From: Craig James, Commsec Chief Economist

MORNING REPORT
(8am AEDT - US close)

US ICSC chain store sales rose by 2.7pct in the week to November 5 compared with a year ago. ICSC research expects comparable store sales to rise 3.5-4pct in November. The NFIB Small Business Optimism Index rose 1.3pts to 90.2 in October - improving for the second straight month.

Italian Prime Minster Berlusconi won the vote on the 2010 Budget, but only because the opposition abstained. Calls for Berlusconi's resignation were swift. Late in the US session the Italian President confirmed that Berlusconi would resign after the new budget law is approved later this month.

European shares rallied on Tuesday, boosted by upbeat earnings results and speculation the Italy´s leader could soon step down. Vodafone (up 1.8pct), Societe Generale (up 7.3pct) and Lloyds Banking Group (up 4.4pct) all rose after posting strong results. The FTSEurofirst index rose by 0.9pct with the UK FTSE higher by 1pct and the German Dax up by 0.6pct

US shares rallied in a volatile trading session after confirmation that Italy´s prime minister will resign. The CBOE volatility index or ´´fear gauge´´ fell 5.7pct. The Dow Jones which was at one stage down around 60pts recovered after news of the resignation, closing US trade up 102pts or 0.8pct, the S&P 500 was up 1.2pct and the Nasdaq was up by 32pts or 1.2pct.

US long-term treasuries reversed early gains on Tuesday (yields higher). The change of the political landscape in Italy resulted in a switch from safe-haven US government bonds and into riskier asset classes. US 2yr yields were largely steady at 0.242pct and US 10yr yields rose by 4pts to 2.08pct.

The Euro and commodity currencies recorded healthy gains against the greenback in overnight trade. The Euro lifted from lows near US$1.3730 to US$1.3845 and was trading near US$1.3840 in late US trade. The Aussie dollar rose from lows around US102.65c to US104.00c, and was near its highs in late US trade. And the Japanese yen held in a tight range between 77.60 yen and JPY78.05, and was near JPY77.70 in late US trade.

Crude oil prices rose for a fifth straight session on Tuesday as a UN report on Iran´s nuclear program added to Middle East tensions. Nymex crude oil rose by US$1.28 or 1.3pct to US$96.80 a barrel and London Brent crude rose by US53c or 0.5pct to US$115.09 a barrel.

Base metal prices were mixed on the London Metals Exchange on Tuesday. Investors remained concerned about the rise in Italian bond yields, in addition traders waited on Chinese data. Nickel led the declines down 1.9pct. And the gold price rose in line with oil with the Comex December gold price up by US$8.10 an ounce to US$1,799.20.

Ahead: In Australia, housing finance data and consumer sentiment are released. In the US, wholesale inventory figures are expected. Chinese economic data is expected today.