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• The European DJ Stoxx 50 this morning is trading -0.78% on continued worries about the financial sector, this morning's $1.70 rally in crude oil prices, and on concern about declining earnings growth in general. HBOS, the largest UK mortgage lender fell 2.1% today. Citigroup forecast today that three US banks (Lehman, Goldman, Morgan Stanley) will together write down another $6.4 billion in Q3. Asia-Pacific stocks today closed lower across the board: Japan -0.77%, Hong Kong -2.58%, China -3.51%, Taiwan -1.74%, Australia -1.10%, Singapore -1.39%, South Korea -1.77%, Bombay -2.96%.
• Claims – Today’s weekly initial unemployment claims report is expected to fall –10,000 to 440,000, adding to last week’s decline of –10,000 to 450,000. Weekly continuing claims are expected to fall –12,000 to 3.405 million, reversing a small part of last week’s surge of +114,000 to 3.417 million. Today’s expected reports would leave the initial and continuing claims reports just mildly below their recent 6-year and 4-1/2 year highs, respectively. The initial claims report illustrates the high pace of new layoffs as businesses shed workers in anticipation of an extended period of weak economic growth. Meanwhile, the 4-1/2 high in continuing claims indicates that the number of people on unemployment is accumulating, thus pushing the unemployment rate higher. The US unemployment rate will undoubtedly go even after hitting a 4-year high of 5.7% in July. The unemployment rate in the last US recessionary period peaked at 6.3% in June 2003, which is 0.6 points higher tha n the current level.
• Leading indicators – Today’s July leading indicators report is expected to show a decline of -0.2%, adding to the -0.1% decline seen in June. On a year-on-year basis, the June leading indicator index was down –2.1%, which was a 7-year low. The LEI is pointing to continued weak US economic growth going forward. The market consensus is that US GDP will slow to +1.2% in Q3 and +0.4% in Q4, and then rebound mildly higher to +1.4% in Q1-2009.
• Philadelphia Fed index – Today’s Aug Philadelphia Fed manufacturing index is expected to rebound higher by +3.7 points to –12.6, adding to the small increase seen in July of +0.8 points to –16.3. Despite today’s expected small upward rebound, the market is expecting the Philadelphia index to remain well below the zero mark, thus indicating that the Philadelphia Fed’s manufacturing district is still seeing recessionary conditions. The US manufacturing sector as a whole continues to struggle with the slumping US auto industry and with businesses cutting back on capital equipment. The only bright spot for the US manufacturing sector is the export market, which is helping to prevent an even deeper recession in the US manufacturing sector.

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• September S&Ps this morning are trading -4.10 on higher oil prices and on financial sector concerns. The US stock market yesterday settled with modest gains (Dow +0.61%, S&P 500 +0.62%, Nasdaq Composite +0.20%).
• Bullish factors for stock prices yesterday included (1) comments from Minneapolis Fed President Stern that the current oil-price decline will probably push headline inflation lower, allowing the Fed to "be patient" in its interest rate policy, hinting at no rate hike by the Fed for the foreseeable future, (2) the 7.5% surge in Freeport-McMoran after Morgan Stanley advised clients to buy the world's largest copper producer citing the 28% fall in the price of Freeport since July and saying there is not a "significant" surplus in the copper market, (3) the 5.7% jump in Hewlett-Packard after reporting Q3 profit of 86 cents a share, 2 cents better-than-expected with Hewlett'e CEO saying Q4 profit will be $1.01 to $1.03 a share, higher than the $1 a share anticipated by analysts, and (4) the rally in oil producers and oil service companies after crude oil posted its first back-to-back price increase in five weeks.
• Bearish factors for stock prices yesterday included (1) the 27% plunge in Fannie Mae to an 18-year low and the 22% slide in Freddie Mac to a 17-year low on speculation the US Treasury will bail out the mortgage-finance companies, wiping out shareholders, and (2) the decline in the retail sector after Goldman Sachs said a slowdown in consumer spending will hurt sales at department stores as it downgraded Macy's and Kohl's to "neutral" from "buy."
• Lehman Bros is trading -2.5% lower in Europe this morning after the Financial Times reported that Korea Development Bank and China's Citic Securities dropped out of talks to invest capital in Lehman because the asking price was too high.
• Wal-Mart is down -0.7% this morning in European trading due to higher oil prices today.
• Goldman Sachs is down -0.7% in European trading this morning after Lehman analysts cut their Q3 earnings estimates for Goldman. Lehman also cut its earnings estimates for Morgan Stanley, which hasn't traded in Europe this morning.
• Fannie Mae is down -3.6% and Freddie Mac is down -8% in European trading this morning as market concerns continue that funding is drying up and that a US government bailout will eventually be necessary.
• Salesforce.com Inc (CRM) is down 10% in European trading this morning after reporting slower revenue growth and reduced profits due to acquisition costs.
• JDS Uniphase (JDSU) is down 13% in European trading this morning after the telecom equipment producer reported a loss.

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• September 10-year T-notes this morning are trading -2 ticks. September T-note prices yesterday rallied to a 4-month high and closed +12.5 ticks. Bullish factors for T-note prices yesterday included (1) flight-to-quality on concerns that the US government will be forced to take over Freddie Mac after a reported meeting between officials from the US Treasury and Freddie Mac executives, and (2) comments from Minneapolis Fed President Stern that inflation will fall over the next several months and now is a "good time to be patient" in setting the fed funds rate, hinting that Fed policy makers will be in no hurry to raise interest rates anytime soon. A bearish factor for T-note prices yesterday was concern that any US government rescue of Freddie Mac or Fannie Mae will require the US Treasury to increase the issuance of debt to pay for the bailout.
• The dollar is trading lower this morning with the dollar/yen down -1.30 yen and the euro/dollar up +0.43 cents. The yen is higher today on weak global stocks and increased financial sector concerns, which is forcing some capital to flow out of yen carry trades. The dollar index yesterday closed mildly higher. Bullish factors for the dollar yesterday included (1) weakness in the euro after Germany's BDB banking association said it no longer expects the German economy to expand between 2.25-2.50% this year and that it will lower its growth forecast next month, and (2) the comment by the Germany Economy Ministry that the outlook for the German economy has "darkened" even beyond the second quarter and expansion will remain moderate. Bearish factors for the dollar yesterday included (1) comments from Minneapolis Fed President Stern that economic growth will stay "quite sluggish" in coming quarters, and (2) concerns the US government will rescue Freddie Mac after the WSJ reported that executives of Freddie Mac were scheduled to meet with US Treasury Department officials yesterday. 
• October crude oil prices this morning are trading +$1.70 a barrel and Sep gasoline is trading +1.69 cents a gallon. October crude oil prices yesterday closed +$1.06 a barrel and October gasoline closed +4.16 cents a gallon. Bullish factors for crude oil prices yesterday included (1) the larger-than-expected drop in gasoline inventories in yesterday's DOE inventory report (gasoline -6.2 million bbl versus expectations of -3.0 million bbl), (2) a fire in a Libyan crude storage facility that may reduce Libyan crude output by 100,000 bbl a day, and (3) Goldman Sach's repeated forecast that crude oil prices will rebound to $149 per barrel by the end of the year as supply growth struggles to keep pace with demand from emerging markets. Bearish factors for crude oil prices yesterday included (1) the biggest weekly gain in crude oil inventories in over seven years in yesterday's weekly DOE inventory report (crude oil +9.39 million bbl versus expectations of +1.0 million bbl) , (2) the stronger dollar, and (3) according to the DOE a 3% drop in US fuel demand during the past four weeks.

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Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): GOS-The Gap (BEST earnings consensus $0.28 per share), INTU-Intuit (-0.07), GME-Gamestop (0.28), HRL-Hormel Foods (0.38), PDCO-Patterson Companies (0.39), BKC-Burger King Holdings (0.34), NDSN-Nordson (0.99), DKS-Dick's Sporting Goods (0.36), TECD-Tech Data (0.46), BKE-The Buckle (0.59), BKS-Barnes & Noble (0.10), TTC-Toro (0.99), PLCE-Children's Place (-0.44), LANC-Lancaster Colony (0.34)

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