Well, November is off to a rocky start. After a 2.5% equity plunge to start the week, equity futures are down another 2% on the out-of-the-blue announcement from Greek Prime Minister George Papandreou that his government would hold a referendum on the European aid package agreed to last week.

"Talk about your all-time bonehead moves!" said BMO Capital Markets. "It would reintroduce the risk that Greece could face a disorderly default and potentially be forced to leave the euro."

S&P 500 futures have tumbled 30.1 points (-2.41%) to 1,219.20 and Dow futures have dropped 199 points (-1.67%) to 11,698.

Scared money is flowing, as usual, to Treasuries. The 10-year and 30-year Treasury yields are eight and 10 basis points lower in early trading at 2.03% and 3.03%. The two-year yield is one basis point firmer at 0.24%.

Papandreou also called a confidence vote in the government, which starts tomorrow and concludes Nov. 4, according to BMO. The bank noted that bond yields in Italy and Spain are already jumping significantly higher. Ten-year spreads between German and Italian bonds are more than 400 basis points.

"If this absurd referendum plan moves forward, another European summit will be necessary to properly ringfence Italy and Spain, as the current EFSF plans aren't sufficient to provide relief if conditions worsen," BMO said. "Europe is running out of time with Italian yields headed for 7% - clearly unsustainable for a country whose debt sits at 120% of GDP."

Light crude oil is down 2.66% at $90.71 per barrel and gold prices are 1.20% lower at $1,704.60.

Key Events Today:

10:00 - The ISM Manufacturing Index slowed down in July and August, managed to avoid entering contraction, and now appears on a modest upswing. Economists are projecting a score of 52 in October, a 0.4-point uptick from September and 1.6 points better than in August (a two-year low).

"The evidence coming in from regional surveys has been a bit stronger than last month, suggesting that the pace of manufacturing growth is picking up slightly," said IHS Global Insight.

Janney Capital Markets said last month's index "affirmed hopes that the global crisis of confidence wasn't flowing through into what had been the most consistent post-recession source of output, the US factory sector."

Their outlook beyond this month is mixed, however. 

"The industry often serves as an effective leading indicator of overall economic trends, yet the fact that manufacturing so far outpaced consumer and other elements of output growth in the last two years suggests that a period of underperformance is in order going forward."

10:00 - Cutbacks to the public sector should weigh on or pull down Construction Spending in September. Total spending is expected to see a modest decline of 0.3% in the month - following a 1.4% boost in August - but according to Citigroup the only negative component will be the public sector, which saw an inexplicable 3.1% jump in August. 

"A gain in residential investment may be hampered by a dip in improvements, and public spending likely tailed off after a surprising jump in August," said Citigroup, noting that construction spending gained traction in the third quarter despite weaker residential investment, a trend they attributed to higher spending on nonresidential projects. "The pickup in nonresidential investment in the quarter was broad-based."

 

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  • 11:30 - 4-Week Bills