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• The European stock market is trading with solid gains today with the European DJ Stoxx 50 up +1.20%. The European banking sector received a boost today after JPMorgan said that European banks will not need to raise any more capital because the "worst of the markdowns seems to be over." Also, UBS and Deutsche Bank today both announced they do not need more capital. Asia-Pacific stocks today closed mostly lower: Japan -1.31%, Hong Kong -1.80%, China +0.05%, Taiwan -0.73%, Australia -0.86%, Singapore -0.02%, South Korea -2.38%, Bombay +5.42%. Stocks in India bounced higher today on bottom-fishing after recent losses (-35% from the record high in January) and on hopes for higher overseas earnings from a weakening rupee.
• Mortgage apps – This morning's MBA mortgage applications report showed small gains that were minor compared to the recent plunge. The MBA index was up +3.6%, purchases sub-index up +2.8%, and the refinancing sub-index up +4.7%. Last week, the purchases sub-index fell to a 5-1/3 year low and the refinancing index fell to a 7-1/2 year low. Mortgage activity has been depressed by the recent 1/2 point rise in mortgage rates and by low home buying activity. The 30-year mortgage rate has soared by 47 bp in the past 5 weeks from 5.98% in the week ended May 22 to the current level of 6.45%.
• Factory orders – Today’s May factory orders report is expected to show a +0.5% increase, adding to the +1.1% increase seen in April. Expectations for today’s factory orders report are based in part on the recently-reported May durable goods orders report which was unchanged overall and –0.9% ex-transportation (April durable goods were –1.0% overall in April and +1.9% ex-transportation). Durable goods orders account for more than one-half of the factory orders series.

  The US manufacturing sector continues to need new orders to keep it afloat. However, the US manufacturing sector received some good news yesterday with the report that June ISM manufacturing index rose +0.6 points to 50.2, thus moving back into expansion territory above 50 after having been below 50 for four consecutive months.

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• June S&Ps this morning are trading +6.80 points on higher European stocks and announcements by UBS and Duesche Bank that they do not need to raise more capital. The US stock market yesterday overcame early losses and closed higher (Dow +0.28%, S&P 500 +0.38%, Nasdaq Composite +0.52%).
• Bullish factors for stock prices yesterday include (1) the unexpected rise in the Jun ISM manufacturing index for its first rise above 50 in the last five months, (2) the +6.2% rise in American Express as the biggest US credit-card company was upgraded to "neutral" from "sell" by UBS who said valuations now reflect the "weak" economic outlook, (3) the 30% surge in CIT Group after the business lender sold its manufactured housing and home-loan businesses for $1.8 billion as it gets out of the consumer lending business, and (4) the +5.8% increase in Lehman Brothers after Morgan Stanley rated the fourth-largest US securities firm "overweight" in new coverage saying "near-term risk of incremental writedowns is balanced by solid liquidity and capital footing."
• Bearish factors for stock prices yesterday included (1) the fear of an Israeli air attack against Iran unless Iran gives up its nuclear ambitions, (2) inflation concerns with the jump in the Jun ISM prices paid sub-index to a 29-year high, (3) the prediction by Merrill Lynch that the US housing market will worsen through 2008 as they lowered their ratings on Home Depot and Lowe's to "underperform," and (4) the -5.3% fall in Legg Mason to a five-year low after Buckingham Research Group downgraded the investment-management company to "neutral" from "strong buy."
• UnitedHealth Group agreed to pay $895 million to settle a class-action lawsuit related to option backdating and reduced its full-year 2008 earnings guidance to $2.95-3.05 from April's $3.55-3.60.
• Yahoo is up 6% this morning on a WSJ report that Microsoft has talked about media companies such as Time Warner and News Corp about making a hostile bid for Yahoo and then breaking it up.
• Exxon is up +0.5% this morning after Sanford Bernstein raised the oil company's rating to "outperform" from "market perform" due to Exxon's strong returns and credit rating.
• Starbucks is up +3.5% in European trading this morning after the company announced plans to close 600 stores and cut 7% of its workforce in order to cut costs.
• Dish Network fell 3% after the US satellite TV company said that AT&T ended an agreement for marketing Dish Network's products.

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• September 10-year T-notes this morning are trading -5.50 points due to higher S&Ps and higher stocks in Europe. September T-notes yesterday gave up their early gains and closed down -1.5 ticks. Bearish factors for T-note prices yesterday included (1) the unexpected gain in the Jun ISM manufacturing index (+0.6 to 50.2 versus expectations of -0.7 to 48.9), (2) inflation concerns with the rise in the Jun ISM prices paid sub-index to a 29-year high (+4.5 to 91.5 versus expectations of unchanged at 87.0), and (3) stronger-than-expected May construction spending (-0.4% versus expectations of -0.6%). Bullish factors for T-note prices yesterday included (1) an early flight-to-saftey as the S&P 500 Index dropped to a 3-1/2 month low, and (2) reports that Israel may launch a military attack against Iran if Iran doesn't halt its nuclear program.
• The dollar/yen is up +0.54 yen this morning while the euro/dollar is unchanged. The dollar index yesterday closed with modest losses. Bearish factors for the dollar yesterday included (1) continued strength in the yen as the slumping stock market forced some unwinding of the yen carry trade, and (2) the unexpected drop in the Jun German unemployment rate to a 16-year low of 7.8%. Bullish factors for the dollar yesterday included (1) the unexpected gain in the Jun ISM manufacturing index for the first time in the last five months, and (2) continued crticism of the ECB's expected rate hike tomorrow as the German finance minister joined Spain's prime minister and France's President in expressing concern over what impact on economic growth an ECB rate hike will have.
• August crude oil prices this morning are trading +45 cents a barrel and August gasoline is trading +0.66 cents a gallon. August crude oil prices yesterday rallied to just under Monday's record high and closed up +$0.97 a barrel. August gasoline closed +1.43 cents a gallon. Bullish factors for crude oil prices yesterday included (1) an article in the German magazine Der Spiegel that reported a former Israeli Air Force General as saying that Israel is prepared to strike militarily if diplomacy doesn't stop Iran from developing nuclear weapons, (2) continued weakness in the dollar, and (3) the prediction by the IEA that a drop in OPEC spare capacity and delays to production projects will keep the oil market "tight." Bearish factors for crude oil prices yesterday included (1) the 10th consecutive weekly decline in US gasoline demand as Masterard reported that US gasoline demand in the week ended Jun 27 was down 2.1%, and (2) a drop in US auto sales to a 15-year low as g asoline above $4 a gallon keeps consumers from purchasing new vehicles. Expectations for today's DOE inventory report are for a -700,000 bbl decline in crude oil inventories, a +500,000 bbl gain in gasoline inventories, a +1.5 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): FDO-Family Dollar Stores (BEST earnings consensus $0.40 per share), AYI-Acuity Brands (.98)

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