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• The European DJ Stoxx 50 this morning is trading -0.69% on higher oil prices and on hawkish comments by ECB council member Axel Weber. Mr. Weber said that "the discussion about declining rates in Europe is premature" and that rate hikes may be needed "if the economic outlook brightens somewhat again towarads the end of the year and next year." He also said that he believes that the ECB's current rate is "still more on the accommodative side than being neutral." Bank concerns are also a negative stock market factor again today with French-bank Natixis falling 5% on a newspaper report that the bank may need to raise 3.7 billion euros of new capital through a discounted rights offering. UBS is down 2.6% today and Credit Suisse is down 2.4%. In addition, the Wall Street Journal is citing FDIC Chairman Sheila Blair as saying that the FDIC may need to obtain funds from the US Treasury to cover short-term liquidity needs. Asia-Pacific stocks today closed mixed: Japan - 0.20%, Hong Kong +1.94%, China -0.27%, Taiwan +1.67%, Australia +0.07%, Singapore -0.08%, South Korea +0.13%, Bombay -1.28%.
• Mortgage applications – This morning's MBA mortgage applications report showed some slight increases that failed to overcome recent weakness. The market index rose +0.5%, the purchases index rose +0.6%, and the refinancing sub-index rose +0.3%. The refinancing sub-index is just above last week's 7-1/2 year low of 1,034.5. The purchases sub-index of 314.0 is just slightly above the 5-1/2 year low of 309.50 posted in the last week of July. The housing market has recently taken a fresh hit from the sharp rise in mortgage rates. The 30-year mortgage rate has eased mildly in the past several weeks to 6.47%. However, that is still just 16 bp below the 1-year high of 6.63% posted in the third week of July and is up sharply by about 1/2 point from the levels near 6.00% seen as recently as May.
• Durable goods – Today’s July durable goods orders report is expected to be unchanged and -0.7% ex-transportation, which would be weaker than the June report of +0.8% and +2.0% ex-transportation. On a year-on-year basis, the durable goods series has been negative for four consecutive months and was at –1.4% in June. The manufacturing sector badly needs some new orders to keep factories busy and offset the negative impact from plunging US auto manufacturing. The ISM manufacturing index was at 50.0 in July, suggesting that the US manufacturing sector is showing no growth right now. That is at least better than the sub-50 levels seen in February through May.

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• September S&Ps this morning are trading -3.80 on higher oil prices and banking concerns. The US stock market yesterday closed mixed (Dow +0.23%, S&P 500 +0.37%, Nasdaq Composite -0.15%).
• Bullish factors for stock prices yesterday included (1) the larger-than-expected gain in US consumer confidence in Aug, (2) the unexpected increase in US new home sales for July with a -5.2% drop in the number of unsold homes on the market, (3) the smaller-than-expected decline in home prices in June according to S&P/CaseShiller, (4) the +6.4% gain in Anadarko Petroleum after the second-largest independent US oil producer said it plans to buy back as much as $5 billion of its stock saying its share price undervalues its net asset value, and (5) the +21% surge in Freddie Mac and the +8.3% rally in Fannie Mae after Citigroup said the mortgage-finance companies can withstand losses through the end of the year and still maintain a cushion above their mininum capital requirements.
• Bearish factors for stock prices yesterday included (1) the weaker-than-expected Aug Richmond Fed manufacturing index, (2) the minutes from the Aug FOMC meeting where policy makers seemed to agree that the next move on interest rates will be higher, (3) the report from the FDIC that there were 117 "problem banks" in Q2, up from 90 in Q1 and the highest level in five years and that US bank earnings in Q2 of 2008 fell to their second-lowest level since 1991 as lenders added to their reserves for mounting loan losses, and (4) comments from Dallas Fed President Fisher that economic growth may stall in the second half of this year as financial strains continue to tighten credit.
• Mattel (MAT) fell almost 4% in after-hours trading yesterday after the world's biggest toymaker was awarded $100 million instead of the $1 billion it was seeking in copyright-infringement and contract damages for its claims agianst MGA Entertainment that MGA's Bratz dolls were based on the work of a former Mattel designer.
• American Airlines (AMR) is down -3.8% in European trading on higher oil prices and on Citigroup's recommendation downgrade to "sell" from "neutral." The downgrade was due to the analyst's concern about a downturn in consumer demand.
• Motorola (MOT) is down -1.2% in European trading after Gartner Group said that Motorola's mobile-phone market share fell to 10% from 14.5% in Q2.
• Merrill Lynch (MER) may see some strength today after officials from Singapore's sovereign wealth fund said the have "great confidence" in Merrill CEO John Thain and plan to raise the stake in Merrill.
• Aflac (AFL) rallied +1.5% in after-hours trading yesterday after the company said that Goldman Sachs will help with a $825 million stock buyback program.
• J. Crew Group (JCG) fell 8% in after-hours trading yesterday after the CEO lowered 2008 earnings guidance due to soft sales and additional costs to fix problems with its web and catalog shipping systems.

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• September 10-year T-notes this morning are trading -5.5 ticks on some supply overhang ahead of today's 2-year T-note auction and tomorrow's 5-year T-note auction. September T-note prices yesterday settled little changed and closed -1 tick. Bearish factors for T-note prices yesterday included (1) the stronger-than-expected Jun S&P/CaseShiller home price index (-15.9% y/y versus expectations of -16.2% y/y), (2) the stronger-than-expected US consumer confidence for Aug (+5.0 to 56.9 versus expectations of +1.1 to 53.0), and (3) the minutes of the Aug 5 FOMC meeting that showed a "number" of policy makers worried that "core inflation might fail to moderate next year." Bullish factors for T-note prices yesterday included (1) the weaker-than-expected Aug Richmond Fed manufacturing index (unchanged at -16 versus expectations of +6 to -10), (2) comments from Dallas Fed President Fisher that weakness in the US economy will continue due to "enormous stress" in financial market s, and (3) carryover support from European debt prices as the yield on the German 10-year bund fell to a 3-1/2 month low after the Aug IFO German buisiness climate fell more than expected to a 3-year low.
• The dollar is trading with a fairly sharp loss this morning with the dollar/yen down -0.75 yen and the euro/dollar up +1.01 cents. Bearish factors for the dollar this morning include long liquidation pressure and hawkish comments from ECB Council member Alex Weber. The dollar index yesterday rallied to an 8-month high. Bullish factors for the dollar yesterday included (1) the drop in the euro to a 6-1/4 month low against the dollar after the Aug German IFO business climate fell more than expected to a 3-year low, (2) the larger-than-expected rise in US consumer confidence for Aug, and (3) the minutes from the Aug 5FOMC meeting in which policy makers agreed the next change in US interest rates will be to raise them. Bearish factors for the dollar yesterday included (1) comments from Dallas Fed President Fisher that US economic growth may stall in the second half of 2008 as financial strains continue to tighten credit, and (2) comments from ECB Council member Stark th at faster inflation is pushing up Euro-Zone wages. 
• October crude oil prices this morning are trading +$1.52 a barrel and October gasoline is trading +3.70 cents a gallon. The market is closely watching Tropical Storm Gustav which is currently near Haiti and is expected to strengthen to hurricane force as it moves into the Gulf of Mexico and aheads toward the Louisiana coast. October crude oil prices yesterday closed +$1.16 a barrel and October gasoline closed +5.28 cents a gallon. Bullish factors for crude oil prices yesterday incuded (1) weather forecasts that show Hurricane Gustav entering the Gulf of Mexico, where more than 20% of US oil production is located, and (2) continued geo-political tensions over Russia recognizing the independence of two breakaway regions in Georgia, risking a deepening rift with the West. Bearish factors for crude oil prices yesterday included (1) the rally in the dollar index to an 8-month high, (2) the report from MasterCard that showed US gasoline demand falling -2.9% last week for the 18th consecutive weekly decline as a weak economy and high prices curtail demand, and (3) comments from Norway's oil minister that crude oil prices are still "quite high" and there's no reason for OPEC to cut production. Expectations for today's DOE weekly inventory report are for a +1.1 million bbl gain in crude oil inventories, a -2.45 million bbl drop in gasoline stockpiles, a +600,000 bbl rise in distillate inventories and a +0.2 gain in the refinery capacity rate to 85.9%.

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Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): DLTR-Dollar Tree (BEST earnings consensus $0.41 per share), GEF-Greif (1.11), SLH-Solera Holdings (0.28), MW-Men's Warehouse (0.71)

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