Trade the News Market Internals Update at 12:00ET

Dow -31 S&P -7 NASDAQ -9

***Economic Data***

– (PO) Portugal Q3 Cumulative Labor Costs: +1.0% v -0.6% prior
– (RU) Russia Q3 Advanced GDP Y/Y: 4.8% v 5.0%e
– (PD) Poland Oct M3 Money Supply M/M: 0.6% v 0.7%e
– (EU) ECB completed €4.8B in weekly settlement s vs. €9.5B prior in Gov’t Bond buying program (SMP); To drain €187.0B in next 7-day Term Deposit Tender vs. €183.0B prior

– European and US equity markets are in the red this morning as investors warily eye the situation in Europe. Berlusconi is out in Rome and it looks as if Mario Monti will be installed as interim PM, heading a transitional government. However, fears about the position of France and its AAA rating are in the background. In the foreground, last week’s sale of $3B in EFSF bonds to fund Ireland’s bailout seemed to go sour, according to some press reports, which suggested that the EFSF was forced to buy its own debt as outside investors stayed home. European officials naturally denied the report, although it is having a chilling effect. Industrial production in the euro zone fell in September the most since early 2009, supporting expectations of a sharp contraction in manufacturing. Investor Warren Buffett was on CNBC all morning, and said that it remains unclear who has the ability to save Europe. Buffet said he believes we are seeing a “partial run” on Europe, although he also said that he feels better about the recent developments in Greece and Italy. In the US, over the weekend there were reports that the supercommittee was looking to postpone its timetable for making a final decision on deficit reduction proposals until 2012. US Treasury prices are rising modestly on safe haven flows.

– Besides talking about Europe, Warren Buffett had some good news to share this morning. Buffett announced that Berkshire Hathaway has bought a 5.5% staken in IBM for approx $10.7B. He disclosed that most of this position was purchased in Q1 and that Berkshire does not plan to buy additional shares at the moment. Shares of IBM are up modestly on the news. Bank of America sold 10.4B shares of China Construction Bank, via private transactions with a group of investors. The sales are expected to generate an after-tax gain of $1.8B and generate approximately $2.9B in Tier 1 common capital. BAC and shares of the rest of the major US banks are deep in the red thanks to Europe.

– In earnings, JC Penny reported a pre-tax loss, contracting margins and negative same-store sales in its Q3. The company said it was apparent during the quarter that “moderate customers” continue to have limited discretionary spending capability. Shares of JCP are in the red. Home improvement firm Loews met low expectations in the firm’s Q3, although it also cut its FY11 outlook. Shares of LOW are up nearly 4%. Energy name Dynegy disclosed a much-larger-than-expected Q3 loss, hurt by reduced prices and lower sales in its coal and gas businesses. DYN is down -4%. At their analyst day this morning, Reynolds Aluminum raised its FY11 forecast and authorized a big share buyback program.

– The NY morning saw an underlying lack of risk appetite as European peripheral yields edged higher. The exuberance of new governments in both Greece and Italy wore off as growth remained the primary focus. The Spanish 10-year govt yield registered its first reading above 6% since the ECB renewed the SMP bond buying program in early August. There has been a plethora of chatter over the last week that the ECB was buying peripheral bonds (particularly Spanish and Italian). However The ECB data showed only meager €4.8B amount in its most recent week of settlement data and well below expectations of €10.0B. Dealers are also braced for more possible ECB resignations as the SMP appeared to be losing its effectiveness and conflict with the German Bundesbank view on the topic. Overall the rise in risk aversion continued to benefit the USD and JPY against the European pairs.

***Looking Ahead***

– (MX) Oct ANTAD Same-Store Sales Y/Y: No est v 5.4% prior
– 11:00 (US) Fed to purchase $2.25-2.75B in Notes/Bonds
– 11:30 (US Treasury to sell 3-Month and 6-Month Bills
– 12:00 (GR) Greece interim PM Papademos to set out key policy goals
– 13:00 (CA) Bank of Canada’s Carney
– 13:00 (EU) ECB member Constancio

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