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• The European DJ Stoxx 50 this morning is trading mildly higher by +0.33%. Bullish factors for European stocks today include lower oil prices (-$1.75 per barrel), this morning's sharp 1.11 cent sell-off in the euro which will help European exporters, and lower commodity prices which should reduce corporate costs and boost profits. Asia-Pacific stocks today closed mixed: Japan +0.48%, Hong Kong -1.09%, China +0.17%, Taiwan -1.77%, Australia +0.01%, and Singapore -0.68%. Stock markets in South Korea and India were closed today for a holiday.
• Empire manufacturing index – Today’s Aug NY Empire manufacturing index is expected to show a small rise of 0.7 points to –4.2, adding to the 3.8 point rise to –4.9 seen in July. Still, today’s expected increase would still leave the Empire index below the zero level, suggesting that the NY-area manufacturing sector is contracting. The Empire index has been close to or below zero for the last 6 months, suggesting that the NY-area manufacturing sector is in a recession.
• Industrial production – Today’s July industrial production report is expected to be unchanged following the +0.5% increase seen in June. The June industrial production report of +0.5% was boosted by energy output (ex-energy industrial production was up only +0.2%) and by an aberrant end-strike increase in motor vehicle production (ex-vehicle industrial production was up +0.3%). The reality is that manufacturing production in June was weak at +0.2% m/m, which following reports of –0.1% in May and –0.9% in April. On a year-on-year basis, US manufacturing production fell into negative territory in April and fell –0.6% y/y in June. The ISM manufacturing index has been hovering in the 48-50 range for the past year and was neutral at 50.0 in July. The US manufacturing sector appears to be in a recession at present, with very weak auto production and with weak demand for anything other than exports.
• US consumer confidence –Today’s preliminary-Aug U.S. consumer confidence index from the University of Michigan is expected to show a +0.8 point rise to 62.0, building on the +4.8 point increase to 61.2 seen in July. The index has recovered mildly from the 28-year low of 56.3 posted in June. Still, the index is far below the average of about 90 seen before the US economic troubles began about a year ago. US consumer confidence is recovering mildly due to the decline in gasoline prices in the past month and due to the fact that the US economy has yet to enter an obvious recession. Nevertheless, the markets are looking for continued sour US consumer confidence and weak consumer spending through year-end as the federal stimulus program wears off and as the US economy and household balance sheets continue to suffer from the US housing crisis and falling home prices.

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• September S&Ps this morning are trading +4.10 points on lower oil prices and on better-than-expected earnings from Kohl's which provided support for the US retail sector. The US stock market yesterday shook off early morning negative news and moved higher (Dow +0.72%, S&P 500 +0.55%, Nasdaq Composite +1.03%).
• Bullish factors for stock prices yesterday included (1) the +7.7% rally in Fannie Mae and the +7% gain in Freddie Mac after the Securities Industry and Financial Markets Association said larger loans financed by the two mortgage lenders will be allowed in the main market for mortgage bonds, thus lowering interest rates on jumbo mortgages and reviving the slumping mortgage market, (2) the -$0.99 a barrel decline in the price of crude oil, (3) the rally in banks and homebuilders after former Fed Chairman Alan Greenspan predicted that "home prices in the US are likely to start to stabilize or touch bottom sometime in the first half of 2009," and (4) the +11% surge in GM after the largest US automaker said with its new restructuring plan in place it may be able to get more of the $10 billion in projected savings this year instead of 2009.
• Bearish factors for stock prices yesterday included (1) labor market worries with the unexpected jump in weekly continuing unemployment claims to a 4-3/4 year high of 3.417 million, (2) inflation concerns as the larger-than-expected rise in July CPI to a 17-1/2 year high of +5,6% y/y, and (3) the 55% jump in US home foreclosures in July as bank seizures surged 184% as more homeowners defaulted on their mortgages.
• GM is up +1.3% this morning and Ford is up +1.0% on this morning's lower trade in crude oil prices.
• Kohl's (KSS) rallied 3.3% in after-hours trading yesterday after the retailer reported better-than-expected Q2 earnings and raised its 2008 guidance.
• Nordstrom's (JWN) fell -2.4% in after-hours trading yesterday after the retailer reported weaker-than-expected Q2 earnings and reduced its 2008 guidance.
• SunPower (SPWR) rallied 6% in after-hours trading yesterday after news that the solar power supplier won a contract to build a 250 megawatt solar power plant for California utility PG&E.
• NRG Energy (NRG) rallied 4% in after-hours trading yesterday after a filing disclosed that Warren Buffett's Berkshire Hathaway took a stake in the second largest utility in Texas.

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• September 10-year T-notes this morning are trading -2 ticks on higher S&Ps and higher European stocks this morning. September T-note prices yesterday overcame early weakness and rallied the remainder of the day to close +13 ticks. Bullish factors for T-note prices yesterday included (1) the weekly jobless claims which exceeded forecasts (-10,000 to 450,000 versus expectations of -20,000 to 435,000 and continuing claims +114,000 to a 4-3/4 year high of 3.417 million versus expectations of -1,000 to 3.331 million), and (2) the jump in US home foreclosures by 55% and the near tripling of bank repossessions in July as more homeowners defaulted on their mortgages as home values continue to plummet. Bearish factors for T-note prices yesterday included (1) the larger-than-expected gain in July CPI (+0.8% m/m and a 17-1/2 year high of +5.6% y/y versus expectations of +0.4% m/m and +5.2% y/y), and (2) weaker demand for the safety of Treasuries as the stock market rallied on t he action by the Securities Industry and Financail Markets Association to loosen restrictions on Fannie Mae and Freddie Mac in order to try to revive the mortgage market.
• The dollar is sharply higher this morning with the dollar/yen up +0.81 yen and the euro/dollar down -1.11 cents. The dollar has extended its sharp technical breakout on short-covering, new buying, and this week's weak European economic reports. The dollar index yesterday rallied and closed at a 6-month high. Bullish factors for the dollar yesterday included (1) the weakening European economy as Euro-Zone GDP contracted for the first time ever in Q2, and (2) the larger-than-expected increase in July CPI as the +5.6% y/y increase is a 17-1/2 year high and keeps the pressure on the Fed to increase interest rates. Bearish factors for the dollar yesterday included (1) the unexpected jump in US weekly continuing unemployment claims to a 4-3/4 year high, and (2) the unexpected revision to July German CPI to +3.5% y/y, the highest level since records began in Jan 1996.
• September crude oil prices this morning are trading -$1.75 a barrel and September gasoline is trading -4.35 cents a gallon. September crude oil prices yesterday moved lower and closed -$0.99 a barrel and September gasoline closed -2.03 cents a gallon. Bearish factors for crude oil prices yesterday included (1) the surge in the dollar to a 6-month high, (2) carryover weakness from natural gas prices which plunged to a 6-month low on a larger-than-expected increase in gas inventories, and (3) concern that slowing US energy demand may be spreading globally after the Euro-Zone economy contracted in Q2 for the first time since the introduction of the euro in 1999. A bullish factor for crude oil prices yesterday was the shut-down of a BP pipeline in Georgia after the 100,000 bbl a day crude pipeline was hit by Russian missles in the ongoing skirmish between Russia and Georgia.

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Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): JCP-J.C. Penney (BEST earnings consensus $0.51 per share), ANF-Abercrombie & Fitch (0.88)

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