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• The European DJ Stoxx 50 this morning is trading slightly lower by -0.15% on higher oil prices (+68 cents) and continued banking worries. The European and US banking sectors are being undercut today by news that Columbian Bank and Trust of Topeka, Kansas late last Friday became the ninth U.S. bank to fail and was taken over by statement regulators and the FDIC. The Danish central bank on Sunday said it would take over Roskilde Bank after it could not find any buyers for the failed Danish bank. Today is a summer bank holiday in the UK. Asia-Pacific stocks today closed mostly higher: Japan +1.68%, Hong Kong +3.50%, China -0.18%, Taiwan +1.72%, Australia +1.69%, Singapore +0.37%, South Korea +0.49%, Bombay +0.34%.
• Focus factors - Market attention this week will focus on (1) the global stock markets which consolidated last week below recent highs, (2) crude oil prices which temporarily saw some short-covering last Thursday but then fell back last Friday, (3) the T-note market which fell back on some long liquidation pressure late last week after the sharp rally seen in late-July and early-August, (4) the dollar index which is consolidating near the top of the sharp month-long rally, and (5) any fresh news on the US banking crisis.
• US calendar - On this week’s US economic calendar, today brings the July existing home sales report (expected +0.9%). Tuesday brings the June S&P/CaseShiller home price index (expected –16.2%), Aug US consumer confidence (expected +1.1 to 53.0), Aug Richmond Fed manufacturing index (expected +6 to –10), the June OFHEO U.S. house price index (expected –0.4% m/m), July new home sales (expected –1.1%), and the minutes of the Aug 50 FOMC meeting. Wednesday brings July durable goods orders (expected +0.1% and –0.5% ex-transportation), and the Treasury’s 2-year T-note auction. Thursday brings weekly initial unemployment claims (expected –7,000), the first revision of Q2 GDP (expected +2.7% versus the last estimate of +1.9%), and the Treasury’s 5-year T-note auction. Friday brings July personal income and consumption (expected unchanged and +0.3%, respectively), Aug Chicago purchasing managers index (expected –1.0 to 49.8), the Aug Milwaukee purchasing managers index, and t he final-Aug US consumer confidence index from the University of Michigan (expected +0.3 to 62.0).
• Fed policy – There was a slight increase last week in expectations for Fed tightening in coming months, but only by a few basis points. The market is discounting only about a 5% chance for a 25 bp rate hike at the next FOMC meeting on Sep 16. The market is not fully discounting a 25 bp rate hike until March 2009. The market is expecting a 50 bp rate hike by July 2009, a 75 bp rate hike by October 2009, and a 100 bp rate hike by December 2009.
• Existing home sales – Today’s July US existing home sales report is expected to show a mild upward rebound of +0.9% to 4.91 million, reversing part of June’s –2.6% decline to 4.86 million. June’s report of 4.86 million units was a record low for the series, although the series only has history back to 1999. US existing home sales this year have been moving basically sideways in a narrow range at the bottom of the plunge seen during 2005-2007. US existing home sales remain depressed by the sour consumer-spending mood, fears that US home prices will continue to fall, and the difficulty of obtaining mortgages. The supply of US existing homes available for sale rose to a 23-year high of 11.0 months in June, the highest seen for the series yet in this cycle. The high level of unsold homes continues to exert significant downward pressure on home prices, encouraging any potential homebuyers to wait for even lower prices.

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• September S&Ps this morning are trading mildly lower by -3.80% on higher oil prices (+68 cents) and on continued worries about bank problems. In addition, Morgan Stanley cut its year-end forecast for the S&P 500 by 7.1% to 1300 due to its expectations for more bank writedowns and for weaker profits at technology and industrial companies with the slowing global economy. The US stock market last Friday settled sharpy higher (Dow +1.73%, S&P 500 +1.13%, Nasdaq Composite +1.44%).
• Bullish factors for stock prices last Friday included (1) the 13% rally in Lehman Brothers on speculation that Korea Development Bank is considering investing in the fourth-largest US brokerage, which also lifted financial and banking stocks on reduced concern that fallout from credit market losses will spread, (2) the -$6.59 a barrel tumble in crude oil prices which lifted transportation and airline stocks, (3) JPMorgan Chase's recommendation that investors "overweight" global banks and US consumer discretionary stocks as weakness in the dollar over the past year should support US earnings in 2008, and (4) comments from Fed Chairman Bernanke that inflation should ease later this year and into 2009 due to a recovery in the dollar and declines in commodity prices.
• Bearish factors for stock prices last Friday included (1) the action by Moody's Investors Service to downgrade Fannie Mae and Freddie Mac to the lowest investment-grade rating saying the increased likelihood of "direct support" from the US Treasury may devalue their shares and as billionare investor Warren Buffet said the mortgage lenders "don't have any net worth," and (2) comments from Fed Chairman Bernanke that financial market turmoil has "not yet subsided," and is contributing to weaker economic growth and rising unemployment.
• Wal-Mart (WMT) is trading -0.6% lower this morning due to this morning's upward rebounde in oil prices.
• Lehman Brothers (LEH) is trading -1.3% after last Friday's rally of 5% on news that Korea Development Bank is considering an investment in Lehman.
• CF Industries (CF) rallied 3% in after-hours trading last Friday after news that the fertilzer producer will replace Electronic Data Systems (EDS) in the S&P 500, according to Standard and Poors. With CF Industries moving into the S&P 500, Standard and Poors said that SAIC Inc (SAI) will replace CF Industries in the S&P Midcap 400 index. That news sparked a 3.2% rally in SAIC late last Friday.
• FirstEnergy (FE) may receive a boost today after Barron's carried a favorable article citing a Citicorp analyst as saying that the electric utility may rise to $82 a share in 12 months due to part to a 5% rate hike in Ohio.

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• September 10-year T-notes this morning are trading +11 ticks on lower stocks and continued banking worries, and ahead of today's existing home sales report. September T-note prices last Friday closed -9.5 ticks. Bearish factors for T-note prices last Friday included (1) comments from Fed Chairman Bernanke that the inflation outlook remains "highly uncertain," although dollar stability and price declines in crude oil and other commodites along with slower growth should stem inflation, (2) the action by Korea Development Bank in "considering" an investment in Lehman Brothers, easing concern about further fallout from credit market losses, and (3) a decrease in the demand for Treasuries due to the rally in the stock market. A bullish factor for T-note prices last Friday was the comment from Fed Chairman Bernanke that financial turmoil has "not yet subsided" and is contributing to weaker economic growth and higher unemployment.
• The dollar is mixed this morning with the dollar/yen down -0.16 yen and the euro/dollar down -0.33 cents. The dollar index last Friday settled sharply higher. Bullish factors for the dollar last Friday included (1) the report that Korea Development Bank is "open to" a purchase of Lehman Brothers, which sent the equity market soaring and drove the dollar/yen higher due to resumption of the carry trade, (2) weakness in the euro due to the largest year-over-year drop in 6-1/2 years for Euro-Zone June industrial new orders, and (3) comments from Fed Chairman Bernanke that falling commodity prices, a stable dollar and slowing growth should stem inflation. 
• October crude oil prices this morning are trading +68 cents a barrel and October gasoline is trading 1.14 cents a gallon. The main bullish factor was the weekend vote by Russian lawmakers to officially recognize the independence of the two Georgian breakaway republics that recently sparked Russia's invasion of Georgia. October crude oil prices last Friday sold-off sharply throughout the day and closed -$6.59 a barrel and October gasoline closed -16.12 cents a gallon. Bearish factors for crude oil prices last Friday included (1) the strength in the dollar, (2) the reopening of the Baku-Tbilisi-Ceyan pipeline through Turkey following its shut down for over two weeks due to a fire, (3) the prediction from PetroLogistics that OPEC crude oil supply will probably increase in August by +400,000 bbl a day as Iran releases crude oil it held in storage, and (4) the action by Russia to start withdrawing its troops from Georgia and allowing international observers into the war-s tricken region.

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Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): n/a (BEST earnings consensus $0.00 per share)

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