Trade the News Market Internals update at 12:00ET

Dow -317 S&P -37 NASDAQ -84

***Economic Data***

– (CZ) Czech Central Bank leaves Repo Rate unchanged at 0.75%; as expected
– (UK) Bank of England (BOE) leaves both Interest Rates and Asset Purchase Target (APT) unchanged at 0.50% and £200B respectively; as expected
– (EU) ECB Interest leaves the Main 7-day Refi Rate unchanged at 1.50%; As expected
– (US) Aug RBC Consumer Outlook Index: 40.2 v 43.7 prior
– (US) Initial Jobless Claims: 400K v 405Ke; Continuing Claims: 3.730M v 3.70Me
– (BR) Brazil July Vehicle Production: K v 304.3K prior; Vehicle Sales : K v 304.3K prior; Vehicle Exports: K v 36.6K prior
– (MX) Mexico July Consumer Confidence: 95.5 v 92.5e
– (US) EIA Natural Gas Inventories: +44 bcf v +33 bcf to +39 bcf expected range

– The S&P500 dipped into correction territory this morning, as the index fell to more than 10% below its recent peak of 1,363 on April 29th. Meanwhile the DJIA briefly dipped into negative territory for 2011. With equity indices down sharply worldwide this morning, investors are looking nervously at the euro zone, where Italy is doing its best to reassure its creditors and its European partners that everything is just fine with its finances. Rumors circulated that Rome had cancelled bond auctions (later denied), while counter rumors suggested that the Italian Treasury has enough cash on hand to not go to markets for the remainder of 2011. Other speak from key EU figures only added to the sense of panic, including EU Commission Chair Barroso, who warned that the decisions from the July 21st Leader Summit are not having the intended effect on markets. In the US, tomorrow’s big July jobs report is another big risk, while weekly claims remain stalled at 400K. Spot gold is once again near all-time highs, $1,675. Treasury, Bund and Gilt bond markets are surging once again in severe risk off trade. The US10-year yield has fallen below 2.5% while the Bund has slid to 2.3%. Curves are flatter yet again with the US 2-10 year spread narrowing to 220 basis points.

– Financial services giant Hartford met profit expectations and launched a moderately sized share buyback. On the conference call executives warned that Hartford would not reach 11% ROE target by end of 2012. Prudential Financial hit new record highs in its AUM levels, and this plus a surge in annuity and retirement business helped the firm crush top- and bottom line expectations. PRU is up 1% and heading higher, while HIG is down 2%. Heath insurance name Cigna beat profit targets and raised its FY11 outlook, even as membership and revenue remained mostly flat on a y/y basis in the quarter. Cardinal Health met expectations and offered firm initial guidance for its FY12. CI is up 1% while CAH is down 2%. Pharmacy giant CVS also met expectations on decent comps in Q2, although its guidance for Q3 was slightly soft. Executives said that the company was seeing season a 98% retention rate going into 2012 PBM sales season. Formerly high-flying biotech Dendreon is crashing after a very bad Q2; the firm withdrew its guidance and said it would cut staff and expenses, even as it still insists Provenge has great potential. Shares of DNDN have lost 65% of their value.

– Kraft Foods slightly missed profit targets in its Q2, although it also raised its FY11 outlook slightly. Kraft said its performance was solid despite pricing actions and warned that it was planning more price increases to offset costs. In addition to earnings, Kraft said it would split itself into two publicly traded companies, one focused on global snacks and the other on North American grocery, with an effective date anticipated before the end of 2012. Major holder Warren Buffett and Nelson Peltz are said to support Kraft’s board on the split. Dean Foods’s Q2 results were in line, while its Q3 profit outlook was very disappointing.

– Refiner Tesoro widely beat expectations in its Q2 as the glut of oil in the Midwest and extremely high utilization rates helped the firm overcome high oil prices and improve margins. Competitor Western Refining also profited from the same phenomenon, boosting its profit sharply on a y/y basis, although earnings still fell short of analysts’ expectations. TSO is down 3%, while WNR is off its worst levels at -10%. Transocean missed profit targets due to one-time items, but otherwise had an excellent Q2. In the coal sector, Alpha Natural Resources missed earnings estimates thanks to some one-time items, although the firm boosted its FY11 production guidance and offered a very strong outlook for FY12 guidance post-Massey acquisition. ANR is down 12%.

– Deep discounting and good weather set up a positive environment for same-store sales in the month of July. For the most part US retailers delivered some solid results, although there were several areas of concern seen in the July numbers. There were some weak results from selected apparel names: the Gap widely missed already weak estimates with a -5% comp and TJX, which has reliably beaten expectations in recent months, only just met expectations at +4%. Abercrombie and Aeropostale both dropped monthly SSS reports some time ago, although both names offered preliminary Q2 guidance this morning. ARO’s revenue in the quarter was weak, and comps were -14% y/y. ANF topped revenue expectations and had very strong +9% comps. The Limited and Ross Stores were standouts in apparel. Target, Costco and BJs all roundly beat expectations, BJs by a very wide margin. Department names were right in line, with the exceptions of Kohls, which had a terrible month, and Saks, which continues to crush expectations.

– US traders arrived at their desks this morning in the wake of the BoJ’s successful unilateral intervention as USD/JPY tested above the 80 handle for the first time since July 12th. However, lingering concerns about the European peripheral crisis drove risk aversion flows and eroded the intervention impact of both the SNB and BoJ actions over the last 24 hours. The German Finance Ministry appeared to open old wounds when it noted that it was unclear how discussing the EFSF and ESM issues would calm markets. Germany stated that efforts needed to focus on quickly implementing reforms and decisions made at July 21st EU Leader summit.

– There were no surprises at the rate decisions during the NY morning, as the Czech Central Bank, the BoE and the ECB all kept interest rates steady. Choppy price action went hand-in-hand with the ECB press conference, as dealers focused on special measures. EUR/USD was initially weaker as Trichet reiterated his opening commentary from the July press conference and then stressed growing downside economic risks. The ECB did confirm that it would keep its full allotment process into Q1 2012. However the ‘renewal’ of its government bond buying program sent the EUR/USD to its session highs above 1.4350, complemented by fresh buying of Irish and Portuguese bonds. The revelation that the ECB decision on special measures was not unanimous amped up risk aversion.

***Looking Ahead***

– 11:00 (US) Fed to purchase $2.75-3.50B in Notes/Bonds
– 17:00 (CO) Colombia July Producer Price Index M/M: No est v -0.2% prior; Y/Y: No est v 4.7% prior

10:30 AM Market Internals update at 10:30ET

– NYSE volume 270M shares, about 44% above its three-month average; decliners lead advancers by 6.2:1.
– NASDAQ volume 565M shares, about 31% above its three-month average; decliners lead advancers by 5.5:1.
– VIX index +9.5% at just over 25.00

5:48 AM TradeTheNews.com European Market Update: JPY maintains soft tone on continued BOJ currency intervention; ECB might renew its Gov’t Bond Buying program.

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