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• Global stocks are trading moderately higher today on some improved optimism about the earnings picture and as June crude oil this morning fell -82 cents. The financial sector gained some confidence after HSBC rallied +2.7% on news of a smaller-than-expected bad loan reserve of $3.2 billion and an increase in Q1 earnings. The European DJ Stoxx 50 is up +0.54%. Asia-Pacific stocks all closed higher: Japan +0.64%, China +0.67%, Taiwan +0.43%, Australia +0.98%, Singapore +0.57%, and Bombay +0.74%.
• China's central bank today raised the reserve requirement ratio by another 50 bp to 16.5% in a further attempt to curb bank lending and ultimately to curb inflation. China's April CPI was up by an alarming +8.5%. China's central bank has been steadily increasing its reserve requirement ratio, but has been reluctant to take the more dramatic approach of simply raising interest rates.
• The US markets this week will focus on the tail end of Q1 earnings season, crude oil prices which rallied to a new record high last week of $126.27, any fresh news on the banking crisis, and the impact of this week’s US economic data on perceptions of US economic growth and Fed policy. This is a heavy week for speaking engagements by Fed officials. Kansas City Fed President Hoenig caused a stir last week when he said that the Fed may need to raise interest rates in response to the inflation picture. The market will be watching for any similar comments from Fed officials suggesting that inflation, rather than the banking crisis, may be gaining precedence as the Fed’s primary guiding factor for monetary policy going forward.
• On the US economic calendar, today brings the April monthly Treasury budget report. Tuesday brings comments from Fed Chairman Bernanke, April import prices (expected +1.6% m/m and +15.0% y/y), and April retail sales 9expected –0.2% overall and +0.2% ex-autos). Wednesday brings the April CPI report (expected +0.3% m/m and +3.9% y/y overall and +0.2% m/m and +2.4% y/y core). Thursday brings the May Empire manufacturing index (expected –0.6 to zero), April industrial production (expected –0.3%), May Philadelphia Fed manufacturing index (expected +4.9 to -20.0), and the May NAHB housing market index (expected unch at 20.0). Friday brings April housing starts (expected –1.3%), and the early-May US consumer confidence index (expected –0.3 to 62.3).
• Fed policy – Market expectations last week were little changed for monetary policy through the end of this year, but the market reduced its expectation for tightening in 2009 by about 25 bp due to the AIG loss and some revived concerns about the extent of additional losses that the US financial sector will be forced to recognize. The market is currently discounting only an 18% chance of a 25 bp rate cut to 1.75% at the FOMC’s next meeting on June 24-25. The market is discounting a maximum 22% chance of that 25 bp rate cut to 1.75% occurring by August. The market by November is then starting to discount a Fed rate hike, with the market fully expecting a 25 bp rate hike to 2.25% by March 2009 and an overall 75 bp rate hike to 2.75% by December 2009.

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• June S&Ps this morning are trading +3.80 points on higher global stocks and lower oil prices. The US stock market last Friday ended with moderate losses (Dow -0.94%, S&P 500 -0.67%, Nasdaq Composite -0.23%).
• Bearish factors for stock prices last Friday included (1) the 8.8% drop in AIG after the the world's largest insurer reported a Q1 loss of $7.81 billion and said it will raise $12.5 billion to cover writedowns, after which Standard & Poor's and Fitch Ratings cut AIG's credit ratings, (2) the 3.3% fall in Freeport McMoran after LME copper inventories jumped 10%, signaling slowing Chinese demand, (3) the 2.8% loss in Citigroup after the biggest US bank, which has already recorded over $40 billion of credit losses and writedowns, said it plans to sell off $400 billion in assets as part of a program to return to profitability, and (4) the 5.5% drop in Tesoro after Oppenheimer lowered their 2008 and 2009 profit forecasts for the largest petroleum refiner in the US West and the 3.7% fall in Valero Energy after Goldman Sachs said the biggest US refiner may face reductions in profit estimates.
• Bullish factors for stock prices last Friday included (1) the smaller than expected trade balance for March, which has positive GDP implications, (2) the 7.8% rally in H&R Block after the US Office of Thrift Supervision lifted a rule that the company set aside reserves for its bank, (3) the 7.6% gain in Teco Energy after Citigroup upgraded the utility owner to "buy" from "hold" and said the company's mining unit will benefit from rising coal prices more than analysts had previuosly estimated, (4) the 12% rally in Priceline.com as the Internet travel agency said Q1 revenue gained 34% as international sales more than doubled and annual profit may reach as high as $5.65 a share, easily beating analysts' estimates of $5.09 a share, and (5) the 6.6% gain in AES as the US power producer with operations in 27 countries reported Q1 profit of 39 cents a share, topping analysts estimates of 28 cents.
• FedEx (FDX) dropped -3.3% in after-hours trading last Friday and is down -2.8% in European trading this morning as the 2nd largest US package-shipping company said fiscal Q4 earnings will be below its earlier forecast as surging fuel prices raised costs by at least $100 million more than estimated. FedEx cut its earnings guidance to $1.45-1.50 from $1.60-1.80 for the quarter ended May 31.
• Research in Motion is up +0.4% in European trading this morning after the Wall Street Journal reported that South Korea has approved a plan that will allow Blackberries to be sold in the country.
• ElPaso may see some strength today after JPMorgan raised its rating on the gas-pipeline operator to "overweight" from "neutral."
• Wal-Mart is up +0.7% in European trading this morning on optimism ahead of its earnings report tomorrow (consensus 75 cents).

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• June 10-year T-notes this morning are trading -5 ticks due to higher global stocks and the favorable news from HSBC. June T-notes last Friday closed up +8.5 ticks. Bullish factors for T-note prices last Friday included (1) concern the credit crisis will persist after Citigroup said it will "wind down" $400 billion in assets, (2) a post-refunding rally as the Treasury's May refunding of $21 bln in 10-year T-notes and 30-year T-bonds was deemed a success, and (3) the sell-off in the stock market after AIG, the world's biggest insurer, posted a larger than expected Q1 loss of $7.81 billion. Bearish factors for T-note prices last Friday included (1) the smaller than expected Mar trade balance (-$58.2 bln versus expectations of -$61.0 bln), and (2) concern that inflation will accelerate as the entire energy complex continues its parabolic rise to all-time highs.
• The dollar is trading higher today with the dollar/yen up +1.06 yen and the euro/dollar down -0.24 cents. Bearish factors for the dollar last Friday include (1) the rally in the yen to a 3-week high as the AIG news spurred some exiting of yen carry trades, and (2) the strength in the Canadian dollar after the April Canadian employment report came in stronger than expected and crude oil prices surged to a record high. Bullish factors for the dollar last Friday included (1) the smaller-than-forecast US Mar trade balance which has positive GDP implications, and (2) the drop in French industrial production In March for the first time in four months, whch weakened the euro. 
• June crude oil prices this morning are trading -82 cents a barrel and June gasoline is trading -1.57 cents a gallon. Bearish factors include some technical selling and ideas that high prices may be undercutting demand in Asia. China's April oil imports fell and India's industrial production showed the slowest growth rate since 2002. Scotland-based Dana Petroleum Plc, rallied by 8.3% on news that it made another oil find in the North Sea with its drilling exploration campaign there. June crude oil prices last Friday rallied throughout the day and closed up +$2.27 a barrel and June gasoline closed +6.340 cents a gallon, both at all-time high settlemtns. Crude oil prices rose $9.64 per barrel (+8.2%) in the past week. June crude oil last Friday posted an all-time high of $126.27 per barrel, June gasoline posted a record high of $3.2038 per gallon and June heating oil posted an all-time high of $3.6524 per gallon. Bullish factors for crude oil prices last Friday incl uded (1) the weaker dollar which prompts investors to buy commodities as a hedge against inflation, and (2) comments from the Nigerian Petroleum Minister of State that there are no plans for an additional OPEC meeting because crude oil supplies are adequate. Bearish factors for crude oil prices last Friday included (1) comments from the chairman of Libya's National Oil Corporation that OPEC would consider among other options the possibility of increasing output as a way to ensure market stability, and (2) a Nigerian government official saying that Royal Dutch Shell's Nigerian output, which was cut by militant attacks, will probably return within 2 weeks.

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Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): S-Sprint Nextel (BEST earnings consensus $0.02 per share), FLR-Flour (1.28), MDR-McDermott International (.56), ETP-Energy Transfer Partners (.99), GRP-Grant Prideco (1.04), GNA-Gerdau Ameristeel (.39), EPE-Enterprise GP Holdings (.32), SIRI-Sirius Satellite (-.07), NUAN-Nuance Communications (.18), XMSR-XM Satellite (-.40), MBI-MBIA (-1.21), VAL-Valspar (.42), HOC-Holly (.32), MWE-Markwest Energy (.49), WRNC-Warnaco Group (.80), RGNC-Regency Energy Partners LP (.20), BYI-Bally Technologies (.48), TTI-Tetra Technologies (.18), HCL-Hecla Mining (.12), ISIS-Isis Pharmaceuticals (-.10)

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