Trade the News Market Internals Update at 12:00ET

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Dow +214 S&P +28 NASDAQ +40

***Economic Data***

– (IR) Ireland Aug Trade Balance: First Estimate: €3.7B v 3.2B prior
– (CA) Canada Sept Consumer Price Index M/M: 0.2% v 0.2%e; Y/Y:3.2 % v 3.1%e; CPI Index: 120.6 v 120.3 prior
– (CA) Canada Sept CPI Core M/M: 0.5% v 0.2%e; Y/Y: 2.2% v 2.0%e
– (MX) Mexico Sept Unemployment Rate: 5.7% v 5.9%e

– The DJIA and S&P500 pushed out to their highest level since the beginning of August this morning thanks to a round of solid corporate earnings reports. Traders are accentuating the positive in Europe, seeming to ignore the continued reports of disagreement between France and Germany to concentrate on the prospect of yet another final plan to cope with Greece and the debt crisis next Wednesday. At this point, it has become clear that European leaders will continue to negotiate over the details at this weekend’s summit and finalize a deal next Wednesday, likely reaching an agreement on bank capitalizations first. Sovereign spreads in Europe have narrowed while rates in Germany and the US have climbed as traders appear willing to take on a bit more risk. The US 10-year yield is backed up above 2.2% while Germany’s has surpassed 2.1%. Commodity prices are rebounding as well led by copper which has bounced nearly 6% towards $3.25.

– Corporate giants General Electric, McDonalds, Verizon and Microsoft all met or slightly exceeded consensus estimates in Q3 reports this morning. GE saw solid double-digit profit growth, although investors were concerned that margins fell on a y/y basis, driven by a calm patch in the wind business. GE offered a vague initial look at FY12, noting that EPS would rise in the double digits. McDonalds reported solid comp growth worldwide. There had been some nervousness about the Asia business after a weak showing in August comps, but the quarterly numbers held up. Verizon reiterated its FY11 forecast and said it added 2 million iPhone users in the quarter, but that more than half of smartphones sold were Android models. Despite solid headline results, analyst were concerned that Microsoft’s Windows 7 franchise made very minor gains after three quarters of declining sales, in line with limp PC sales.

– Capital One Financial exceeded consensus estimates, as commercial loan growth made up for the flat consumer business. Commercial loans were +8%, while consumer and credit card loans both rose only 1%. Regional bank SunTrust’s excellent performance was in line with most other regional names so far this fall. Chubb’s profits were stronger than expected. Executives said that profits held up even though the industry and the firm was adversely affected by an unusually high level of catastrophe losses.

– Tech names are very strong this morning despite a mixed bag of earnings. Shares of electronics manufacturer Flextronics are up nearly 10% this morning after the firm exceeded top-line expectations in its Q2. Note that FLEX also offered sub-par Q3 guidance. SanDisk crushed Q3 profit targets, but warned margins would fall in Q4. SNDK is up 7%. Seagate’s Q1 results were mixed, and the firm warned that it would not provide Q2 guidance due to disruption from the Thailand flooding. Never the less, STX is up 20%. Altera missed top- and bottom-line expectations and offered terrible Q4 guidance, but shares of ALTR is up 10%.

– Among industrial names, Honeywell firmly beat expectations with a quarterly profit up 45% y/y. The firm tweaked its FY11 forecast slightly higher and offered cautiously optimistic about FY12. Oil services giant Schlumberger had a less glowing quarter, as lower oil prices in the period depressed profits. The firm warned that financial turmoil has already resulted in a lower outlook for oil demand growth in 2012. In addition, it warned that the current consensus for Q4 profits maybe a bit optimistic.

– The greenback has been under pressure as risk appetite picked up momentum on press reports that European officials had reached agreement on a bank recapitalization plan. Dealers were also dwelling on some media comments on the possibility of QE3 in the US. Note also that the dollar has historically weakened before and during G20 meetings (the next is scheduled for Nov 4th). USD/JPY hit fresh life-time lows below the 75.95, under pressure thanks to disappointment with Japan’s formal plan to grapple the strong yen. The market has been waiting for a stop hunt in the pair as it consolidated within a 200 pip range over the last two months. The recent move would bring the BoJ back into focus, and nerves will be on edge as intervention becomes more of a possibility.

***Looking Ahead***

– 11:00 (AS) ECB’s Nowotny speaks at Gewinn Trade Fair in Vienna
– 11:00 (US) Fed to purchase $4.25-5.00B in Notes/Bonds
– 12:00 (US) US President Obama on Trade agreements
– 13:00 (US) Fed’s Kocherlakota speaks in Minneapolis
– 13:20 (US) Fed member Fisher
– 15:00 (AR) Argentina Sept Trade Balance: No est v $640M prior

10:30 AM Market Internals update at 10:30ET

– NYSE volume 365M shares, about 50% above its three-month average; advancers lead decliners by 9.9:1.
– NASDAQ volume 485M shares, about 1% above its three-month average; advancers lead decliners by 4.9:1.
– VIX index -8.6% at just over 31.00

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