Trade the News Market Internals Update at 12:00ET

Dow -31 S&P +0.4 NASDAQ +7

***Economic Data***

– (US) Aug NFIB Small Business Optimism: 88.1 v 88.0e
– (US) ICSC/GS weekly chain store sales w/e Sep 10th: +1.3% w/w; +3.3% y/y
– (PD) Poland Aug CPI M/M: 0.0% v -0.3%e; Y/Y: 4.3% v 4.2%e
– (BR) Brazil Retail Sales M/M:1.4 % v 1.0%e; Y/Y: 7.1% v 6.5%e; Broad Retail Sales Y/Y: 7.7% v 9.5% prior
– (US) Aug Import Price Index M/M: % v -0.8%e; Y/Y: % v 12.5%e
– (US) Redbook Retail Sales w/e Sep 10th: +4.5% y/y; Sep MTD: +0.2% v Aug
– (US) Sept IBD/TIPP Economic Optimism: 39.9 v 38.0e
– (EU) ECB drained €143.0B vs €143.0B Target in 7-Day Term Deposits

– Rumors and speculation about Greece and Italy drove market sentiment this morning, with reports from yesterday that Italy was negotiating with China to buy its debt helping to boost European indices in the US premarket. This and rumors that Germany and France would make an immediate announcement on Greece were both denied, although equity indices in Europe remain higher on the day. US indices have floated back down to unchanged on the day. Note that an earlier Italian auction of government bonds received tepid demand, forcing the Italian treasury to fork over higher yields to lure buyers. US Treasury markets are seeing some selling ahead of this afternoon’s 10-year reopening. The benchmark yield has backed up 4 basis points to 1.98%.

– Corporations have begun offering fresh guidance as economic conditions moderate. Steel Dynamics cut its Q3 outlook nearly in half, due to tightening profit margins in its flat rolled segment and a tough pricing environment. Aetna said that it would beat its prior guidance range for FY11, based on lower utilization and better margins, and offered a positive initial look at its FY12 assumptions. WellPoint reaffirmed its FY11 outlook. Auto parts manufacturer Lear also reaffirmed guidance, although the company’s outlook remains below Wall Street estimates. In earnings, Best Buy missed top- and bottom-line expectations in its Q2 report, and also adjusted its FY12 guidance ever so slightly higher. Shares of BBY are down 7%. Profits at casual dining chain Cracker Barrel topped expectations (ex items), while revenue was a bit soft. The firm also increased its quarterly dividend and authorized a new stock buyback. CBRL is up 2.5% after crawling out of the red mid morning. DRL and DIN are both up slightly as well.

– A wave of optimism swept through FX markets as US-based traders were stepping in earlier this morning, on unconfirmed reports that Sarkozy and Merkel would release a statement. This and vague reports that China would buy Italian debt helped EUR/USD elects stops above the 1.37 level. The warm, fuzzy feelings vanished after Merkel said there would be no Franco-German joint statement on Greece and reiterated the same old rhetoric that a Greek default would not solve the debt crisis. Netherlands Finance Minister de Jager commented that preparations were being made for “any possible Greece scenarios.” Greece PM Papandreou plans to hold a conference call with Merkel and Sarkozy on Wednesday. Brazil Finance Minister Mantega commented that BRIC countries were to discuss help for Europe. Note that the 1.37 handle is offering formable resistance. Dealers commented that trading has adjusted to the loss of the Swiss Franc as a safe haven following the recent floor announced in the EUR/CHF pair by the SNB. EUR/CHF is little changed and holding above the 1.20 floor.

***Looking Ahead***

– 11:30 (EU) ECB member Weidmann
– 11:30 (US) Treasury to sell 4-Week Bills
– 12:30 (HU) Hungary Development Min Fellegi Speaks
– 13:00 (US) Treasury to sell $21B in 10-Year Notes Reopening
– 14:00 (US) Aug Monthly Budget Statement: -$132.0Be v -$90.5B prior
– 16:30 (US) Weekly API Energy Inventory
– 17:00 (CO) Colombia July Trade Balance: no est v $378.3M prior

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