Trade the News Market Internals Update at 12:00ET

Dow -9 S&P +2.5 NASDAQ +11.7

**Economic Data***

– (BE) Belgium Jun YTD Budget Balance: -€10.9B v -€11.6B prior
– (MX) Mexico Jun YTD Budget Balance (MXN): No est v -17.8B prior
– (PD) Poland July NBP Inflation Expectations: 4.7% v 4.2% prior
– (SA) South Africa Jun Budget (ZAR): 12.6B v 10.0Be
– (SA) South Africa Jun Trade Balance (ZAR): 4.9B v 1.0Be
– (CA) Canada May Gross Domestic Product M/M: -0.3% v 0.1%e; Y/Y: 2.2% v 2.8%e
– (CA) Canada Jun Industrial Product Price M/M: -0.3% v -0.1%e; Raw Materials Price Index M/M: -2.2% v -2.0%e
– (US) Q2 Employment Cost Index: 0.7% v 0.5%e
– (US) Q2 Advanced GDP Q/Q Annualized: 1.3% v 1.8%e; Personal Consumption: 0.1% v 0.8%e
– (US) Q2 Advanced GDP Price Index: 2.3% v 2.0%e; Core PCE Q/Q: 2.1% v 2.3%e
– (BE) Belgium Q2 Preliminary GDP Q/Q: 0.7% v 0.3%e; Y/Y: 2.5% v 3.0% prior
– (CL) Chile Jun Unemployment Rate: 7.2% v 7.2%e%e
– (BR) Brazil Jun Nominal Budget Balance (BRL): B v -14.7B prior; Primary Budget Balance: B v 14.5Be; Net Debt to GDP ratio: No est v 39.8% prior
– (US) July Chicago Purchasing Manager: 58.8 v 60.0e
– (US) July Final University of Michigan Confidence: 63.7 v 64.0e; Lowest since Mar 2009
– (US) July NAPM-Milwaukee: 59.0 v 56.9e

– The first look at the US Q2 GDP and the revision of Q1 GDP figure from the previously reported +1.9% increase to a nearly flat +0.4% upset markets this morning. Taken together, the data indicated that the “soft patch” in the US economy during the first half of the year was even softer than previously believed. Meanwhile in Washington political maneuvering continued after House Speaker Boehner failed to get his caucus behind attempts to pass his bill in the House, prompting Senate Majority Leader Reid to press on with his own last ditch package. Equities declined in the premarket and fell a bit further after the open, only to recover after the July Chicago Purchasing Manager Index and final reading of the July University of Michigan data came out. Neither report was very strong, and the latter was the lowest in more than two years. Spot gold spiked back above $1,630 after the GDP data but is off its session higher. Note that the VIX index pushed out to the highest levels seen since March earlier this morning. US Treasury markets are holding near session highs despite strong rebound for US stock indices. The 10-year yield has fallen back below 2.9%.

– Chevron’s profits were very strong in its Q2, growing nearly 50% on a y/y basis, beating expectations. Production was lower on a y/y basis, but higher selling prices more than made up the difference. Note that the firm’s revenue disappointed. Shale gas major Chesapeake Energy’s quarterly revenue crushed expectations, while profits (ex items) were also above consensus. Analysts were eager to hear about the firm’s progress in the Utica shale formation, although no production data was provided.

– The natural disasters of the Spring did not keep insurance giant MetLife from crushing expectations. Earlier the company had already warned of an unexpectedly large catastrophe loss in the quarter, but nevertheless the firm’s business grew sharply across units. Coventry Health had solid profits and revenues, and raised its FY11 outlook. Healthcare supplies giant McKesson showed strong growth across its business, boosting both the top- and bottom-lines, allowing it to raise its full-year outlook.

– On the consumer front, Starbucks modestly exceeded analysts’ estimates and raised its FY11 guidance slightly. The firm’s comp sales held up nicely, as price increases seemed not to substantially cut the firm’s business. New handset spinoff Motorola Mobility did quite well in its Q2, however its outlook for Q3 was very weak, as the company warned that key product delays would seriously impede profitability. Newell Rubbermaid cut its FY11 outlook slightly, even as profits and revenue topped expectations.

– Three major mining names missed consensus expectations in earnings. Despite reporting 74% y/y increase in net income, rising costs and the big gains in the Brazilian Real killed Vale’s profits, and the company warned that these trends would continue to be an impediment moving forward. Newmont Mining blamed its miss on higher costs and lower production, especially copper, production of which fell 45% y/y. Arch Coal blamed its miss on the bad weather impact this spring, plus higher costs.

– The weaker US data paired with no progress on the debt impasse sent risk aversion sentiment sharply higher during the US session, sending the Swiss Franc and spot gold out to fresh all-time highs. The yen strengthened to fresh post-G7 intervention highs around 77.00. Dealers are keenly aware that spreads on peripheral European debt continued to widen, which does not bode well for Europe, even as overall markets remain preoccupied with the US debt ceiling soap opera. Yen strength continued to provoke verbal intervention; Japan PM Kan reiterated that the government would carefully monitor FX price movements but he would not comment directly on either outright currency levels or possible intervention.

***Looking Ahead***

– (CO) Colombia Central Bank Interest Rate Decision: Expected to raise the Overnight Lending Rate by 25bps to 4.50%
– 11:00 (US) Fed to purchase $2.5-3.0B in Notes/Bonds
– 11:00 (US) Senate Democrats press conference
– 12:00 (CO) Colombia Jun Urban Unemployment Rate: 11.1%e v 11.0% prior
– 12:00 (FR) France Jun Net Change in Jobseekers: No est v +17.7K prior
– 15:00 (AR) Argentina Jun Construction Activity M/M: No est v 2.7% prior; Y/Y: No est v 14.8% prior
– 15:15 (US) Fed members Bullard and Lockhart discuss monetary policy in Wyoming

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