Trade the News Market Internals update at 12:00ET

Dow -19 S&P -6.2 NASDAQ -21

***Economic Data***

– (CA) Canada Sept Int’l Securities Transactions: C$7.4B v C$4.0Be
– (US) Oct Housing Starts: 628K v 610Ke; Building Permits: 653K v 603Ke
– (US) Initial Jobless Claims: 388K v 395Ke; Continuing Claims: 3.608M v 3.633Me
– (BR) Brazil Sept Economic Activity Index M/M: 0.0% v 0.0%e v -0.5% prior; Y/Y: 1.2% v 1.3%e
– (US) Q3 Mortgage Delinquencies: +7.99% v +8.44% prior; MBA Mortgage Foreclosures: 4.43% v +4.43% prior
– (US) Nov Philadelphia Fed: 3.6 v 9.0e
– (US) Weekly Natural Gas Inventory: + BCF v +25 bcf to +30 bcf expected range

– With yields on Italian and Spanish debt surging in the aftermath of a worrying auction of 10-year Spanish debt, fear of contagion led to more declines in European equities overnight. As the New York session got started, traders were wondering whether the spreading contagion will force the ECB (and its German patrons) to adopt some flexibility in responding to the crisis. There were press reports that one idea being discussed was allowing the ECB to lend funds to the IMF, which would then provide financial aid to euro zone states (thus overcoming rules forbidding the ECB to lend directly to member states). However, there continues to be vocal resistance from a German-led group of ECB policymakers to the ECB becoming the lender of last resort. But despite the debate, it is believed again the ECB has significantly stepped up buying of peripheral bonds, helping to push down Spanish and Italian yields somewhat. In the US, the weekly claims data “improved” noticibly, however analysts cite unemployed workers simply running out of benefits for the bulk of the declines. Note that front-month crude is off the highs above $102 seen during yesterday’s session. Meanwhile spot gold has made a big leg down this morning, not far from one-month lows, trading at $1,735. US Treasury prices are little changed keeping the 10-year right around 2%.

– Among retailers reporting yesterday and today, troubled department store firm Sears Holdings was a big loser. Quarterly losses were steeper than expected, as comps at its major units continued to decline. SHLD was down as much as 8% before regaining some territory. Discount retailer Bon-Ton’s losses were nearly four times the expected amount and slashed its outlook. BONT was down as much as 2% but later rose as much as 6% as executives laid out their plans for improving the business on the conference call. Gamestop met expectations and guided in line with estimates. Williams Sonoma modestly topped expectations and raised its full-year view, on solid comp gains. Dollar Tree also exceeded expectations and raised its 2011 guidance. The Limited reported a very strong quarterly comp gains, with financial results in line with expectations LTD and GME remain in the red, while DLTR is flat on the day. In other earnings, tech name Applied Materials had a good Q4, although its outlook for Q1 was very soft. Shares of AMAT are down nearly 7% and heading lower.

– In FX, the EUR/USD continued to remain above the key 1.3410 level after several tests towards it over the last 24 hours. The pair did trade above 1.3530 after press reports noted that the ECB was looking at potential ways to get around rules that restrict it from lending directly to distressed EMU members.

***Looking Ahead***

– 11:00 (US) Fed to purchase $4.25-5.00B in Notes/Bonds
– 11:00 (US) Treasury 2-year, 5-year and 7-year Note announcement
– 12:30 (US) Fed’s Pianalto speaks on Economy in Kentucky
– 12:50 (US) Fed Dudley
– 13:00 (US) Treasury to sell 10-Year TIPS Reopening
– 16:00 (CO) Colombia Sept Trade Balance: $217.0Me v $440.9M prior
– 18:00 (EU) EU members Almunia, Barroso and Barnier
– 20:35 (CH) China Nov MNI Flash Business Sentiment Survey

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