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• The European stock markets are trading moderately higher this morning with the DJ Stoxx 50 up +0.86%. European banks were boosted today by a JPMorgan analyst report saying that the worst of the writedowns may be over for Europe's banks. Asia-Pacific stocks all closed higher today except for China (-1.94%) and Bombay (-0.64%): Japan +0.22%, Hong Kong +0.59%, Taiwan +1.47%, Australia +0.28%, Singapore +0.39%, South Korea +0.17%.
• This week’s US economic calendar is fairly busy with the key news centering on the Tue/Wed FOMC meeting and Friday’s April unemployment report. Specifically, Tuesday brings the Feb composite home price index (expected –12% y/y), the April US consumer confidence report from the Conference Board (expected –2.5 to 62.0), and the beginning of the 2-day FOMC meeting. Wednesday brings the April ADP employment report (expected –60,000), Q1 GDP (expected +0.4%), the Q1 employment cost index (expected +0.8%), the April Chicago Purchasing Managers index (expected –0.2 to 48.0), and the FOMC’s announcement of its monetary policy decision. Thursday brings weekly initial unemployment claims (expected +18,000), March personal income/consumption (expected +0.4% and +0.2%, respectively), March core PCE deflator (expected +2.0% y/y), March construction spending (expected –0.6%), April ISM manufacturing index (expected –0.6 to 48.0), and April total vehicle sales (expected 15.1 mln). Friday brings March factory orders (expected +0.2%) and the April unemployment report. April payrolls are expected to fall –78,000, which would be the fourth consecutive monthly decline and create a total 4-month loss of –310,000 people (Jan –76,000, Feb –76,000, March –80,000). Friday’s April unemployment rate is expected to rise by +0.1 point to a new 3-year high of 5.2%.
• FOMC policy – The market in the past several weeks has sharply curbed expectations for Fed easing, mainly because of ideas that the worst is past for the banking system crisis and because of serious upward inflation pressures. The market is now expecting only one more 25 bp rate cut to 2.00%, and then the market is expecting the FOMC to leave the funds rate unchanged at 2.00% through this summer. The market is then expecting the FOMC to start raising the funds rate, with an overall 75 bp rate hike to 2.75% expected by next summer. The market is not even fully expecting a rate cut at this week’s FOMC meeting. Specifically, the market is discounting only a 78% chance for a 25 bp rate cut at this week’s FOMC meeting, which is a big change from just a month ago when the market was fully expecting a 50 bp rate cut this week. If the Fed doesn’t cut the funds rate by 25 bp this week, then the market is discounting a maximum 96% chance of that rate cut at the next FOMC mee ting on June 24-25.

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• June S&Ps this morning are trading +6.60 points on European and Asian strength in banking stocks and on increased M&A activity, which suggests that stocks may be at attractive valuation levels. The US stock market last Friday overcame mid-day weakness to finish mixed (Dow +0.33%, S&P 500 +0.65%, Nasdaq Composite -0.25%). The S&P 500 Index last Friday posted a 3-1/4 month high.
• Bullish factors for stock prices last Friday included (1) UBS's upgrade of the US banking sector to "neutral" from "underweight" as UBS expects that "the return to balance sheet stability is taking place considerably faster than expected," (2) the 10% rally in Fannie Mae as Morgan Stanley said the widening difference in the Treasury yield curve will help drive Fannie Mae's earnings to $4.98 a share in 2009, (3) the rally in consumer stocks after JPMorgan Chase raised their outlook on the sector to "overweight" from "underweight," saying government tax rebates, Congressional proposals to bolster the mortgage market and cheap valuations will spur gains in the shares, (4) the 5.7% increase in American Express as the biggest US credit card lender reported Q1 profit from continuing operations of 84 cents a share, topping the 80 cent a share estimate by analysts, and (5) the $45 billion of US corporate bonds sold to investors last week, a sign that investors are more optimist ic that banks and securites firms can weather credit-market losses.
• Bearish factors for stock prices last Friday included (1) the 6.2% drop in Microsoft as the world's largest software maker reported an 11% drop in Q3 profit and said earnings for the current quarter may be 45 cents a share, below analysts estimates of 48 cents, (2) the bigger than expected drop in the April University of Michigan consumer confidence to a 26-year low, (3) the 9.4% drop in Ford after Merrill Lynch advised investors to sell the automaker citing its 64% gain since Mar 17 and "near-term headwinds," and (4) the continued surge in crude oil and its products as gasoline rose to an all-time high of $3.0815 per gallon.
• Wrigley rallied sharply by more than 20% in European trading this morning after the Wall Street Journal reported that Mars Inc and Berkshire Hathaway may be close to buying Wrigley for more than $22 billion.
• Ford is up 11% in European trading this morning after Tracinda said it plans to buy a stake.
• Visa is up 2% in European trading this morning after the shares received either an "overweight" or "buy" recommendation in new coverage by JPMorgan Chase, HSBC, UBS, and Goldman Sachs.
• RadioShack may see some strength on the open today after the electronics retailer reported Q1 EPS of 30 cents per share, which was 1 cent above the 29-cent consensus.
• Clear Channel is up +0.7% in European trading this morning after news late last Friday that a NY state court dropped Clear Channel from the lawsuit in which Bain Capital and Thomas H. Lee Partners sued six banks for backing out of the funding deal for their acquisition of Clear Channel.

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• June 10-year T-notes this morning are trading -3.5 ticks due to higher S&Ps. June T-notes last Friday continued their 2-week sell-off down to a 2-month low and closed down -8 ticks. Bearish factors for T-note prices last Friday included (1) speculation the global credit-market crisis is easing as investors sold government debt in favor of higher-yielding assets such as stocks and corporate bonds, and (2) continued long liquidation pressure as the Treasury market is now pricing in only a 25 bp rate cut at this week's FOMC meeting and concern the Fed may signal it is finished with its easing cycle. Bullish factors for T-note prices last Friday include (1) the larger than expected decline in the April University of Michigan consumer confidence (-0.6 to a 26-year low of 62.6 versus expectations of unchanged at 63.2), and (2) the comment from Treasury Undersecretary Steel that its premature to say that financial market turmoil stemming from tightening credit conditions is near an end.
• The dollar/yen is up +0.07 yen this morning and the euro/dollar is up +0.36 cents. The dollar index last Friday rallied to a 1-month high, the euro/dollar dropped to a 3-week low, and the dollar/yen jumped up to a 2-month high. Bullish factors for the dollar last Friday included (1) a lower-than-expected increase in March German import prices, (2) the slower than expected growth in Euro-Zone Mar M3 money supply report, (3) the rally in global equity markets which encouraged the carry trade and weakened the yen, and (4) the comment by ECB Council member and Bundesbank President Axel Weber that there are some signs that financial markets are recovering from the credit crisis. Bearish factors for the dollar last Friday included (1) the larger than expected drop in the Apr University of Michigan consumer confidence to a 26-year low, and (2) Bank of America's recommendation to clients to sell the dollar and buy the euro as they expect the dollar to weaken to $1.6250 after the Fed meeting and the payroll report this week. 
• June crude oil prices this morning are trading +11 cents a barrel and June gasoline is trading -1.20 cents a gallon. BP's Forties Pipeline System, which carries 700,000 bpd of oil from North Sea oil platforms, remained closed today due to the second and final day of the 2-day strike by workers at the Scotland oil refinery. Although refinery workers plan to go back to work on Tuesday, it will take three weeks for the refinery to get back to full capacity and several days for the Forties pipeline system to get back on line.
• June crude oil prices last Friday shot higher and closed up +$2.46 a barrel and June gasoline closed +3.740 cents a gallon. June crude oil posted a contract high of $119,55, moderately below the all-time high (nearest-futures) of $119.90 and May gasoline posted an all-time high of $3.0815 per gallon. Bullish factors for crude oil prices last Friday included (1) the shut-down of the Forties Pipeline System (which carries 700,000 bbl a day from more than 50 North Sea oil fields) by British Petroleum because of a 2-day strike at the Grangemouth refinery in Scotland, (2) the suspension of about 90% of Exxon Mobile's Nigerian output of 850,000 bbl a day because of a strike against Exxon Mobile in Nigeria, and (3) the cut of about 140,000 bbl a day of crude oil in Nigeria because of recent rebel attacks on Royal Dutch Shell Plc-run pipelines. Bearish factors for crude oil prices last Friday included (1) the continued strength in the dollar as the dollar index rallied to a 1-month high, and (2) the bigger than expected drop in the Apr University of Michigan consumer confidence to a 26-year low.

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Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): VZ-Verizon Communications (BEST earnings consensus $0.62 per share), LTR-Loews (1.20), HIG-Hartford Financial Services Group (2.49), WWY-Wrigley (.54), SYY-Sysco (.38), EPD-Enterprise Products Partners (.32), STR-Questar (.94), HCP-HCP (.22), FTI-FMC Technologies (.62), CNA-CNA Financial (1.02), HUM-Humana (.45), PCL-Plum Creek Timber (.19), MCHP-Microchip Technology (.39), TSN-Tyson Foods (.01), FLS-Flowserve (.94), CVD-Covance (.73), TSS-Total System Services (.31), MTW-Manitowoc (.73), EEP-Enbridge Energy (.70), BEAV-BE Aerospace (.51), FCN-FTI Consulting (.47), BWP-Boardwalk Pipeline Partners (.59), RSH-Radioshack (.30), WCG-Wellcare Health Plans (1.61)

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