Trade the News Market Internals Update at 12:00ET

Dow +15 S&P -1.25 NASDAQ -12

***Economic Data***

– (RU) Russia Sept Real Retail Sales M/M: -0.4% v +0.7%e; Y/Y: 9.2% v 8.5%e
– (RU) Russia Sept Unemployment Rate: 6.0% v 6.2%e
– (US) MBA Mortgage Applications w/e Oct 14th: -14.9% v +1.3% prior
– (SA) South Africa Aug Retail Sales Constant M/M: 0.7% v 0.4%e; Y/Y: 7.1% v 5.2%e
– (NO) Norway Central Bank (Norges) leaves Deposit Rates unchanged at 2.25%; as expected; Lowers its projected rate path trajectory thru 2014
– (PD) Poland Sept Sold Industrial Output M/M: 13.0% v 10.0%e; Y/Y: 7.7% v 5.2%e
– (PD) Poland Sept Producer Prices M/M: 1.4% v 0.6%e; Y/Y: 8.1% v 7.5%e
– (CA) Canada Sept Leading Indicators M/M: -0.1% v +0.1%e
– (US) Sept Consumer Price Index M/M: 0.3% v 0.3%e; CPI Ex Food & Energy M/M: 0.1% v 0.2%e; CPI NSA: 226.137 v 226.947e
– (US) Sept Housing Starts: 658K v 590Ke; Building Permits: 594 v 610Ke
– (BE) Belgium Oct Consumer Confidence: -7 v -9 prior
– (US) Weekly DOE Energy Inventory: -4.73M v +1.5Me; Gasoline: -3.32M v -1.5Me; Distillate: -4.27M v -1.5Me; Utilization: 83.1% v 83.6%e
– (UK) BOE buys £1.7B in reverse auction for 2022-2036 Gilts; bid-to-cover: 2.14x

– Corporate earnings were a mixed bag this morning, with a few high-profiles misses, chiefly Apple, weighing on sentiment. The European front is more or less calm as details of continuing EFSF negotiations between Paris and Berlin continue to leak out. The Sept CPI figure indicated that inflation rose at its slowest pace in months, ex food and energy. The Sept housing starts data rose at its highest annualized rate in a year and a half thanks to a big increase in groundbreaking for multi-family units. Housing starts for buildings with two or more units rose 51.3% y/y. Treasury prices are little changed but sellers have emerged in the Bund market after a fairly disappointing €4B 2021 auction. There continues to be upward pressure on French yields as well following more sovereign downgrades on the European periphery.

– DVA adjustments struck again this morning, this time at Morgan Stanley. The bank reported headline earnings of $1.15/shr and almost $10B in revenue. However after backing out the DVA gain, it only earned $0.02/shr. Nevertheless, investors judged the bank’s underlying business as strong enough to buy the name in the early going, with shares of MS spiking 6% or so before headling back toward the flatline. Shares had lost more than 50% YTD as of the beginning of Oct due to fears about the bank’s exposure to peripheral European debt; this morning it clarified that its net funded exposure azwas approx $2B, or $5.7B before hedges, well below prior estimates. MS is up 4%. Regional banking names PNC Bank, US Bankcorp and Bank of New York all topped profit expectations on solid revenue, and saw further improvements in loan quality and more declines in provisions. Shares of USB, PNC and BK spiked +2-4% before moving back toward the flatline mid morning. Assets under management continue to decline at BlackRock, causing unease among investors. Executives blamed the government and volatile markets, although the firm has kept up margins despite the poor trend. Shares of BLK fell 4% in the first hour of trade.

– Apple’s shocking miss is weighing down the tech-heavy NASDAQ index this morning. Consensus expectations were very high for the firm, although it’s worth noting that multiple firms have offered positive support for the company in notes overnight. Note that Apple’s own forecast for Q1 lacked its typical understatement, and executive reiterated their high hopes for the iPhone 4S. Beaten-down internet bazaar Yahoo crushed profit expectations thanks to a tidy profit from its search deal with Microsoft. Intel beat the consensus view despite a very difficult quarter for tech manufacturers and lower margins thanks to an impressive gain in Asia-Pacific revenue. Both INTC and YHOO are up more than 4%, while shares of AAPL are down 5%.

– In other earnings, mining giant Freeport comfortably beat top- and bottom-line expectations in its Q3 report as higher realized prices for gold and copper more than made up for production shortfalls. BHP disclosed big gains in iron ore output in its Q1, and substantial declines in copper output. Abbott Labs said it would separate into two separate companies, one holding its medical products business and the other its research-based pharmaceuticals. Abbotts Q3 results were right in line with consensus expectations. Shares of United Technologies fell 2% in the premarket thanks to a tiny miss on earnings, despite solid profit and revenue growth. Shares are back in the black mid morning, while competitor Textron is up 2% on solid earnings outperformance and increased FY11 guidance.

– The euro rallied overnight, with EUR/USD breaking above 1.3850, despite yesterday’s warning on France’s AAA rating and Moody’s downgrade of Spain’s sovereign ratings. The euro backed off its best levels as after news made the rounds that French President Sarkozy would visit Berlin today to work out an impasse over how the EFSF and ECB will interact. France’s dilemma now is how to structure a deal that does not result in the threatened downgrade to its AAA rating. Dealers are concerned about whether the pending plan was close to a deal or on the verge of falling apart. EUR/USD is retesting the 1.3800 area after failing to take out buy-stops that were said to be lurking around the 1.3870.

***Looking Ahead***

– (BR) Brazil Central Bank Interest Rate Decision: Expected to cut the SELIC Target by 50bps to 11.50%

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