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• The European DJ Stoxx 50 this morning is trading +0.33% on lower crude oil prices this morning (-$2.33 per barrel) and on better than expected earnings news from Royal Bank of Scotland. Asia-Pacific stocks today closed mixed: Japan +0.33%, Hong Kong -0.99%, China -4.74%, Taiwan +2.63%, Australia +0.06%, Singapore -0.96%, South Korea +0.22%, Bombay +0.33%. Chinese stocks fell sharply by -4.74% today after investors were disappointed the Chinese government did not announce measures to boost the stock market at the beginning of the Olympic Games, which opened in Beijing today.
• Russian stocks fell sharply today after news that two Russian fighter jets bombed two towns in the South Ossetia area of Georgia. Russian Prime Minister Putin said that "war has started" with Georgia over the breakaway region of South Ossetia. The ruble is down -0.7% this morning and the Russian stock market is down -3.7%.
• Productivity – Today’s Q2 non-farm productivity report is expected to show an increase of +2.5%, just slightly below the +2.6% figure seen in Q1. The expected report of +2.5% would be above the 8-quarter average of +1.9%. Productivity is expected to hold up relatively well in Q2 due to the Q2 GDP figure of +1.9%, which boosted the output numerator in the productivity ratio of output per hour worked. Productivity has held up relatively well over the last four quarters at a 4-quarter average of +3.3% despite the slow economy, although part of the reason for the higher productivity is that businesses have been cutting hours worked. In any case, it is likely that productivity will fade in coming quarters due to the likelihood of slower GDP growth in the second half of 2008 when the federal stimulus program wears off. Meanwhile, today’s Q2 labor costs report is expected to ease to +1.4% from +2.2% in Q1. Lower labor costs would be a positive factor for the inflation ou tlook and for corporate profits. Labor costs have been a source of inflation concern for the past several years. However, concerns about labor costs have recently faded as the slower economy and labor market means that businesses are not under pressure to raise wages and benefits in order to retain employees.

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• September S&Ps this morning are trading +4.20 points on lower oil prices and on some short-covering after yesterday's losses. The US stock market yesterday traded weaker throughout the day and closed lower (Dow -1.93%, S&P 500 -1.79%, Nasdaq Composite -0.95%).
• Bearish factors for stock prices yesterday included (1) the unexpected rise in weekly unemployment claims to a 6-1/3 year high, (2) the weaker-than-expected July ICSC chain store sales which reported a +2.6% y/y gain, the smallest gain since March, (3) the 18% fall in AIG as the world's largest insurer reported a larger-than-expected Q2 loss of $5.36 billion for a total loss of $18 billion in the last three quarters, raising speculation the company will need to raise cash by selling shares, (4) the 5% drop in both the S&P 500 Financials Index and the KBW Bank Index on concerns of more credit losses and writedowns related to subprime mortgage assets, and (5) the 6.3% loss in Wal-Mart after the retailer said sales will probably slow this month because most shoppers have already received their tax rebates.
  
• Bullish factors for stock prices yesterday included (1) the unexpected rise in Jun pending home sales, and (2) the rally in semiconductor stocks after the 3.8% rise in Intel as a Citigroup analyst said demand for Intel's Atom semiconductor "is running ahead of expectations," making the company's Q3 revenue forecast "more achievable."
• GM and UAL are higher this morning as auto and airline stocks benefit from this morning's drop in oil prices.
• Apple is up +1% in European trading this morning after Credit Suisse said Apple is its top pick in the sector and rated the stock "outperform" in new coverage.
• Ambac Financial (ANK) may show weakness today after JPMorgan downgraded the shares to "underweight" from "neutral" due to the analyst's view that the outlook is "relatively bleak" for the bond insurer.
• Bank of America (BAC) was downgraded to "neutral" from "buy" by UBS analysts who said the recent rally at Bank of America meant the stock was no longer attractively priced. The UBS analysts also said that "spillover of macro issues may increasingly pressure Bank of America's credit."
• World Fuel Services (INT) rallied over 9% in after-hours trading yesterday as the seller of fuel to ships and airlines reported Q2 profit of 73 cents a share, well ahead of analysts' estimates of 53 cents a share.

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• September 10-year T-notes this morning are trading -0.5 ticks as the market consolidates after yesterday's sharp rally. September T-note prices yesterday rallied sharply and closed +1-3.5/32 points. Bullish factors for T-note prices yesterday included (1) the unexpected increase in weekly initial unemployment claims to a 6-1/3 year high (+7,000 to 455,000 versus expectations of -23,000 to 425,000), (2) carryover strength from European debt prices after ECB President Trichet said Euro-Zone economic growth risks "are materializing," (3) the greater-than-expected demand seen at yesterday's $10 billion 30-year T-bond auction, and (4) some flight-to-quality as the stock market sold off after AIG, the world's biggest insurer, posted a Q2 loss of $5.36 billion for a total $18 billion loss over the last three quarters. A bearish factor for T-note prices yesterday was the unexpected gain in June pending home sales (+5.3% versus expectations of -1.0%).
• The dollar/yen is up +0.36 yen this morning. The euro this morning has plunged against the dollar and is down -2.07 cents. The euro fell on ECB President Trichet's downgrade of the Euro-Zone economic outlook, which substantially reduces the chances for another ECB rate hike this year. The dollar index yesterday continued its 3-week rally up to a 5-1/4 month high. Bullish factors for the dollar yesterday included (1) euro negative comments from ECB President Trichet that economic growth will slow, reducing expectations for additional ECB rate hikes, and (2) the unexpected rise in Jun US pending home sales. Bearish factors for the dollar yesterday included (1) the jump in US weekly initial unemployment claims to a 6-1/3 year high, and (2) the action by UBS in cutting their global GDP forecast for 2009 to 2.9% from a previous forecast of 3.1% due to a continuing US economic slowdown.
  
• September crude oil prices this morning are trading -$2.33 a barrel and September gasoline is trading -4.93 cents a gallon on this morning's sharp rally in the dollar versus the euro. September crude oil prices yesterday rallied and closed +$1.44 a barrel and September gasoline closed +5.34 cents a gallon. Bullish factors for crude oil prices yesterday included (1) the prediction by Abu Dhabi National Energy Co. that crude oil prices may rise to $180 a barrel if emerging market economies such as China and India continue to grow, even in the face of slower European and US growth, and (2) the shut-down for possibly 2 weeks of an 800,000 bbl a day pipeline in Turkey damaged by Kurdish militants. Bearish factors for crude oil prices yesterday included (1) the sharp rally in the dollar to a 5-1/4 month high, (2) the prediction by ECB President Trichet that economic growth will be "particularly weak" in the second and third quarters this year, signaling lessening European energy demand, and (3) the action by China, the world's second-largest energy consumer, to cut its diesel imports this month and next month after it said it increased its own diesel domestic supply

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Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): EIX-Edison International (BEST earnings consensus $0.73 per share), FNM-Fannie Mae (-0.76), MLNM-Millennium Pharmaceuticals (0.05), MIR-Mirant (0.56), WIN-Windstream (0.26), EPE-Enterprise GP Holdings LP (0.33), DRX-DRS Technologies (0.85), MBI-MBIA (-1.23), WR-Westar Energy (0.30), CGI-Commerce Group (0.66), XTEX-Crosstex Energy (-0.03), LPNT-Lifepoint Hospitals (0.58), CNK-Cinemark Holdings (0.14), CDE-Coeur D'Alene Mines (0.04), TTI-Tetra Technologies (0.37), CQP-Cheniere Energy Partners (-0.10), AIT-Applied Industrial Technologies (0.57)

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