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• The European DJ Stoxx 50 this morning is trading slighly lower by -0.15% on mildly higher oil prices (+58 cents) and on some nervousness about whether the ECB will maintain its generally hawkish bias at its policy meeting today. The market is unanimously expecting the ECB today to leave its benchmark 2-week refi rate unchanged at 4.25%. Asia-Pacific stocks today closed mostly lower: Japan -1.04%, Hong Kong -0.95%, China +0.23%, Taiwan -2.62%, Australia -1.59%, Singapore -2.97%, South Korea -0.43%, Bombay -1.00%.
• Claims – Today’s weekly unemployment claims report is expected to show a decline of –5,000 to 420,000, adding to last week’s decline of –10,000 to 425,000. The initial claims series has fallen in the past three weeks but is still only modestly below the 6-year high of 457,000 posted in the week ended August 1. Today’s weekly continuing claims report is expected to fall –3,000 to 3.420 million, falling back a bit after last week’s surge of +64,000 to a 5-year high of 3.423 million. Both the initial and continuing claims series point to a weakening labor market. Regarding the labor market, the market is looking ahead to tomorrow’s August unemployment report. Aug payrolls are expected to fall –75,000, which would be the eighth consecutive monthly decline. The August unemployment rate is expected to be unchanged from July’s 4-year high of 5.7%.
• Productivity – Today’s Q2 non-farm productivity report is expected to be revised higher to +3.5% from the last estimate of +2.2%. The upward revision is expected to step from higher output after Q2 GDP was recently revised upward to +3.3% from +1.9%. However, the spurt in productivity is unlikely to last since the market is looking for a decline in GDP to +1.2% in Q3 and +0.5% in Q4. The decline in productivity will put some additional downward pressure on corporate profits and will keep the Fed worried about upward price pressures.
• ISM non-manufacturing index – Today’s Aug ISM non-manufacturing index is expected to be unchanged at 49.5 following the +1.3 point rise to 49.5 seen in July. Today’s expected report of 49.5 would suggest that the US non-manufacturing sector is contracting. The US economy showed strong growth in Q3 because of strong exports and the federal stimulus program, but the economy is likely to fade through year-end due to the housing and credit crisis and general consumer pessimism. The only bright spot at present is the recent decline in fuel prices.

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• September S&Ps this morning are trading -4.90 points on higher oil prices. The US stock market yesterday closed mixed (Dow +0.14%, S&P 500 -0.20%, Nasdaq Composite -0.66%).
• Bearish factors for stock prices yesterday included (1) the sell-off in technology stocks as Corning fell 13% after cutting its Q3 earnings and sales estimates because television-set makers cut orders to work off excess inventory, and (2) the slump in commodity producing stocks, led by a 3.4% fall in Newmont Mining, the largest US gold producer, and the 3.2% drop in Freeport-McMorRan, the world's largest publicly traded copper mining company, after Citigroup said a more restrictive lending enviroment is likely to diminish industrial growth and hurt the prices of commodity producing stocks.
• Bullish factors for stock prices yesterday included (1) the larger-than-expected increase in July factory orders and the upward revision to June factory orders, (2) the continued fall in the 10-year T-note yield to a 4-month low, (3) continued weakness in crude oil prices along with the plunge in commodity prices to a 7-month low, easing inflation concerns, and (4) the better-than-expected US auto sales report for August.
• Lehman Brothers (LEH) is slightly higher this morning in European trading after the London-based Times newspaper said that the Bank of Tokyo-Mitsubishi is interested in bidding for a share of Lehman Brothers.
• Navistar International (NAV) is up 5% in European trading after the company raised its earnings guidance for this year due to higher revenue from military sales and sales of more fuel-efficient heavy trucks.
• H&R Block (HRB) fell 1.9% in after-hours trading yesterday after the company wrote-down assets by $20 billion and raised loss reserves due to a rise in home-loan delinquencies to 9.6% from 3.4% in the year-earlier period.
• Hovnanian Enterprises (HOV) fell 5% in after-hours trading yesterday after the homebuilder reported a net loss in the quarter ended July 31 of $2.67 per share, which was the eighth consecutive quarterly decline.

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• December 10-year T-notes this morning are trading -1.5 ticks. December T-note prices yesterday rallied and closed +12.5 ticks at a 5-1/4 month high. Bullish factors for T-note prices yesterday included (1) speculation that inflation will ease as the dollar's recent rally to a 10-3/4 month high has helped send commodity prices tumbling and as inflation expectations have fallen as the yield between 10-year Treasury Inflation Protected Securities (TIPS) and regular 10-year Treasuries dropped to a 4-3/4 year low of 1.99%, (2) dovish comments from Boston Fed President Rosengren that the current credit crunch is blunting the effectiveness of the Fed's interest rate cuts and that inflation will probably ease "over the next six to nine months" because of slowing economic gowth and declining commodity prices, and (3) the Fed's Beige Book that stated "the pace of economic activity has been slow in most districts" as manufacturing "declined" and demand slowed for home mortgages and consumer loans. Bearish factors for T-note prices yesterday included (1) the stronger-than-expected July factory orders report (+1.3% versus expectations of +1.0%) and the upward revision to Jun factory orders (+2.1% versus a previously reported +1.7%), and (2) the statement in the Fed's Beige Book that "all Fed districts reported continuing upward price pressure from elevated input costs."
• The dollar is trading slightly higher this morning with the dollar/yen up +0.07 yen and the euro/dollar down -0.08 cents. The dollar index yesterday rallied sharply to a 10-3/4 month high early, but gave up almost all of its gians to close just slightly higher. Bullish factors for the dollar yesterday included (1) concerns about sales unexpectedly declined, sending the euro to a 7-1/4 month low against the dollar, (2) the stronger-than-expected US July factory orders and the upward revision to June factory orders, and (3) the continued decline in the British pound to a 2-year low against the dollar after British consumer confidence stayed at a 4-year low in Aug. Bearish factors for the dollar yesterday included (1) comments from Boston Fed President Rosengren that the US unemployment rate may rise above 6% as tighter credit slows spending by consumers and businesses, and (2) the somber Fed's Beige Book which said that US "economic activity has been slow" in most of t he 12 Fed districts last month and that the housing market "weakened or remained soft."
•  October crude oil prices this morning are trading +58 cents a barrel and October gasoline is trading +2.09 cents a gallon. The main bullish factor is Hurricane Ike which is still fairly far out in the Atlantic but may have a chance of hitting the Gulf of Mexico. Tropical Storm Hanna is currently near the Bahamas and is expected to make landfall in North or South Carolina by Saturday. October crude oil prices yesterday continued Tuesday's decline and closed -$0.36 a barrel although October gasoline closed +3.31 cents a gallon. Bearish factors for crude oil prices yesterday included (1) the collapse of Ospraie Management's largest hedge fund due to bad bets on commodity stocks, which caused concern about position liquidation, (2) the continued rally in the dollar index to a 10-3/4 month high, (3) the 1.6% drop in US gasoline demand for the 19th consecutive week last week, according to MasterCard, and (4) the prediction by OPEC President Khelil that oil prices will con tinue to drop as the dollar strengthens. Bullish factors for crude oil prices yesterday included (1) the prediction by Goldman Sachs that crude oil will rise to $149 a barrel by year-end due to robust emerging market oil demand growth against a backdrop of continuing non-OPEC supply disruptions. and (2) the continued threat of hurricane damage as hurricane season is in full swing with the possible upgrading of several tropical storms in the Atlantic to hurricanes within the next week. Expectations for today's DOE inventory report are for a +450,000 bbl climb in crude oil inventories, a -1.3 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): TOL-Toll Brothers (BEST earnings consensus $0.25 per share), NAV-Navistar International (1.42), FCE-Forest City (0.30), GYI-Getty Images (0.51), TTWO-Take-Two Interactive Software (0.53), COO-Cooper Companies (0.65), CIEN-Ciena Corp. (0.36), ABM-ABM Industries (0.39), ADCT-ADC Telecom (0.28), MATK-Martek Biosciences (0.25)

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