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• The European DJ Stoxx 50 this morning is trading -1.06% on higher oil prices (+22 cents) and on fresh financial sector weakness. Hypo Real Estate Holding AG (the second biggest commercial property mortgage lender in Germany) fell 3% today after a big drop in earnings due to writedowns. Also, UBS fell 4% today after the bank said it is investigated complaints about former employee Bradley Birkenfeld (who pleaded guilty in June to helping a UBS customer evade US taxes) about working practices at the bank's cross-border division in 2006, which suggested that some high-level UBS executives may have known about some problems at the bank. The UK FTSE index is down -0.56% this morning after the Bank of England cut its UK growth forecast for Q1-2009 to +0.1% from its previous forecast of +1.0%. Asia-Pacific stocks today closed mostly lower on negative carry-over from yesterday's sell-off in the US stock market: Japan -2.11%, Hong Kong -1.61%, China +0.02%, Taiwan -0.02%, A ustralia -2.02%, Singapore -0.18%, South Korea -0.92%, Bombay -0.78%. Japanese stocks were undercut by today's report that Japanese Q2 GDP fell -0.6% q/q (-2.4% q/q annualized) in Q2. Japanese Q2 exports fell 2.3%, which hurt export-driven Japanese stocks.
• Mortgage apps – Today's MBA mortgage applications index was weak with the overall index falling -1.5%, the purchases sub-index unchanged, and the sub-index falling -4.2%. Last week, the MBA mortgage applications report showed a mild upward rebound of +2.8% in the overall index, a +4.4% increase in the refi sub-index and a +1.8% increase in the purchases sub-index. However, the refi index is just above the recent 7-1/2 year low and the purchases sub-index is just above its recent 5-1/2 year low. The 30-year mortgage rate in the latest week fell 11 bp to 6.52%, but is still just mildly below the previous week’s 1-year high of 6.63%. The 30-year mortgage rate in the past 3 months has surged by one-half point to the mid-6% area, which adds to the problems faced by the troubled housing sector.
• Import prices – Today’s July import price index is expected at +1.0% m/m and +20.4% y/y, showing another sharp gain after the June report of +2.6% m/m and +20.5% y/y. June’s year-on-year increase of +20.5% was easily a record high for the series, which has history back to 1983. The sharp increase in US import prices has been largely due to the surge in oil prices. However, import prices excluding petroleum have also surged and hit a new 20-year high of +7.3% in June, far above the generally-accepted 2.0% ceiling for inflation. The surge in non-petroleum import prices is a particularly troublesome development for the inflation picture because it is due in part to the weak dollar and the need for importers to raise prices to preserve their profit margins. The increase in import prices is also due to fact that export powerhouses such as China have been forced to raise prices due to sharp increases in their raw materials inputs such as energy and commodities and rising labor costs.
• Retail sales – Today’s July retail sales report is expected to show overall weakness with a -0.1% decline. However, excluding weak sales in autos, US retail sales are expected to show strength at +0.5%. That would follow June’s similar pattern of +0.1% overall and +0.8% ex-autos. US consumer spending in the past several months has been boosted by the federal stimulus program and retail sales ex-autos in June rose at a strong +6.2% y/y rate. However, the effects of the federal stimulus program are starting to fade and are expected to be almost completely gone by Q4, thus leaving consumers with little reason to spend money in the face of the housing crisis and high fuel prices. The course of US consumer spending will continue to be carefully watched as the main indicator of whether a recession will emerge by year-end.

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• September S&Ps this morning are trading -1.20 points on higher oil prices (+22 cents), the weak Japanese GDP report, and concern ahead of today's US retail sales report. The US stock market yesterday moved lower (Dow -1.19%, S&P 500 -1.21%, Nasdaq Composite -0.38%).
• Bearish factors for stock prices yesterday included (1) the -9.5% fall in JPMorgan Chase after the second-largest US bank by market value said trading conditions have "substantially deteriorated" and announced $1.5 billion of writedowns for the current quarter on mortgage-backed securities, (2) the -6.5% drop in Citigroup as the biggest US bank by assets fell after billionare investor Michael Price said the bank has "more pain coming" and dividend cuts are inevitable, (3) the -6% fall in Goldman Sachs after Deutsche Bank downgraded the stock to "hold" from "buy" and Oppenheimer lowered its profit estimates for Goldman for 2008 and 2009, (4) the -6.4% fall in Morgan Stanley after Deutsche Bank predicted the second-biggest US securities firm will post $1,5 billion in Q3 losses from "troubled" assets and that continued credit market turmoil and global economic weakness will reduce the firm's 2008 and 2009 profits, (5) the -16% plunge in Constellation Energy aftyer the bigg est US power marketer said it increased its estimated collateral obligations related to possible credit-rating downgrades, and (6) the -3.1% drop in McDonalds after the world's largest restaurant chain was downraded to "neutral" from "buy" at UBS saying the company may not be able to maintain its valuation as US job losses mount and economic growth continues to slow in Europe. 
• Bullish factors for stock prices yesterday included (1) the unexpected decline in the June trade balance which has positive GDP implications, (2) the continued downdraft in energy prices as crude oil fell another -$1.44 a barrel to a 3-1/4 month low, (3) the +2.9% increase in Biogen after billionare investor Carl Icahn said he increased his stake in the biotechnology company to 6% and said he'll keep up talks on "value," and (4) comments from Minneaplois Fed President Gary Stern that the current decline in the cost of oil should slow an increase in overall consumer prices and dampen expectations that inflation will accelerate.
• Applied Maerials (AMAT) rallied 12% in after-hours trading yesterday as the largest maker of chip-production machinery said orders will increase 5% to 10% in the quarter ending October from the previous three months.
• Nvidia (NVDA) is up +8% in European trading this morning after the chip-maker boosted its stock buy-back program to $2.7 billion, which represents about 44% of shares outstanding. That news offset the report that Nvidia reported a quarterly loss, the first in six years.
• Wal-Mart (WMT) is down -0.3% this morning on some nervousness ahead of today's US retail sales report (expected +0.5% ex-autos).
• CVS Caremark (CVS) late yesterday fell 5% after news that the drug store chain agreed to buy Longs Drug Stores for $2.9 billion including debt, which was a 32% premium to yesterday's closing price for Longs Drug.
• Cree (CREE) is up 7% in European trading this morning after the LED lighting specialist reported fiscal-Q4 earnings ex-items of 16 cents a share, which was above the consensus forecast of 14 cents.

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• September 10-year T-notes this morning are trading +1 tick. September T-note prices yesterday recovered all of Monday's losses and then some and closed +27 ticks. Bullish factors for T-note prices yesterday included (1) flight-to-quality after the stock market sold off when JPMorgan Chase said it will write down the value of its mortgage-backed assets by at least $1.5 billion this quarter and after UBS AG reported its fourth straight quarterly loss and said it expects "adverse economic and financial trends" to continue this year, (2) comments from Dallas Fed President Fisher that the US economy faces a "sustained period of anemia," (3) comments from Minneapolis Fed President Stern that the decline in the price of oil should curtail inflation and inflation expectations, and (4) carryover support from European debt prices as the yield on the 10-year German bund fell to a 2-1/2 month low. Bearish factors for T-note prices yesterday included (1) the lower-than-expected U S trade balance for June (-$56.8 billion versus expectations of -$62.0 billion) which is positive for US GDP growth, and (2) the larger-than-expected increase in the US monthly budget statement for Jul (-$102.8 billion versus expectations of -$95.0 billion), signaling a possible increase in Treasury issuance to fund the shortfall.
• The dollar is mixed this morning with the dollar/yen down -0.40 yen and the euro/dollar down -0.58 cents. the yen is higher on some exits from the yen carry trade with today's weak Japanese GDP report. The dollar index yesterday posted a 6-month high but then fell back to close little changed. Bullish factors for the dollar yesterday included (1) the narrower-than-expected US trade gap for June which is GDP-positive, (2) the weaker-than-expected July French CPI which led to French government spokesman Chatel to say the peak of French inflation has already passed, and (3) comments from ECB Council member Smaghi that the Euro-Zone's current slowdown may persist, signaling ECB policy makers may be focusing more on the slowing economy than on inflation. A bearish factor for the dollar yesterday was the rally in the yen when the US stock market moved lower on concerns credit losses may be deepening at money center banks and brokerages. 
• September crude oil prices this morning are trading +22 cents a barrel and September gasoline is trading +1.88 cents a gallon. September crude oil prices yesterday continued their month-long sell-off and closed -$1.44 a barrel and September gasoline closed -2.34 cents a gallon. Both September crude oil and gasoline posted 3-1/4 month lows yesterday. Bearish factors for crude oil prices yesterday included (1) the rally in the dollar index to a 6-month high, weakening the appeal of commodities as an inflation hedge, and (2) the halt in the Russian offensive into Georgia, a country that connects the oil-rich Caspian Sea region with world markets. Bullish factors for crude oil prices yesterday included (1) the IEA's hike in its forecast for global oil demand growth next year to 1.1% from last month's forecast of +1.0%, and its statement that it expects Chinese oil consumption to rise after the Olympic games as China curtailed energy consumption just before the games to limit pollution during the Olympics, and (2) comments from Iran's OPEC governor that oil prices are falling because of an oversupply of crude, which may lead to a production cut at the cartel's next meeting in September. Expectations for today's DOE inventory report are for a +300,000 bbl climb in crude oil inventories, a -2.15 million bbl drop in gasoline stockpiles, a +1.95 million bbl gain in distillate inventories and a -0.5 decline in the refinery capacity rate to 86.5%.

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Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): DE-Deere & Co. (BEST earnings consensus $1.39 per share), M-Macy's (0.19), NTAP-Netapp (0.22), DPS-Dr. Pepper Snapple Group (0.55), IPI-Intrepid Potash (0.34), BRCD-Brodacade Communications Systems (0.14), CAI-CACI International (0.77), LIZ-Liz Claiborne (0.01), CVI-CVR Energy (0.53).

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