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• The European DJ Stoxx 50 this morning is trading little changed despite better-than-expected earnings from BNP Paribas, France's largest bank. Asia-Pacific stocks today closed higher: Japan +2.63%, Hong Kong +0.00%, China +0.69%, Taiwan +3.12%, Australia +3.08%, Singapore +0.92%, South Korea +2.97%, Bombay +0.75%.
• Mortgage applications – Today's weekly MBA mortgage applications index rose +2.8%, rebounding slightly from last week’s sharp -14.1% decline. The refinancing sub-index climbed +4.4%, rising from last week's 7-1/2 year low and the purchase sub-index climbed +1.8%, moving above last week's 5-1/2 year low. Mortgage activity has been hurt by weak home sales and by weak refinancing activity in light of the recent rise in mortgage rates. In the week ended July 25, the 30-year mortgage rate soared by 37 bp to an 11-month high of 6.63%.
• 10-year T-note auction – The Treasury today will sell $17 billion in 10-year T-notes. The $17 billion size of today’s auction is up $2 billion from the $15 billion size seen at the last refunding operation in May and is up by $4 billion from the $13 billion size seen at the February 2008 refunding operation. The Treasury in recent years has followed a pattern of selling a 10-year T-note at the quarterly refunding operation and then following that up with a reopening a month later. The 12-auction averages for the 10-year are as follows: 2.37 bid cover ratio, $66 million in non-competitive bids, 3.18 bp tail to the median yield, 12.41 bp tail to the low yield, 44% taken at the high yield, and 23.1% taken by indirect bidders. Isolating just the 10-year refunding auction (i.e., excluding the reopening), the 6-auction averages are as follows: 2.32 bid cover ratio, $108 million in non-competitive bids, 3.13 bp tail to the median yield, 18.12 bp tail to the low yield, 42 % taken at the high yield, and 33.6% taken by indirect bidders. The 33.6% taken by indirect bidders (mainly foreign central banks) in the last six 10-year refunding issues is slightly above the average of 32.5% across all recent Treasury coupon auctions, illustrating that foreign central banks typically show good interest in the 10-year refunding auction.

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• September S&Ps this morning are trading -2.90 as weaker-than-expected earnings from Whole Foods, Priceline.com and Freddie Mac overshadowed Cisco's better-than-expected earnings. The US stock market yesterday rallied sharply throughout the day and closed on its high (Dow +2.94%, S&P 500 +2.87%, Nasdaq Composite +2.81%).
• Bullish factors for stock prices yesterday included (1) the stronger-than-expected gain in the Jul ISM non-manufacturing index, (2) the -$2.24 a barrel sell-off in crude oil prices to a 3-month low and the overall sell-off in commodity prices which lessens inflation fears, (3) the post FOMC statement after the Fed left interest rates unchanged as expected and said it "expects inflation to moderate" later this year and next, (4) the 4.8% gain in Apple after UBS initiated a "buy" rating on the maker of the iPod music player and said the stock will rally to $195 a share as new products to be introduced in the next 12 months are likely to boost profits, and (5) the 12% gain in AIG as UBS advised clients to buy the shares saying the company's valuation "more than reflects ultimate economic loss exposure." 
• Bearish factors for stock prices yesterday included (1) the more somber outlook on the US economy by the Fed in their post FOMC statement in which they said economic growth will be weighed down over the next few quarters by elevated energy prices, tightened credit conditions and the ongoing housing contraction, (2) the 11% plunge in Molson Coors Brewing after the company unexpectedly posted a Q2 profit decline as it wrote down the value of its Molson brand in the US, and (3) the 8.2% fall in Tenet Healthcare as the second-biggest publicly held US hospital chain said Q2 profit fell 3 cents a share, larger than the 1 cent a share loss expected by analysts as revenue fell short of expectations.
• Cisco Systems (CSCO) rallied over 5% in after-hours trading yesterday and is trading over 8% in Germany this morning after the world's biggest maker of networking equipment said Q4 profit was 40 cents a share, higher than analysts' estimates of 39 cents a share as profit rose 4.4% and quarterly sales were in line with analysts' estimates and as CEO Chamber's six month forecast eased concern that business is deteriorating.
• Priceline.com (PCLN) tumbled 18% in after-hours trading yesterday and is trading 15.5% lower in Germany this morning after the Internet travel agency said Q2 profit was $1.08 a share, well below analysts' estimates of $1.41 a share.
• Whole Foods Market (WFMI) sank 15% in after-hours trading yesterday and is trading 16% lower in Germany this morning after the largest US natural food grocer forecast fiscal 2008 profit of as much as 95 cents, below analysts' estimates of $1.14.
• BNP Paibas, France's largest bank, is trading 5.5% higher today after reporting Q2 profit at its investment-banking division of 523 million euros, ahead of analysts estimates of 285 million euros, as writedowns at its securities division were 457 million euros, less than analysts' estimates of 475 million euros.
• Microsoft (MSFT) may be active to the upside today after an UBS analyst said investors should buy the stock because it is trading at its lowest PE ratio since the company went public 22 years ago and as the company may buy back $15 to $20 billion of stock by the end of the fiscal year to make up for the 20% decline in the stock's price after its failed takeover attempt of Yahoo!.
• Freddie Mac (FRE) was unchanged in European trading today after the US mortgage lender reported its fourth straight quarterly loss in Q2 of $1.63 a share, much higher than the 54 cent a share loss expected by analysts, and the company announced its dividend will be cut 80% to 5 cents from 25 cents.

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• September 10-year T-notes this morning are trading +4 ticks ahead of today's $17 billion 10-year T-note auction. September T-note prices yesterday moved lower after the FOMC meeting and closed -4.5 ticks. Bearish factors for T-note prices yesterday included (1) a hawkish post FOMC statement in which Fed officials said "although downside risks to growth remain, the upside risks to inflation are also of significant concern to the committee," (2) the stronger-than-expected Jul ISM non-manufacturing index (+1.3 to 49.5 versus expectations of +0.6 to 48.8), and (3) a back-up in yields ahead of the Treasury's Aug refunding which begins today with the auction of $17 billion in 10-year T-notes. Bullish factors for T-note prices yesterday included (1) carryover support from European debt prices as the 10-year German bund yield dropped to a 1-3/4 month low after Jun Euro-Zone retail sales declined the most in 13 years (-3.1% y/y), and (2) friendly inflation news with the conti nued drop in commodity prices as a slowing global economy may weaken demand for physical commodities which are finally correcting from their recent surge to record highs.
• The dollar is trading slightly higher with the dollar/yen +0.27 yen at a 6-1/2 month high and the euro/dollar +0.14 cents. The dollar index yesterday rallied sharply and closed at a 1-1/2 month high. Bullish factors for the dollar yesterday included (1) the weaker-than-expected decline in Jun Euro-Zone retail sales for the biggest y/y decline (-3.1% y/y) since the series began in Jan 1996, and (2) the stronger-than-expected US Jul ISM non-manufacturing index. The main bearish factor undercutting the dollar yesterday was the post FOMC statement which said "tight credit conditions, the ongoing housing contraction and elevated energy prices are likely to weigh on economic growth over the next few quarters," signaling Fed policy makers will be in no hurry to raise interest rates despite the threats of higher inflation. 
• September crude oil prices this morning are trading +36 cents a barrel and September gasoline is trading +1.44 cents a gallon. Supporting crude oil prices this morning was an explosion that shut down a link of the BP Caspian pipeline in Turkey that carries nearly 1 million bbl of crude oil a day through the Azerbaijan-Turkey link to Europe. September crude oil prices yesterday moved lower and closed -$2.24 a barrel and September gasoline closed -4.38 cents a gallon. September crude oil and gasoline both posted 3-month lows yesterday. Bearish factors for crude oil prices yesterday included (1) no damage to oil rigs or refineries from Tropical Storm Edouard that made landfall early yesterday, (2) the rally in the dollar to a 1-1/2 month high, (3) comments from Kuwait's oil minister that OPEC is unlikely to cut production quotas at its next meeting in Sep, and (4) concerns of weakenening global demand after Jun Euro-Zone retail sales had its biggest y/y decline in 13 y ears. Expectations for today's weekly DOE inventory report are for a -200,000 bbl drop in crude oil inventories, a -1.5 million bbl fall in gasoline stockpiles, a +2.0 million bbl gain in distillate inventories and an unchanged reading in the refinery capacity rate at 87.2%.

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Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): AIG-American International Group (BEST earnings consensus $0.74 per share), TWX-Time Warner (0.23), RIG-Transocean (3.28), DVN-Devon Energy (3.29), S-Sprint Nextel (0.03), BX-Blackstone Group (0.08), SE-Spectra Energy (0.41), MMC-Marsh & Mclennan (0.35), PCG-PG&E (0.82), EP-El Paso (0.39), FWLT-Foster Wheeler (0.84), NFS-Nationwide Financial Services (1.13), GNA-Gerdau AmeriSteel (0.48), VRSN-Verisign (0.23), Q-Qwest Communications International (0.11), HK-Petrohawk Energy (0.27), HSP-Hospira (0.61), RL-Polo Ralph Lauren (0.72), RRD-RR Donnelley & Sons (0.72), PXP-Pains Exploration & Production (1.62), NDAQ-Nasdaq OMX Group (0.43), CNP-Centerpoint Energy (0.21), FRE-Freddie Mac (-0.60), SUN-Sunoco (0.36), AVT-Avnet (0.80), REG-Regency Centers (0.73), TEG-Integrys Energy (0.40)

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