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• The European stock market this morning is trading sharply lower with the European DJ Stoxx 50 down -2.18%. The main bearish factor this morning is higher crude oil prices (+$2.39) which again punished automakers and airlines, among other stocks. Asia-Pacific stocks today closed lower across the board: Japan -0.13%, China -3.35%, Taiwan -1.54%, Australia -1.46%, Singapore -1.38%, South Korea -0.23%, Bombay -3.71%. Japanese stocks were hurt today by the report that Japanese business confidence fell to a 4-year low.
• ISM manufacturing index – Today’s June ISM manufacturing index expected to show a decline of –1.0 to 48.6, reversing the +1.0 increase to 49.6 seen in May. The ISM index is only mildly below the boom-bust level of 50, which is somewhat encouraging. However, the ISM manufacturing index has been below the boom-bust level of 50 for 4 consecutive months and in 5 of the last 6 months, suggesting that the US manufacturing sector is in a recession. Yesterday’s regional purchasing managers index reports were mixed with the Chicago June purchasing managers index rising +0.5 to 49.6, but with the Milwaukee index plunging -6.0 points to a very weak 39.0. Meanwhile, the June ISM prices-paid sub-index is expected to be unchanged at 87.0, following the May report of +2.5 to 87.0. The May level of 87.0 was a 4-year high and was at the upper reaches that the prices-paid index has ever reached. The markets will be watching today’s report for an indication of the amount of pressure that manufacturers are under to raise prices in response to higher energy and materials prices.
• Vehicle sales – Today’s June total vehicle sales report is expected to show a decline to 14.0 mln units from 14.3 mln in May. US vehicle sales have fallen off a cliff this year to May’s 10-year low due to the combination of lower consumer spending and extraordinarily high gasoline prices. US automakers are progressively cutting production to try to match lower demand and are incurring larger financial losses by the day. The reduced auto production is producing employee layoffs and is having spill-over effects on consumer confidence and spending, particularly in regions dominated by auto plants.

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• June S&Ps this morning are trading -13.70 points (-1.07%) on higher oil prices and on concern about the ABC news report, which appeared to be an attempt by the Pentagon to prepare public opinion for an Israeli attack on Iran's nuclear facilities. The US stock market yesterday closed mixed (Dow +0.03%, S&P 500 +0.13%, Nasdaq Composite -.98%).
• Bearish factors for stock prices yesterday included (1) the rally in crude oil to yet another record high of $143.67 a barrel, although prices ended the day down 21 cents a barrel, (2) the prediction by the BIS that economic growth globally will continue to slow as "the magnitude of the problems yet to be faced could be much greater than many now perceive," (3) the prediction by JPMorgan that subprime and Alt-A mortgage bonds, already trading at or near record lows, will continue to deteriorate as banks limit their purchases of the securities and are forced to sell what they already have, (4) the -4.3% drop in Wachovia to a 16-year low on concern the fourth-largest US bank will have to cut its dividend, and (5) the -11% plunge in Lehman Brothers which has lost almost half of its market value this quarter on fears the distressed securities firm will continue to have more writedowns due to the subprime mortgage crisis.
• Bullish factors for stock prices yesterday included (1) the rally in energy companies after a JPMorgan analyst recommended investors stay "overweight" in the sector saying crude oil prices will remain high, (2) the unexpected gain in the Jun Chicago purchasing managers index, (3) the prediction by a Blackrock analyst that US stocks in the second half of the year will rise on "decent" economic growth around the world, slowing inflation, and "accomodative" domestic monetary policy, (4) the +2.8% gain in H&R Block as the largest US tax preparer reported its first quarterly profit in two years, boosted its dividend and announced a $2 billion stock buyback plan, and (5) the 4% rally in Campbell Soup after the world's largest soup maker said it plans to buy as much as $1.2 billion of stock by 2011 and that EPS growth in the year through Aug 3 will be at the upper end of its 5 to 7% forecast.
• Wal-Mart is slightly lower by -0.3% this morning on concern about consumer spending with a fresh rally in crude oil prices this morning.
• US automakers are also lower today on higher oil prices with GM down -0.7% and Ford down -1.7%.
• Lehman Bros rallied +2.3% in European trading this morning after Morgan Stanley rating Lehman's stock as "overweight" in new research coverage. The analysts based their decision on their opinion that the credit market is "healing" and that Lehman has "solid liquidity" that will help it regain profitability.
• American Express is up +1.3% after UBS raised its rating on AMEX to "neutral" from "sell."
• Fortune Brands is down -4.6% this morning after the company reduced its earnings guidance because of slower US demand and a tax increase in Australia. The company said that earnings in Q2 may decline at a rate in the range of the high-teens to mid-20s.

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• September 10-year T-notes this morning are trading +7.5 ticks on this morning's lower trade in global stocks. September T-notes yesterday moved higher and closed up +3 ticks at a 3-week high. Bullish factors for T-note prices yesterday included (1) month-end and quarter-end buying by bond fund managers, and (2) a prediction by the Bank for International Settlements (BIS) that the world economy will turn "sluggish" due to record high energy prices and the ongoing credit crisis. Bearish factors for T-note prices yesterday included (1) the assertion by the BIS that the world's central banks should raise interest rates even as economic growth slows beacause taming inflation is the more immediate problem, (2) carryover weakness from European debt prices after the Jun Euro-Zone CPI estimate rose to a higher-than expected 16-year high of 4.0% y/y, and (3) the unexpected gain in the Jun Chicago purchasing mangers index (+0.5 to 49.6 versus expectations of -0.9 to 48.2).
• The dollar is lower today with the dollar/yen down -0.74 yen and the euro/dollar up +0.44 cents. The dollar index yesterday posted a 1-month low but then turned higher. Bullish factors for the dollar yesterday included (1) the unexpected gain in the Jun Chicago purchasing managers index, and (2) comments from Treasury Secretary Paulson that "a strong dollar is a good thing" for the US. Bearish factors for the dollar yesterday included (1) the rally in the yen to a 3-week high against the dollar after Moody's Investors Service raised Japan's local-currency debt rating saying Japan's banks have avoided the worst of the global credit crisis, (2) the prediction from the BIS that a disorderly decline in the dollar remains a possibility as losses on US assets continue to rise and the current-account deficit triggers "a sudden rush for the exits." and (3) the larger-than-expected rise in the Jun Euro-Zone CPI estimate to a 16-year high of +4.0%, strengthening the euro. 
• August crude oil prices this morning are trading +$2.39 a barrel and August gasoline is trading +5.59 cents a gallon. Crude oil today is higher on a report by ABC News citing an unidentified Pentagon official as saying that an Israeli attack on Iran sometime this year is increasingly likely. August crude oil prices yesterday rallied to a record high but then gave up all the gains and closed down -$0.21 a barrel. August gasoline closed -1.81 cents a gallon. Aug crude oil posted an all-time high of $143.67 a barrel yesterday. Bearish factors for crude oil prices yesterday included (1) the stronger dollar, (2) the comment from Saudi Arabia, the world's largest oil produer, that it is willing to raise crude oil output beyond July if there is demand, and (3) the comment from the commander of the US Fifth Fleet that the US will not let Iran shut the Strait of Hormuz as Iran has threatened to do if it is attacked by Israel over its nuclear program. Bullish factors for cr ude oil prices yesterday included (1) concerns that Israel may attack Iran over its nuclear program, disrupting supply from OPEC's second largest producer, and (2) the assertion from Goldman Sachs that supply and demand, not speculators, are responsible for crude oil's push to record highs. Expectations for tomorrow's DOE inventory report are for a -750,000 bbl decline in crude oil inventories, a +750,000 bbl gain in gasoline inventories, a +1.38 mln bbl gain in distillate stockpiles and a +0.6 gain in the refinery capacity rate to 89.2%

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Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): APOL-Apollo Group (BEST earnings consensus $0.78 per share), STZ-Constellation (.32), SCHN-Scnitzer Steel (1.87), MSM-MSC Industrial Direct (.78), OSK-Oshkosh (1.13)

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