The market is mixed but relatively steady as investors prepare to digest new economic data and quarterly statements earnings. While the latest data from China was weak, investors were hesitant to make moves as they await updates from Europe as leaders meet in Brussels to discuss the Greek debt crisis.

The benchmark 10-year Treasury note is -7/32 at 101-14, one basis point higher at 2.94% and the two year yield is flat at 0.38%. Only long term bonds are showing any real movement: the 30-year yield is-16/32 at 101-19, three basis points higher at 4.28%. In mortgageland the Fannie Mae 4.0 MBS coupon is -5/32 at 100-20.

S&P 500 futures are 6.25 points higher at 1,327.50 and Dow futures are 48 points up at 12,557. Since last Friday the indexes have climbed 17 points and 135 points, respectively. The Euro is attempting to recover from overnight weakness against the dollar. After falling as far as 1.414, the Euro is currently +0.20% at 1.425  vs. the U.S. dollar.  Italian, Spanish, and Greek debt spreads are all tighter vs. U.S. benchmark 10s as well.

Thursday:

8:30 - Initial Jobless Claims fell more than anticipated to an 11-week low of 405,000 in the period ending July 9. The 22k drop allowed the four-week average to fall 4k to 423k, but economists said little was gained from the report given the volatility and seasonal issues (i.e. auto plant retooling).

"We suspect the dip was more a function of strong seasonal adjustments - attributable to annual retooling in the auto industry during the 4th of July holiday week - rather than a signal of improvement in the labor market," said economists at Nomura Global Economics, echoing many others.

Economists at Citigroup noted that if claims stay at the same level this week, the four-week moving average would retreat to its lowest level in three months. Here's to hoping.

8:30 - Federal Reserve Bank of Chicago President Charles Evans discusses monetary policy issues in wire service media interview with Bloomberg, Down Jones, Market News and Reuters representatives,

10:00 - Most forecasters assume the Philadelphia Fed Survey will rebound into positive territory in July after dropping nearly 12 points to -7.7 last month. That wasn't just the first contraction since September, but the largest contraction since July 2009. But with auto manufacturing ramping back up in the third quarter, the mean estimate this month is +5.0; the range is from -4.8  to +10. 

"The Philadelphia Fed's manufacturing survey showed weakness in June, despite reports of Japan supply lines beginning the process of normalization," said economists at Nomura. "We look for some improvement in July index to 2.5 from -7.7 in the prior month."

10:00  - Federal Reserve Chairman Ben Bernanke testifies on the Dodd-Frank Act before the Senate Banking Committee

10:00 - Leading Economic Indicators, a composite index designed to track turning points in the economy, is anticipated to rise 0.3% in July. That would follow a stronger 0.5% rise in June and a weak 0.2% decline the month before (both numbers were recently revised). 

The largest contributors, according to Nomura, "will be the interest rate spread and real money supply, both reflecting the Fed's ongoing economic support," while "a decline in the stock market and consumer expectations are the notable negative contributors for June."

Economists at Citigroup look for a 0.5% gain.

"The biggest positive contribution was from real money supply growth, whose expansion in nominal terms was boosted by a decline in prices," they wrote. "The yield curve was once again a large contributor to the monthly gain. Otherwise, most gauges fell during the reference period, with the greatest weakness in consumer expectations and building permits. The projected monthly increase in the overall gauge likely lifted the year-to-year rate to 6.1%."

11:00 - Treasury announces the terms of 2-year, 5-year, and 7-year debt to be auctioned next week

Treasury Auction:
1:00 - 10-Year TIPS

EU Summit: Headlines are not seen hitting until sometime this afternoon. No specific time has been shared by EU officials.

EARNINGS: Microsoft, Ingersoll, Morgan Stanley and Pepsi.

Here is more detail on overnight news headlines...

We're not sure why the Euro is rallying against the dollar when a Greek default is back on the table. We suppose an open market bond buyback program is providing a lift...

(Reuters) - The European Central Bank is willing to let Greece slip into temporary default as part of a crisis response that would involve a bond buyback but no new tax on banks, EU sources said on Thursday. German Chancellor Angela Merkel and French President Nicolas Sarkozy crafted a common position on a second Greek bailout in late night talks in Berlin with ECB President Jean-Claude Trichet, sources in both governments said.

(Reuters) - Germany and France are agreed that a selective default on Greek debt is possible, enabling private sector involvement to solve Greece's debt crisis, Dutch Finance Minister Jan Kees de Jager said on Thursday. Speaking in the Dutch parliament, De Jager said there were still a range of options for how banks would contribute to Greece's debt, including swapping existing debt below nominal value for longer-dated debt. "The demand to prevent a selective default has been removed. We can continue with the bank plan, which is still confidential. But that plan has the options I have just described, a menu of options. But it will lead to private sector involvement," he said.

This will certainly trim global economic growth expectations...

(Reuters) - China's factory sector shrank for the first time in a year in July, a survey showed on Thursday, feeding worries among the country's main trading partners that its growth is unsustainable and could lead to a slump. The HSBC flash purchasing managers' index (PMI) fell to 48.9 in July, suggesting the manufacturing sector contracted at its fastest pace since March 2009, as monetary policy tightening and slack global demand weighed on the sector.

U.S. Debt Ceiling Talks Going Nowhere Fast....

(Reuters) - The White House signaled on Wednesday it could support a short-term increase in the U.S. borrowing limit for "a few days" if lawmakers agreed to a broad deficit reduction deal but needed more time to pass it. The move, a shift from President Barack Obama's previous position, reflects the growing political reality that time is short for Congress to pass a massive deficit-cutting deal before the United States runs out of money on August 2. A new proposal for long-term deficit reduction from a group of senators known as the Gang of Six has revived hope that a broad agreement on spending cuts can be reached to avoid a looming default and alleviate pressure on America's triple-A credit rating.

(Reuters) - The Federal Reserve is actively preparing for the possibility that the United States could default as a deadline for raising the government's $14.3 trillion borrowing limit looms, a top Fed policymaker said on Wednesday. Charles Plosser, president of the Philadelphia Federal Reserve Bank, said the U.S. central bank has for the past few months been working closely with Treasury, ironing out what to do if the world's biggest economy runs out of cash on August 2. "We are in contingency planning mode," Plosser told Reuters in an interview at the regional central bank's headquarters in Philadelphia. "We are all engaged. ... It's a very active process."