- The third quarter got off to a difficult start this morning as the DJIA opened down more than 100 points below yesterday's close (this after finishing H1 down 15%) and the NASDAQ opened down 1.0%. Both indices made it back into positive territory by mid-morning before heading south again. The morning's June ISM manufacturing reading helped markets along, as the reading crossed into positive territory for the first time since January. The May construction number was slightly less negative than expected. Oil is near record highs after Israel and Iran exchanged statements early this morning: a former Israeli Air Force general told Der Spiegel that Israel would not stand by while Iran builds nuclear capabilities, prompting the Iranian Oil Minister to note that any attack on Iran would lead to a disruption in oil exports from the Middle East. These comments come after a senior US defense official reportedly told ABC last night there is an increasing chance that Israel would attack Iran. A spokesperson for the State Department later questioned the ABC report , noting there was "no information" that Israel would attack Iran. The financials are being led higher by CIT+20% and LEH+5%, as well as multiple positive ratings announcements out of Morgan Stanley overnight. CIT says it is selling its home lending business to Lone Star Funds for $1.5B in cash, and in a separate transaction selling its manufactured housing portfolio to Vanderbilt Mortgage and Finance for $300M. After LEH hit a 52-week low yesterday afternoon, rumors were then questioned on CNBC and by other analysts, possibly contributing to early morning strength. However, rumors continue to circulate regarding potential profit warnings from major US and European commercial banks. LM-4.5% is running down after reporting after the close it would be forced to take a $146M non-cash charge to support its money market funds. UBS was also down on a suspected impending Q2 cut in its profit forecast and further DoJ inquiries into the tax evasion case. CME-6% is also hurting after reporting June volumes down 4% y/y. SHW jumped more than 4% after reports circulated that it had won an appeal in Rhode Island surrounding a lead paint case verdict, but had fallen below yesterday's closing price before recovering slightly. UTSI+8% is surging after announcing that it would sell its personal communications unit to AIG for $240M. In other news, BA announced further delays to its 787 Dreamliner program, while VZ released pricing for the 3g Apple iPhone, including a (considerably more expensive) contract-free option. RIMM and AAPL are both up about 3% after starting the morning deep in the red.

- The USD is softer against the major pairs: EUR/USD is at 1.5765, little changed from its opening levels in Asia, while the GBP/USD has been probing two-month highs, testing above the 2.0 level. However, cable has been unable to sustain gains above its 200-day moving average of 1.9978. The USD/JPY cross is down 30 pips at 105.75. The OPEC president provided some verbal intervention for the dollar, noting that a stable USD would calm the oil markets, while the ISM manufacturing data briefly aided the dollar, but the prices paid and employment components should weigh upon any positive USD momentum. The prices paid component is also helping metals remain near session highs. The ISM's Ore stated that companies have to increase prices for consumers since other prices are increasing at such a rapid pace. JPY and CHF carry related pairs are softer on growing risk-aversion. EUR/JPY was off 65 pips at 166.50 and EUR/CHF lower by 202 pips to 1.6070.