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• The European DJ Stoxx 50 is trading moderately lower by -0.41% this morning. Bearish factors center on long liquidation pressure after the recent rally. The UK and Japanese markets today are closed for holidays. The Asia-Pacific markets today closed mixed: Hong Kong -0.22%, China +2.44%, Taiwan -1.41%, Australia -0.52%, Singapore +0.37, Bombay -0.62%.
• The US markets this week will focus on the continued flow of Q1 earnings reports, any fresh news on the banking crisis front, comments by Fed Chairman Bernanke today on mortgage delinquencies and foreclosures, and central bank meetings this week in the UK and Europe where both central banks are expected to leave their key rates unchanged.
• In the US, today brings the April ISM non-manufacturing index (expected –0.1 to 49.5). Wednesday brings Q1 productivity (expected +1.4%), March pending home sales (expected –0.9%), the auction of $15 billion in 10-year T-notes, and March consumer credit (expected +$6.5 billion). Thursday brings weekly initial unemployment claims (expected +35,000), the auction of $6 billion in 30-year T-bonds, and April monthly chain store sales. Friday brings the March US trade deficit (expected narrower at -$61.0 billion vs -$62.3 billion in February).
• Fed policy – In line with consensus market expectations, the FOMC at its meeting last week cut the funds rate target by 25 bp to 2.00%, bringing the overall rate cut since September to 325 bp. The market is now discounting only a small 22% maximum chance that the Fed will cut the funds rate by another 25 bp by summer. In fact, by November the market is starting to price in the chance for a 25 bp rate hike back up to 2.25%. The market is fully expecting that 25 bp rate hike by February 2009, and is discounting an overall 100 bp rate hike to 3.00% by July 2009. The federal funds futures market is signaling that the market believes that the Fed has eased by enough to stabilize the banking system and the economy. The market currently believes the situation will hit bottom in August and then start to improve. By next year, the market expects the Fed to start retracting its 325 bp of emergency rate cuts.
• ISM non-manufacturing index – Today’s US April ISM non-manufacturing index is expected to show a small –0.1 point decline to 49.5, edging lower after the small +0.3 point increase to 49.6 seen in March. The expected report today of 49.5 would leave the non-manufacturing index below the expansion-contraction level of 50 for the fourth consecutive month, providing more evidence to suggest that the US economy is currently in a recession. Last week’s April ISM index for the manufacturing sector was unchanged at 48.6, remaining below 50 for the third consecutive month and for the fourth month in the last five.

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• June S&Ps this morning are trading -7.30 points on the failed Microsoft bid for Yahoo and on long liquidation pressure after the recent rally. The US stock market last Friday opened higher but gave up most of its gains and closed mixed (Dow +0.37%, S&P 500 +0.32%, Nasdaq Composite -0.15%). The S&P 500 Index rallied +1.2% for the week.
• Bullish factors for stock prices last Friday included (1) the stronger than expected Apr unemployment report and Mar factory orders report, lessening recession fears, (2) the 6.9% rally in Yahoo! after the New York Times reported that Microsoft increased its $31-a-share bid by several dollars for the company, (3) the 8.7% rise in Jones Apparel Group after the company was upgraded to "buy" from "neutral" at Merrill Lynch on expectations sales of the l.e.i. brand at Wal-Mart will boost Jones' revenue and margins will recover later this year, and (4) the 6% rally in Marathon Oil after JPMorgan Chase recommended buying the shares one day after the fourth-largest US oil company posted higher-than-expected profit.
• Bearish factors for stock prices last Friday included (1) the 23% tumble in Sun Microsystems after the fourth-largest maker of server computers posted an unexpected Q3 loss on slowing sales in the US and announced plans to cut 1,500 to 2,500 jobs, raising concern that CEO Schwartz's growth plan isn't working, (2) the 22% plunge in Dynamic Materials as the maker of metal plates used in aluminum smelting and shipbuilding was downgraded to "neutral" from "overweight" by JPMorgan Chase citing a "risk of margin pressure from rapidly rising steel prices and a lack of pricing power," and (3) the over $3 a barrel surge in crude oil prices.
• Yahoo! (YHOO) is down sharply by 20% in European trading this morning after Microsoft gave up in its attempt to buy the company due to a disagreement on price. Microsoft's stock, however, is up +3.5% in European trading this morning.
• Johnson & Johnson (JNJ) may show weakness today after Procter & Gambel sued JNJ for alleged patent infringement related to JNJ's teeth-whitening strips.
• General Dynamics (GD) may get a boost today from a weekend Barron's article citing a UBS analyst as saying that General Dynamics may rise above $100 in a one-year time frame due to a big backlog and strong demand for its products.
• Berkshire Hathaway (BMY) reported that its profit fell 64% to the lowest level since 2005 due to lower investment returns in the insurance division and due to a mark-down in derivative contracts.
• Sprint Nextel (S) is up 10% in European trading this morning after a German newspaper report said that Deutsche Telekom is considering a bid for Sprint-Nextel.
• The solar sector may see some weakness today as Q-Cells is down 5% on news that the RWI economic institute, one of four government advisors on solar power, advised Germany to trim its subsidies to the solar industry by 30%.

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• June 10-year T-notes this morning are trading +3 ticks on weakness in S&Ps. June T-notes last Friday sold off and closed down -24.5 ticks. Bearish factors for T-note prices last Friday included (1) the stronger than expected Apr unemployment report (payrolls -20,000 versus expectations of -75,000 and the unemployment rate -0.1 to 5.0% versus expectations of +0.1 to 5.2%), (2) the stronger than expected Mar factory orders report (+1.4% versus expectations of +0.2%), and (3) the action by the Fed to stem the persistent liquidity pressures in the inter-bank lending markets by expanding the amount of cash in its bi-weekly Term Auction Facility by 50% to $75 billion per auction, and to raise the amount of dollars it will make available to the ECB and SNB through swap lines to a combined $62 billion from $36 billion.
• The dollar is trading mildly lower this morning with the dollar/yen down -0.15 yen and the euro/dollar up +0.39 cents. The dollar index last Friday moved higher and closed at a 2-month high. Bullish factors for the dollar last Friday include (1) the stronger than expected US Apr unemployment report, reinforcing speculation that the Fed is finished lowering rates for the time being, (2) the unexpected drop in Mar German retail sales, sending the euro to a 5-week low, and (3) the rally in the dollar/yen to a 2-month high as the strength in the equity market led investors to resume carry trades. Bearish factors for the dollar last Friday included (1) the jump in Mar French producer prices to a 7-1/2 year high, and (2) the rise in US part-time workers to 5.22 million in Apr from 4.91 mln in Mar, suggesting that businesses are still scaling back hiring. 
• June crude oil prices this morning are trading +34 cents a barrel and June gasoline is trading -0.92 cents a gallon. Oil prices are higher on continued concerns about Nigerian production. June crude oil prices last Friday rallied sharply and closed up +$3.80 a barrel and June gasoline closed +8.820 cents a gallon. Bullish factors for crude oil prices last Friday included (1) the bombing by Turksih warplanes of suspected PKK rebel positions in Iraq's oil-rich north, (2) the stronger than expected US employment report, easing recession concerns, and (3) the comment from the Qatari Oil Minister that OPEC will not increase production of crude oil before it meets in September because the market is well supplied. A bearish factor for crude oil prices last Friday was the rally in the dollar index to a 2-month high.

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Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): APC-Anadarko Petroleum (BEST earnings consensus $1.19 per share), MCK-McKesson (1.00), PFG-Principle Financial Group (.97), VMC-Vulcan Materials (.57), CBH-Commerce Bancorp (.45), CLF-Cleveland-Cliffs (1.05), FST-Forest Oil (.90), WTM-White Mountains (6.89), HEW-Hewitt Associates (.38), ARG-Airgas (.73), WTW-Weight Watchers (.74), CZN-Citizens Communications (.17), TDW-Tidewater (1.71), UDR-UDR (-.03), ANR-Alpha Natural Resources (.18), CMS-CMS Energy (.47), WLL-Whiting Petroleum (1.28), CFFN-Capitol Federal Financial (.14), MCY-Mercury General (1.01), MVL-Marvel Entertainment (.44), SMG-Scotts Miracle Gro (1.17), HE-Hawaiian Electric (.33), BRKR-Bruker (.09), CECO-Career Education (.22), LIZ-Liz Claiborne (.14), APL-Atlas Pipeline Partners (.61)

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