Trade the News Market Internals Update at 12:00ET

Dow -49 S&P -2.4 NASDAQ +5.6

***Economic Data***

– (CA) Canada Jun Consumer Price Index M/M: -0.7% v -0.2%e; Y/Y: 3.1% v 3.6%e ; CPI Index: 119.8 v 120.6 prior

– (CA) Canada Jun CPI Core M/M: -0.6% v 0.0%e; Y/Y: 1.3% v 1.9%e

– (CA) Canada May Retail Sales M/M: +0.1% v -0.3%e; Retail Sales Less Autos M/M: 0.5% v 0.3%e

– (MX) Mexico Central Bank Monetary Policy Minutes

– Initial enthusiasm driven by the second Greek bailout package evaporated as US traders arrived at their desks this morning, as US political factions continued the childish squabbling about the debt ceiling. House Speaker Boehner came out and said the two sids were not even close to any sort of agreement (contradicting reports from yesterday), and shortly thereafter the Senate voted down the House’s DOA “cap, cut and balance” bill, essentially setting the process back to square one. Note that today is the “soft deadline” for a deal, as at least a week would be need to draft and pass legislation allowing the Congress to raise the debt limit. Relatively strong earnings multiple blue chip names are in focus this morning, although equities overall are flat. After declining a bit on news out of Europe, spot gold has climbed back above the $1,600 handle this morning on risk aversion. Treasury prices are firming pushing the 10-year yield back away from 3%.

– Investors are weighing contrasting results from General Electric and Caterpillar this morning. GE slightly exceeded the Streets expectations whereas Cat’s profits were a bit shy of estimates on an adjusted basis. GE reaffirmed its FY11 and FY12 guidance, whereas Cat’s FY11 profit outlook was lower than expected (when accounting for the Bucyrus acquisition). GE is flat on the day, while CAT is down 6%. Note that GE warned that profit margins would be lower in the back half of FY11. Total backlogs at both firms were at all-time highs at both companies, and executives at both firms were roundly positive about the economic outlook for the United States. Honeywell offered solid Q2 results and also hiked its FY11 guidance. Oil services name Schlumberger’s results topped consensus views, and the firm racked up impressive +50% y/y growth in oilfield service revenue.

– Microsoft beat profit targets widely in its Q2 report, although analysts noted that the company benefitted from an unusually low tax rate. On the Windows 7 front, things were less rosy, with activations disappointing expectations for the third straight quarter, echoing warnings from Intel earlier in the week in regards to the PC market. Sandisk also topped profit estimates in its Q2, although its revenue outlook for Q3 and FY11 was a bit soft. SNDK is up nearly 9%, while MSFT is flat. Like rival Seagate, Western Digital had a solid Q2, although executives warned that the company could see some cost pressures from rare earth metals.

– Verizon beat AT&T on the net adds line in its Q2, with double the figure seen at AT&T. Top- and bottom-line results met expectations, and the company said that 22% of iPhone customers now belong to Verizon have been steady. McDonalds has once again beat expectations, and June same-store sales picked up from the softer May results, making for a relatively strong comp performance in Q2, despite the soft patch. But on the conference call, McDonalds’ executives warned that consumer confidence in the US is continuing to waver and that Q3 margins may be challenging. MCD is up 3% while VZ is down more than 2%.

– FX traders appeared to dial back their initial enthusiasm for the second Greek bailout during the US session as the euro weakened against the major pairs. The emerging view is that the summit deal was good news for markets, but bad news for tax payers. EUR/CHF slipped from its session highs of 1.1892 to probe the lower end of the 1.17 handle. EUR/USD was back below 1.4335 and a big figure off its European morning highs. Yield on European peripheral debt moved off their tightest levels, with Italy’s 10-year note back around 5.40% v 5.30% earlier. Note that there were reports that Japan’s Kokusai bond fund, the world’s second largest, has cut exposure to Italian bonds. CAD was weaker following the June CPI data, which came in well below expectations. USD/CAD tested the 0.95 level and failed to improve despite the better retail sales figures that were reported the following hour. Reports of an explosion in Oslo, Norway near the office of the Prime Minister weakened the Kroner, with EUR/NOK above 7.80, weaker by 200 pips.