- Equities markets opened under pressure this morning thanks to grim data on inflation and housing. The July producer price index climbed 1.2% m/m, double the expected rate but lower than the May and June readings. Core PPI, rose 0.7% m/m, three times the expected rate; putting in its highest reading since late 2006. Housing starts hit a 17-year low for July, coming in above consensus expectations but much lower than the prior month's tally. Although the data could indicate a greater likelihood that the US market is working off excess inventory, it certainly added fuel to the fire sparked by yesterday's record low NAHB August confidence reading. Equity skittishness is again emanating from deterioration in most of the major US financial stocks XLF -3%. A Goldman analyst noted more potential for new rounds of capital raising at AIG -7%. William Blair cut its Q3 and full-year earnings estimates for Goldman and Morgan Stanley. A JP Morgan analyst cut his Q3 EPS outlook for LEH-5% to -$3.30 from $0.35, predicting a likely $4B writedown in Q3 (recall that yesterday the WSJ said that some analysts believe Lehman may have a Q3 loss of $1.8B or more and is considering pre-announcing earnings again). JPM-3.5% is suffering as well. The WSJ says that in private meetings FDIC officials have pushed other agencies to more forcefully downgrade the confidential rating of troubled financials, citing people familiar with the talks; keep in mind that confidential ratings are known only to regulators and each bank's executives. Former IMF Chief Economist Kenneth Rogoff predicted that a large US bank will collapse soon, in an appearance at a financial conference. "The US is not out of the woods," said Rogoff. "I think the financial crisis is at the halfway point, perhaps. I would even go further to say the worst is to come." Rogoff said that FRE-7% or FNM-4% would probably go under, although the GSEs were buoyed up more than 6% before falling off again this morning in the wake of FRE's newest $3B reference note issue. More major retailers reported before the open, including positive numbers from HD-1% and TGT-1% and not so positive numbers from SKS-13%. HD beat estimates but reiterated that it sees its full-year performance at the lower end of its previously guided range, down 24%. The CEO said HD remains cautious for remainder of 2008 and 1H09, although the firm has stabilized its rate of market share loss. TGT also beat the Street, saying on the conference call that the current environment is harshest they have ever seen in years, sees Q4 targets as more attainable than Q3 estimates. SKS reported a larger EPS loss than expected, came in below revenue estimates and predicted declining gross margins in the second half of the year. SPLS-6% reported preliminary Q2 SSS of -7% and declining earnings for FY08, noting challenging conditions for the firm. In other news, casino names WYNN-7% and LVS-9% are hurting after a Leahman analyst said additional visa restrictions on travel from mainland China would impact the firms' operations. CX-4% after Venezuela officially nationalized the cement manufacturer's operations in the country. MTL+2% is rising after Russia fined the company and ordered it to cut prices on coking coal by 15%.

- The morning's raft of US data briefly provided some support to the dollar, but enthusiasm waned quickly as dealers refocused on overall growth issues, prompted by HD's weak guidance SKS dim sales outlook. Traders discounted the US inflation data, which reflected higher energy and commodity costs that have fallen more recently. The July housing reading was taken more seriously.

- The risk aversion theme is making a return appearance as the JPY pairs softened up thanks to deepening concern over the health of the global financial sector. The EUR/JPY cross was probing the 160 level while the GBP/JPY dropped over 100 pips to test below 204. In Europe, FX dealers were noting Rogoff's comments about the financial crisis being at its halfway point and the worst being yet to come. The GBP recovered from earlier lows sparked by comments from the BoE's Beasley, who has a hawkish reputation. Beasley hinted that he saw inflation coming back towards the 2% target by the end of 2009, but the market overlooked his comment that interest rates needed to stay at a "suitable level" until the CPI threat diminished. The GBP/USD cross broke below the 1.8530 level to rest last week's low of 1.8510 before consolidation ensued.