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• The European DJ Stoxx 50 this morning is trading -1.28%. European stocks were undercut by today's report that Euro-Zone July retail sales fell -0.4% m/m, which was weaker than market expectations for a +0.1% rise. Banking stocks were undercut by today's news that US-based Ospraie Management will close its largest hedge fund due to a large loss this year of 38%, although the firm's other three funds still hold $4 billion in assets. That news pushed Lehman Brothers lower by 2.2% because Lehman owns 20% of Ospraie. On the plus side for financial stocks, Ambac received regulatory approval to start a new municipal bond insurance operation that may achieve a AAA credit rating. Ambac this morning is up 10%. Asia-Pacific stocks today closed mostly lower: Japan +0.64%, Hong Kong -2.17%, China -1.73%, Taiwan -1.71%, Australia -1.09%, Singapore -1.90%, South Korea +1.0%.
• Mortgage apps – Today's weekly MBA mortgage applications report showed some strength with the market index rising +7.5%, the purchases sub-index rising +10.5%, and the refinancing sub-index rising +2.1%. The rise in the purchases sub-index by +10.5% to 349.0 was encouraging, although it may just be a temporary blip. The purchases sub-index hit a 5-1/2 year low of 309.5 in the last week of July. The refinancing sub-index is still just mildly above its recent 7-1/2 year low of 1,034.5. The housing market has recently taken a fresh hit from the sharp early-summer rise in mortgage rates. The 30-year mortgage rate has eased mildly in the past several weeks to 6.40%, down 23 bp from the 1-year high of 6.63% posted in the third week of July. However, the 30-year mortgage rate is still up sharply by about 1/2 point from the levels near 6.00% seen as recently as May.
• Factory orders – Today’s July factory orders report is expected to show an increase of +1.0%, adding to the +1.7% increase seen in June. Market expectations for a +1.0% increase in factory orders today stem from the recent July durable goods orders report of +1.3% since durable goods orders account for about one-half of the factory orders series. The US manufacturing sector continues to be in need of new orders to stay afloat. Yesterday’s August ISM manufacturing index showed a 0.1 point decline to 49.9, where it indicated that the US manufacturing sector is showing basically no growth.
• Beige Book – The Fed today will release its Beige Book report in preparation for the upcoming FOMC meeting on Sep 16. The markets will be watching today’s report for the extent of economic weakness in the country and whether inflation pressures are starting to subside with the decline in oil and commodities prices.
• Vehicle sales – Today’s Aug total vehicle sales report is expected to rebound higher to 13.0 million vehicles from the 15-year low of 12.5 million vehicles posted in July. US vehicle sales have plunged this year from the average of about 16 million units seen last year and from the average of about 17 million seen in 2000-05. The plunge in auto sales reflects lower consumer spending and consumer reluctance to buy Detroit’s many vehicles that are not fuel-efficient. US automakers are scrambling to try to shift production to more fuel efficient vehicles, but that is a multi-year process. In the meantime, auto showrooms remain quiet as gasoline prices remain high and as concerns continue about the US economy.

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• September S&Ps this morning are trading -3.40 points on the Ospraie hedge fund closure, which may result in liquidation of some equity holdings. The US stock market yesterday rallied early but then lost ground and closed lower (Dow -0.23%, S&P 500 -0.41%, Nasdaq Composite -0.77%).
• Bearish factors for stock prices yesterday included (1) the report from the Organization for Economic Cooperation and Development (OECD) predicting "weak global economic activity through the end of the year," as financial-market turmoil, downturns in major housing markets and high commodity prices "continue to bear down on global growth," (2) the prediction from Morgan Stanley that the global economic downturn has only just begun with the US heading into a recession and the impact of the credit crunch still to be fully felt as economic growth in the US is likely to weaken in the second half of this year which will hurt European and Asian exports and hamper the global expansion, (3) the weaker-than-expected Aug ISM manufacturing index which fell below (-0.1 to 49.9) the expansion/contraction level of 50.0, and (4) the weaker-than-expected July construction spending report.
• Bullish factors for stock prices yesterday included (1) the fall in the 10-year T-note yield to a 5-month low, (2) the plunge in crude oil prices by -$5.75 a barrel to a 4-3/4 month low and the overall sell-off in commodity prices due to the surge in the dollar index to a 10-1/2 month high which lifted airlines and transportation stocks, (3) the +4,8% gain in Bank of America after Goldman Sachs recommended buying shares of the second-largest US bank on its "long-term earnings power," and (4) the +19% surge in Regions Financial after Alabama's biggest bank said they will assume all deposits from Integrity Bank of Alpharetta, Georgia, after US regulators closed Integrity last Friday due to the weight of soured real-estate loans.
• Altera Corp (ALTR) fell -0.8% in after-hours trading yesterday after the programmable chip company reaffirmed Q3 sales guidance that sales will fall 3% from the previous quarter.
• ConAgra Foods (CAG) may show weakness today after saying that fiscal Q1 earnings will likely be "slightly below" its previous guidance of 26-28 cents.

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• December 10-year T-notes this morning are trading +1 tick. December T-note prices yesterday rallied and closed +23 ticks at a 5-month high. Bullish factors for T-note prices yesterday included (1) the weaker-than-expected Aug ISM manufacturing index (-0.1 to 49.9 versus expectations of unchanged at 50.0) with the prices-paid component of the ISM index falling a greater-than-expected -11.5 to 6-month low of 77.0 (versus expectations of -6.2 to 82.3), and (2) a decline in inflation expectations as the dollar index rallied to a 10-1/2 month high and helped send commodity prices tumbling. Bearish factors for T-note prices yesterday included (1) a decrease in demand for Treasuries due to the early rally in the equity market, and (2) the Aug 5 FOMC minutes which showed that the Federal Reserve directors at the Fed's Chicago, Kansas City and Dallas banks called for the Fed to raise the discount rate 25 bp to 2.50%, citing a threat of rising inflation.
• The dollar is higher this morning with the dollar/yen up +0.08 yen and the euro/dollar down sharply by -0.98 cents. The euro was undercut by today's weak European retail sales report and by continued technical selling. The dollar index yesterday rallied sharply and closed at a 10-1/2 month high. Bullish factors for the dollar yesterday included (1) the action by Standard Chartered Plc in raising their dollar forecasts to $1.44 per euro by year end and to $1.36 by the end of the first quarter 2009 from previous forecasts of $1.49 and $1.42, (2) the action by BNP Paribas in raising their dollar forecast to $1.42 verus the euro by year-end compared to a previous forecast of $1.45 which helped to send the euro to a 6-3/4 month low against the dollar, and (3) the fall in the British pound to a 2-year low against the dollar after UK mortgage approvals dropped to their lowest level in nine years. Bearish factors for the dollar yesterday included (1) the weaker-than-expecte d Aug ISM manufacturing index, (2) the weaker-than-expected July construction spending, and (3) the rise in July Euro-Zone producer prices to their highest level (+9.0% y/y) since the data series began in 1990, keeping the pressure on ECB policy makers to maintain their tightening bias. 
• October crude oil prices this morning are trading -$1.51 a barrel and October gasoline is trading -4.17 cents a gallon. October crude oil prices yesterday sold-off sharply and closed -$5.75 a barrel and October gasoline closed -12.05 cents a gallon. October crude oil and gasoline both posted 4-3/4 month lows yesterday. Bearish factors for crude oil prices yesterday incuded (1) a lack of damage to oil refineries and platforms from Hurricane Gustav as oil companies prepare to resume oil production in the Gulf of Mexico, and (2) the surge in the dollar index to a 10-1/2 month high. Bullish factors for crude oil prices yesterday included (1) the prediction from Colorado State University weather forecasters of "well above average" tropical storm activity in the Atlantic for the month of September with four or five tropical storms becoming hurricanes, and (2) the continued shut-down of refineries along the Gulf Coast region which may take up to 10 days to resume operating because of a lack of power, which will hurt gasoline inventories that are already at 10-month lows. Expectations for tomorrow's DOE inventory report are for a -1.0 million bbl drop in crude oil inventories, a -1.46 million bbl decline in gasoline stockpiles, a +1.0 million bbl increase in distillate inventories and a +0.2 increase in the refinery capacity rate to 87.5%.

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Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): SPLS-Staples (BEST earnings consensus $0.21 per share), HRB-H&R Block (-0.35), SAI-SAIC ().26), JOYG-Joy Global (0.86), GES-Guess? (0.49), CASY-Casey's General Stores (0.52), PFGC-Performance Food Group (0.42)

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