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• The European stock market is trading moderately lower this morning with the European DJ Stoxx 50 down -0.76%. Bearish factors include this morning's +$1.85 per barrel rally in oil prices and market expectations for the ECB this morning to announce a 25 bp rate hike to 4.25% after its policy meeting. Higher oil prices are pushing automaker and airline stocks lower again today. Asia-Pacific stocks today closed mostly lower: Japan -0.16%, Hong Kong -2.13%, China +2.26%, Taiwan +0.55%, Australia -1.89%, Singapore -0.89%, South Korea -1.08%, Bombay -4.18%.
• Unemployment report – Today’s June non-farm payroll report is expected to fall –60,000, adding to the –49,000 decline seen in May. Payrolls have been negative for five consecutive months and have fallen by a total of -324,000 this year, indicating the serious extent of the job losses seen so far. In the manufacturing sector, June manufacturing payrolls are expected to fall –30,000, adding to the –26,000 loss seen in May. US manufacturing payrolls have fallen every single month for the past 3 years, illustrating the long-term nature of the manufacturing job losses in the US. Today’s June unemployment rate is expected to edge lower by –0.1 point to 5.4%. The unemployment rate in May surprised the market by surging +0.5 points to a 4-year high of 5.5%. The US unemployment rate could easily move up to at least 6.0% level by later in the year considering that the last cyclical peak was 6.3%, posted back in June 2003. The US labor market lags the business cycle and th us is likely to continue to get worse through year-end even if the US economy can stabilize.
• Claims – Today’s weekly initial unemployment claims report is expected to show a slight gain of +1,000 to 385,000 following last week’s report of unchanged at 384,000. Meanwhile, weekly continuing claims are expected to fall –14,000 to 3.125 mln, reversing a small portion of last week’s surge of +82,000 to 3.139 mln. Continuing claims are at a 4-year high, indicating the accumulation of people that are on the unemployment rolls.
• ISM non-manufacturing index – Today’s June ISM non-manufacturing index is expected to fall –0.7 points to 51.0, adding to the –0.3 point decline to 51.7 seen in May. The non-manufacturing index plunged to 41.9 in January from 54.4 in December, but then quickly moved back above 50 in February and has stayed above 50 since then. That suggests that the US service sector continues to expand despite all the hardships in the economy from high gasoline prices and the housing bust.

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• June S&Ps this morning are trading slightly lower by -1.70 points on higher oil prices and Nvidia's revenue guidance downgrade due to weaker sales, which raised questions about weaker revenue about other computer equipment makers. The US stock market yesterday sold-off throughout the day and closed near the lows (Dow -1.46%, S&P 500 -1.82%, Nasdaq Composite -2.32%).
• Bearish factors for stock prices yesterday included (1) the larger-than-expected decline in the Jun ADP employment change, (2) the prediction by the OECD that US unemployment will rise to 5.4% this year and 6.1% in 2009, (3) the rise in US home-equity credit delinquencies to the fastest pace since the American Bankers Association began taking records in 1987, (4) the comment by Atlanta Fed President Lockhart that the US banking system "now exhibits some signs of stress at all levels: large financial institutions, regional banks, and community banks" and house prices are likely to continue declining as the markets for mortgage-backed securities, leveraged loans and other consumer credit "remain fragile and vulnerable," (5) the continued surge in crude oil prices to yet another record high of $144,32 per barrel, (6) the 15% plunge in GM to its lowest price since 1954 as the world's largest automaker was cut to "underperform" from "buy" at Merrill Lynch, citing bankruptcy concerns as GM may need to to raise as much as $15 billion to remain solvent, (7) the sell-off in steelmakers as the S&P 500 Steel Index fell 13% on signs of weakening demand as the Commerce Department reported demand for primary metals dropped 2% in May, and (8) the -3.4% drop in Merrill Lynch and the -1.7% fall in Citigroup after Oppenheimer analyst Whitney cut both companies Q2 earnings estimates because of writedowns related to bond-insurer downgrades and mortgage securities.
• Bullish factors for stock prices yesterday included (1) the +6.7% rise in Lehman Brothers as the beleagured securities firm is reportedly increasing the stock portion of employee pay this year in an effort to save capital, (2) the +6.2% gain in SanDisk as ThinkPanmure analysts recommended buying the world's largest maker of flash-memory cards, saying memory prices may "stabilize" on strong demand from Apple and Samsung Electronics, and (3) the 18% surge in Apollo Group as the operator of the for-profit University of Phoenix reported Q3 profit of 85 cents a share, easily beating analyst estimates of 78 cents a share and said revenue climbed 14% as bad debt as a percentage of revenue declined.
• Exxon Mobil (XOM) is up +0.5% this morning on higher oil prices.
• RBC Capital Markets today downgraded US financial stocks to "underweight" from "market weight" on concerns that banks will need to raise more capital.
• Nvidia (NVDA) is sharply lower by -21% this morning after the company issued disappointing revenue guidance of $875-975 million that was below previous guidance of $1.1 billion. The company's slowing sales forecast hurt other computer equipment makers with Intel falling -1.1% and Micron Technology falling -0.7%

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• September 10-year T-notes this morning are trading +6 ticks on slightly lower S&Ps and on expectations for a weak unemployment report today. September T-notes yesterday moved higher and closed up +11 ticks. Bullish factors for T-note prices yesterday include (1) the larger-than-expected Jun ADP employment decline (-79,000 versus expectations of -20,000), (2) flight-to-safety as the stock market fell when Oppenheimer cut Merrill Lynch's and Citgroup's Q2 earnings estimates on expectations for further subprime-related writedowns, and (3) comments from Treasury Secretary Paulson that the US housing slump may worsen. Bearish factors for T-note prices yesterday included (1) carryover weakness from European debt prices after the May Euro-Zone PPI surged to a record high pf +7.1% y/y which widened the yield spread between German 10-year bunds and US 10-year T-notes to a 5-1/2 year high on expectations the ECB will hike rates by 25 bp today and signal a need for further rate increases going forward, and (2) hawkish comments from ECB President Trichet, Fed Governor Mishkin and Atlanta Fed President Lockhart who all warned of the need to contain increased inflation expectations.
• The dollar/yen is trading +0.43 yen this morning and the euro/dollar is up +0.09 cents. The dollar index yesterday sold-off to a 5-week low. Bearish factors for the dollar yesterday included (1) the prediction by Citigroup Global Markets that the euro may be nearing an "explosive breakout" against the dollar that could send the euro to record highs, (2) the larger-than-expected decline in the Jun ADP employment report, (3) the surge in May Euro-Zone PPI to an all-time high of +7.1% y/y, and (4) the comment from ECB President Trichet that there's a risk of inflation "exploding" if central banks don't act decisively, increasing speculation that the ECB will hike rates again after today's expected 25 bp increase. Bullish factors for the dollar yesterday included (1) comments from Atlanta Fed President Lockhart that consumer prices are rising faster than he wants and the Fed should act "decisively" against any sign of entrenched expectations for higher inflation, and (2) comments from Fed Governor Mishkin that US policy makers are "seeking to contain" inflation expectations that are at risk of becoming unmoored because of record energy and food prices, signaling the Fed is leaning toward raising interest rates. 
• August crude oil prices this morning are trading +$1.85 a barrel and August gasoline is trading +2.90 cents a gallon. August crude oil prices yesterday moved higher and closed up +$2.60 a barrel and August gasoline closed +3.69 cents a gallon. August crude oil posted an all-time high of $144.32 yesterday. Bullish factors for crude oil prices yesterday included (1) the larger-than-expected decline in crude oil inventories in yesterday's DOE inventory report (-1.98 mln bbl versus expectations of -700,000 bbl), (2) a strike by 4,000 workers at Venezuela's state oil company, potentially restricting supply from South America's largest producer, (3) comments from the oil ministers of Angola and Iran that oil markets are being driven by speculation and the weak dollar, rather than any shortage of supply, (4) the drop in the dollar to a 5-week low and (5) the 1% drop in Russian oil production in Jun y/y as the world's second-largest crude exporter is struggling with aging oi l fields and rising costs. Bearish factors for crude oil prices yesterday included (1) the larger than expected increase in gasoline stockpiles in yesterday's DOE inventory report (gasoline +2.1 mln bbl versus expectations of +500,000 bbl), and (2) the toning down of the saber-rattling over Iran's nuclear program after Iran's Foreign Minister said a "new trend" has started in negotiations in which economic and technological incentives are being offered to Iran for the suspension of its uranium enrichment program.

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