Trade the News Market Internals Update at 12:00ET

Dow +5 S&P +0.25 NASDAQ -12

***Economic Data***

– (RU) Russia Q2 YTD Foreign Direct Investment (RUB): v 3.9B prior
– (US) MBA Mortgage Applications w/e Aug 19th: -2.4% v +4.1% prior
– (US) July Durable Goods Orders: 4.0% v 2.0%e; Durables Ex Transportation: +0.7% v -0.5%e
– (BE) Belgium Aug Business Confidence: -7.8 v -3.5e
– (MX) Mexico July Preliminary Trade Balance: -$1.2B v -$670Me
– (BR) Brazil July Total Outstanding Loans (BRL): 1.854T v 1.834T prior; Private Banks Lending: 1.072T v $1.062T prior
– (US) Jun House Price Index M/M: 0.9% v 0.2%e; Q2 HPI Q/Q: -0.6% v -0.4%e
– (US) Weekly DOE energy inventories: Crude: -2.2M v +1Me; Gasoline: +1.35M v -1Me; Distillate: +1.73M v +500Ke; Utilization: 90.3% v 87.2% w/w

– The July Durable Goods Orders report goosed European and US equity indices higher this morning. The excellent durables data contradicted some of the worryingly weak industrial reports for August out in recent sessions, and there was a big drop in gold that followed in the wake of the data. Note that many analysts have recently been crowing that now is the time to take profits in gold, and evidently markets chose the data point as their moment to sell. Spot gold dropped from around $1,845 just ahead of the data to approximately $1,766 by mid morning, before bouncing a bit. The Congressional Budget Office (CBO) issued a slightly more positive outlook on the Federal government’s finances in the wake of the big budget deal. The CBO said that the budget deficit will hit $1.28T this year, down slightly from the previous two years, with even bigger savings to come over the next decade. Nevertheless commentators and analysts indicate that investors are still fixated on the potential for some sort of surprise out of the Fed at its Jackson Hole conference later this week. NYMEX crude is still making incremental gains, with the front-month contract around $86. Treasury prices are lower backing up yields modestly, and the long bond is back above 3.5%.

– As of yesterday bond spreads for US banks were hitting levels not seen since 2009 on continued concern about capital levels. Shares of Bank of America were leading the way down as the firm struck out at its critics in the media for making “exaggerated claims” about its sovereign debt and commercial real estate exposure. This morning shares of BAC spiked 10% in the first 30 minutes of trading after the bank got some love from various quarters: Raymond James reiterated its Strong Buy rating and $16 price target, while both Dick Bove and Meredith Whitney said that they did not believe the bank needs to raise capital right now. Whitney emphasized that the banking sector is undergoing enormous change and argued that the current situation is not similar to 2008.

– In other equity news, shares of CVS are up more than 2% after the firm approved a $4B buyback program. American Eagle Outfitters is getting slammed this morning after offering a grim outlook for its Q3 and FY11. The firm said that while it has tempered expectations for the second half, sales are planned to strengthen from the first half of the year. Profits at Toll Brothers were way above par thanks to a one-time tax benefit, although other than this the outlook is still pretty weak for housing. Toll narrowed its FY11 home delivery guidance and warned that its cancellation rate jumped in its Q3 on a sequential basis. Shares of TOL were up as much as 4%, pulling the other homebuilders higher, while HOV made a puzzling spike up to +7% mid morning before trading back in line with its peers.

– The price action in the greenback was mixed although once again it was contained within recent ranges. The euro managed to deflect the widening cracks in the Greek bailout deal, even as stress in the peripheral spreads remained evident. The 10-year Greek/German Gov’t bond spread rose above 1,530bps to a fresh EMU record. Dealers appeared a bit puzzled as to how one could justify a long euro position when the Greek 2-year gov’t yield was around 44%, while others debated that interest rates were the driver. EUR/CHF cross moved back below the 1.14 handle as rumors swirled that further sovereign downgrade would continue in Europe with Italy again murmured as a potential victim.

***Looking Ahead***

– (FR) French Gov’t to update its 2011GDP (currently +2.0%)
– 11:00 (GE) German Chancellor Merkel attends State Election Campaign Event in Stralsund
– 11:30 (BR) Brazil Central Bank Posts Currency Flows’ Data for Previous Week
– 13:00 (US) Treasury to sell $35.0B in 5-Year Notes

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