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• The European DJ Stoxx 50 this morning is trading +0.49% on the more favorable interest rate environment and on some value buying. Oil and mining companies are seeing some strength today on an upward rebound in oil and metals prices. Crude oil is up +56 cents, copper is up +1.3 cents, and gold is up $10.60. Airlines and automakers, however, were undercut by today's rally in crude oil. Asia-Pacific stock markets today closed mostly lower: Japan +1.12%, Hong Kong -1.09%, China -5.48%, Taiwan -2.72%, Australia +0.07%, Singapore -0.73%, South Korea -0.26%, Bombay -0.53%. The Chinese stock market today fell sharply by -5.48% as market participants continued to express disappointment that the government has not implemented any new measures to stem the stock market decline. Pakistan's stock market today rallied +4.49% after President Musharraf resigned to avoid an impeachment process.
• Focus factors - The markets this week will focus on (1) whether the stream of generally weak US, European and Japanese economic data continues this week, (2) whether the global stock markets can resume the summer recovery rally after falling back in the latter half of last week, (3) US T-note prices which have benefited from recent weak US economic data and substantially-reduced expectations for Fed tightening this year, (4) the dollar which has rallied sharply in the past month on technical short-covering and the faltering European economy, which has substantially reduced the chances for ECB tightening, and (5) crude oil prices which posted a 6-month low last Friday and brought the sell-off to a total of $35 per barrel. The energy markets today will be watching Tropical Storm Fay, which is expected to head north into the Gulf of Mexico today and then make landfall near the middle of western coast of Florida, thus missing most oil rigs on the Texas/Louisiana side of th e Gulf.
• US calendar – Today brings the Aug NAHB housing market index (expected unchanged at 16). Tomorrow brings the July PPI report (expected +0.5% and +0.2% core), and July housing starts (expected –9.9% to 960,000, thus reversing June’s surge of +9.1%). Thursday brings (1) the weekly unemployment claims report which has shown substantial labor market weakness in the past several weeks, (2) July leading indicators (expected –0.2%), and (3) Aug Philadelphia Fed index (expected +2.3 to –14.0).
• Fed policy – The market last week further curbed expectations for Fed tightening next year by roughly 15 bp due to the continuing banking and housing crisis and due to expectations for fading US economic growth in the second half of the year. In addition, the Euro-Zone Q2 GDP report last week showed a –0.2% q/q decline for the first decline since the euro was instituted in 1999, suggested weaker export demand for US products. The market is discounting only about a 10% chance of a 25 bp rate hike at the next FOMC meeting on September 16. The market is not fully discounting a 25 bp rate hike until April 2009. The sharp decline in crude oil and commodity prices, combined with the weak US economic data, has taken much of the pressure off the Fed to raise interest rates and take back some of the 325 bp rate cut seen after the US banking crisis began last summer.
• NAHB US housing market index – Today’s August NAHB housing market index is expected to be unchanged from July’s record low of 16. The National Association of Home Builders index measures the general state of the single-family home market, with 50 being the demarcation between a “good” versus “poor” outlook for the single-family home marketplace. US homebuilder confidence appears to have faded even further from recent levels as the housing crisis wears on and as mortgage have risen by 50 bp in the past three months.

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• September S&Ps this morning are trading +5.00 points. The US stock market last Friday closed mildly higher although the Nasdaq closed slightly lower (Dow +0.38%, S&P 500 +0.41%, Nasdaq Composite -0.05%).
• Bullish factors for stock prices last Friday included (1) the continued rally in T-note prices and the recent roll-back in expectations for additional Fed tightening this year, (2) Friday's continued decline in oil prices, (3) Friday's continued rally in the dollar which boosts returns on US stocks for foreign investors, and (4) strength in retailer stocks (+1.8%) on Friday's decline in oil prices and on Friday's stronger-than-expected US consumer confidence report.
• Bearish factors for stock prices last Friday included (1) continued concern about banking stocks with major banks last week announcing multi-billion-dollar buybacks of frozen auction-rate securities, and (2) weakness in oil companies and mining companies with the strength in the dollar and the continued sell-off in crude oil prices and metals prices last Friday.
• Oil company and mining stocks are seeing an upward rebound today on this morning's rally in crude oil and metals prices.
• Hershey (HSY) fell 4.4% in after-hours trading last Friday after the company said that sales growth in 2009 will slow to 2-3% from its previous estimate of 3-5% due to higher prices and weak demand.
• Broadcom (BRCM) may see some strength today after a favorable weekend article in Barron's, which said that Broadcom's stock could rally up to 40% due to the use of its chips in smart phones such as Apple's iPhone.
• Time Warner (TWX) may see some strength after its movie "The Dark Knight" becamse the second-highest grossing film ever with $471 million in sales.

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• September 10-year T-notes this morning are trading +4.5 ticks. September T-note prices last Friday posted a new 4-month high and closed up +9 ticks. Bullish factors for T-note prices last Friday included (1) the weaker-than-expected early-Aug US consumer confidence index from the University of Michigan which showed a +0.5 point increase to 61.7 versus expectations for a +0.8 point increase to 62.0, (2) carry-over support from last Thursday's +114,000 surge in continuing unemployment claims to a 4-3/4 year high of 3.417 million, which fueled expectations for additional labor market weakness in the upcoming August unemployment report, (3) the continued sharp rally in the dollar which improves the returns on US securities for foreign investors, and (4) technical buying with the breakout to a new 4-month high. Bearish factors included (1) the mildly higher close in the US stock market, and (2) the slightly stronger-than-expected August Empire manufacturing index (+7.5 to 2.8) and July industrial production report (+0.2% versus expectations of unchanged).
• The dollar is trading slightly lower this morning with the dollar/yen down -0.29 yen and the euro/dollar up +0.21 cents. The dollar index last Friday rallied sharply and posted a new 7-month high, extending the dramatic month-long rally. Bullish factors for the dollar last Friday included (1) continued short-covering and new technical buying with the dollar appearing to have firmly established a medium or long-term bottom during the March-June consolidation range, (2) continued concern about the European economy with last week's news that Euro-Zone Q2 GDP fell -0.2% q/q for the first decline since the euro currency was established in 1999, and (3) substantially-reduced chances for another ECB hike given the fading European economy.
• September crude oil prices this morning are trading +56 cents a barrel and September gasoline is trading +0.13 cents a gallon. Bullish factors this morning include some short-covering and Tropical Storm Fay, which is currently near Cuba and could turn into a hurricane as it moves up the coast of Florida. September crude oil prices last Friday fell sharply to a 3-month low but then recovered to close -$1.24 per barrel. September gasoline prices closed -5.18 cents. Bearish factors included (1) Friday's continued rally in the dollar, (2) continued long liquidation pressure and technical selling, and (3) continued concern about weaker demand given high petroleum prices and the slowing global economy. The crude oil market received little support from the Russia-Georgia crisis, which now seems to be settling down as Russia said over the weekend that it will start withdrawing its troops from Georgia.

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