil Aug Retail Sales M/M: -0.4% v -0.1%e; Y/Y: 6.2% v 6.9%e; Broad Retail Sales Y/Y: 5.3% v 7.2% prior
– (RU) Russia Aug Trade Balance: $14.7B v $14.3Be
– (US) ICSC/GS weekly chain store sales w/e Oct 8th: -0.1% w/w; +2.8% y/y
– (CA) Canada Sept Housing Starts: 205.9 K v 189.5Ke
– (US) Redbook Retail Sales w/e Oct 8th: +4.8% y/y; Oct MTD: -0.6% v Sept
– (MX) Mexico July Gross Fixed Investment: 9.3%% v 10.3%e
– (US) Oct IBD/TIPP Economic Optimism: 40.3 v 39.4e
– (UK) Sept NIESR GDP Estimate: 0.5% v 0.4% prior

– After opening in the red earlier this morning, US equities headed even higher in the early going as trading volumes again fell well below recent averages. All eyes are on Slovakia, where the parliament is debating whether or not to pass the EFSF reforms. Analysts expect the Slovak parliament to fail to pass the measures on the first vote and bring down the current government, and then possibly pass the bill in a second round of voting later this week, although the precise mechanics of this arrangement remain somewhat opaque. The EU/ECB/IMF Troika mission said that Greece would likely get its next aid tranche after the Eurogroup and IMF approved results of their review, despite the fact that it shows Greece would miss its 2011 deficit target on sub-par tax revenue performance. Recall that last week, Greek Finance Minister Venizelos stated that Greece had no cash issues until November, taking a default off the table for at least another month or two. The US Senate is expected to pass President Obama’s jobs bill later today, and the House leadership has promised to kill off most of the measures. Spot gold is well off its overnight highs, trading around $1,665. Crude is flat on the day, around $85. Pit trading in fixed income has resumed and Treasury yields are calibrating in yesterday’s equity gains. The US 10-year is up to 2.15% and the long bond is above 3.08%.

– The Federal Reserve and the FDIC release draft proposals to ban prop trading by banks (the so-called Volcker rule). The new regulation contains two prohibitions. First, it prohibits banking entities from engaging in short-term proprietary trading of any security, derivative, and certain other financial instruments on their own account. Second, it prohibits owning, sponsoring or having certain relationships with hedge funds or private equity funds. Leaked versions of the rule seen in late September suggested that the rule would require very detailed policing of individual traders at banks. This will inspire what is expected to be a fierce lobbying campaign to weaken the rules. Note that shares of the leading US banks were down more than one percent a piece this morning, and most spiked into positive territory after the Fed/FOMC release.

– There was a flurry of deal news this morning. Discount chain 99 Cents Only confirmed that it had agreed to be acquired by private equity firm Ares Capital for $22/shr in cash, for a total deal worth $1.6B. Note that this comes after several months of press speculation. Video tech name BigBand Networks has agreed to be acquired by ARRIS Group for $2.24/shr in cash, for an impressive 76% premium to the prior close. The total deal is valued at $172M. Dollar Thrifty said that it had completed its review of strategic alternatives without identifying any acceptable offers and plans to remain an independent company. Hertz announced that it was still interested in acquiring DTG, despite the earlier statement. Jones New York said that it was discussing the possible sale of its jeanswear division to Delta Galil Industries. The unit may be worth $350-400M.

– EUR/USD was hovering around the $1.36 area during the New York session as traders balanced the favorable Troika report against fears about the pending Slovakia.

**Looking Ahead***

– (PE) Peru Aug Trade Balance: No est v $1.2B prior
– 11:00 (US) Fed to purchase $2.25-2.75B in Notes/Bonds
– 11:30 (US) Treasury to sell $29B in 3-Month and $32B in 6-Month Bills
– 11:30 (UK) BOE Posen
– 12:00 (SL) Slovakia Parliament vote on EFSF enhancement powers (last of the 17 members to vote on the issue)
– 13:00 (US) Treasury to sell $32B in 3-Year Notes
– 22:00 (CH) China Sept Trade Balance: $16.4Be v $17.8B prior; Exports Y/Y: 20.7%e v 24.5% prior; Imports Y/Y: 24.6%e v 30.2% prior

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