Trade the News Market Internals Update at 14:00ET

Dow -207 S&P -22 NASDAQ -37

***Economic Data***

– (PO) Portugal Aug Producer Prices M/M: 0.0% v 0.1% prior; Y/Y: 5.5 v 5.6% prior
– (PD) Poland Aug Sold Industrial Output M/M: +4.3% v -1.0%e; Y/Y: 8.1% v 2.7%e
– (PD) Poland Aug Producer Prices M/M: 0.4% v 0.3%e; Y/Y: 6.6% v 6.4%e
– (RU) Russia Aug Real Retail Sales M/M: 3.8% v 1.9%e; Y/Y:7.8% v 5.7%e
– (RU) Russia Aug Unemployment Rate: 6.1% v 6.4%e
– (US) Sept NAHB Housing Market Index: 14 v 15e
– (EU) ECB completed €9.8B in weekly settlements vs. €14.0B prior in its Gov’t Bond Buying Program (SMP); to drain €152.5B in next 7-day term deposit tender vs. 143.0B prior

– US equity futures sank in the premarket as European indices dropped sharply and investors fretted that the Greece crisis would finally result in default. Further shortfalls in Greek measures have come to light over the weekend following the delay in releasing the next tranche of aid on Friday, even German Chancellor Merkel’s position weakened further following her defeat in the Berlin state elections on Sunday. Markets are waiting for details that will emerge from a conference call being held between IMF and EU officials and Greece later this morning. President Obama is pushing his deficit reduction plan on the Congressional super committee this morning and political commentators are weighing its chances in the face of unending Republican opposition. Spot gold dipped this morning, giving up some of the gains seen on Friday. Copper has made a new low for 2011, below $380. Front-month crude has dropped to the bottom of the trading range seen last week, around $85. Treasury markets are flourishing again as safe haven flows have sent the US 10-year yield back below 1.95% and the German bund under 1.8%.

– The president has handed Congress his $3.5T deficit reduction bill this morning, including $1.5T in funds from his so-called “Buffet Rule,” which would layer on a minimum tax for those individuals earning over $1 million/year to bring the tax rate of these individuals more in-line with the rate imposed on those paying between 28-35% tax rates. The plan will be submitted to the Congressional debt reform super committee, which is mandated to come up with at least $1.2T in budget cuts by November 23. This is on top of the more than $900B in spending cuts that were part of a deal between the White House and the Congressional Republicans in August. The $1.5T in tax increases would include $800B from the expiration in 2013 of the Bush tax cuts for families making more than $250K and also include measures to pay for the $447B jobs package, including eliminating tax deductions on incomes of $250K+ and tax breaks for oil companies and investment-fund managers.

– Tyco International – which was the focus of various takeover rumors late last week – is moving to separate its businesses into three independent publicly traded companies. The company plans to spin off three units to shareholders, including the ADT North America residential security business, the flow control products and the services and the fire and security business. Note that in recent months, Kraft, Ralcorp Holdings, McGraw-Hill Cos Inc and ConocoPhillips have all announced plans to split up their business. Late on Friday, CNBC reported that United Technologies was deep in talks to acquire Goodrich for around $110-125/shr. Recall that UTX had been fingered as interested in acquiring Tyco after reports made the rounds that the firm was preparing for a big takeout in the $20B range. GR is up 12%, TYC is up 4% and UTX is down 2%. Shares of Lennar are up 4% on a down day for markets after the firm predicted profitability could be sustained for the full year and even topped greatly diminished earnings expectations in its Q3. Note that the firm grew its order rate in the quarter on a y/y basis as well. Other homebuilders are firmly in the red, however.

– FX markets are looking forward to several risk events set for Monday with risk aversion remaining elevated into the NY morning. The first is the schedule IMF/EU conference call with Greece later in the session, due around 12 noon ET. Earlier this morning French Finance Minister Baroin commented that a Greek default scenario was not currently being considered although dealers are wary. The second risk event is Obama’s speech on the deficit. The greenback is maintaining a firm tone against the European pairs. EUR/USD was probing session lows by the mid-New York morning just above the 1.36 handle. The emerging market currencies continued to be undermined as contagion fears have spread with rise in risk aversion was weighing on commodity currency AUD. The ECB continued its buying of peripheral bonds for the sixth straight week. The Spanish and Italian 10-year yields remain higher in the session at 5.57% and 5.3%, respectively.

***Looking Ahead***

– 11:00 (US) Fed to purchase $0.50-1.00B in Notes/Bonds
– 11:30 (US) Treasury to sell $29B in 3-Month and $27B in 6-month Bills
– 12:00 (GR) Greece Fin Min and EU/IMF/ECB Troika to hold conference call
– 12:30 (GE) German Chancellor Merkel gives speech at CDU Party Event in Hesse State
– 13:45 (CA) Bank of Canada’s Lane speaks at Sibos Conference in Toronto
– 17:00 (CO) Colombia July Industrial Production Y/Y: 3.4%e v 2.2% prior
– 17:00 (CO) Colombia July Retail Sales Y/Y: 11.7%e v 11.9% prior

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