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• The European DJ Stoxx 50 this morning is trading -0.75% on continued concerns about weakening spending by European consumers. Bank of Ireland is down -4.4% and Allied Irish Banks Plc is down -3% after rating downgrades to "sell" by Dresdner analysts who expect rising bad debts and the need for new capital by the two banks. Asia-Pacific stocks today closed lower across the board: Japan -1.98%, Hong Kong -3.06%, China -3.32%, Taiwan -3.19%, Australia -1.86%, Singapore -3.10%, South Korea -1.71%, Bombay -2.31%.
• Claims – Today’s weekly initial unemployment claims report is expected to show a small decline of –4,000 to 440,000, reversing part of last week’s increase of +15,000 to 444,000. Meanwhile, weekly continuing claims are expected to rise +25,000 to 3.460 million, adding to last week’s +6,000 increase to 3.435 million. The initial claims series is currently just below the recent 6-year high and the continuing claims series is at a 5-year high. The unemployment claims data continues to point to a high rate of layoffs and an accumulation of people on the unemployment rolls. Last Friday’s Aug unemployment rate rose sharply by +0.4 points to a 5-year high of 6.1%.
• US trade deficit – Today’s July trade deficit report is expected to expand mildly to -$58.0 billion from -$56.8 billion in June. The US trade deficit has moved sideways in the past 2 years after posting a record high of -$67.1 billion posted in October 2005. The US trade deficit has seen downward pressure from the strength in exports in the past several years, tied to strong overseas economic growth and the weak dollar (which has made US exports more competitive). However, the US trade deficit has been unable to improve much because of the blow-up in the value of US petroleum imports and because of the strong trade competitiveness of nations such as China which continue to hollow-out the US manufacturing sector. Looking ahead, the US trade deficit is likely to see offsetting factors as imports fall because of lower oil prices but as exports fall as well due to slower overseas growth and the recent rally in the dollar which has recently made US exports more expensive .
• Import prices – Today’s Aug US import price index report is expected to show a sharp decline of –1.8% m/m, reversing the +1.7% increase seen in July. On a year-on-year basis, Aug US import prices are expected to ease a bit to +20.2% y/y from the record high of +21.6% y/y seen in July (the history for the series goes back to 1983). The recent decline in oil prices will allow the overall import price figure to fall. However, non-petroleum import prices continue to be a source of inflation concern for the Fed. US non-petroleum import prices in July hit a 20-year high of +8.0%. The strength in import prices is being caused by high commodity and raw material costs, and also by higher prices charged by importers to cover their rising operating costs.

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• September S&Ps this morning are trading -10.10 points on bearish psychology and concern that this morning's unemployment claims report will show additional weakness in the US labor market. The US stock market yesterday ended the day with slight gains (Dow +0.34%, S&P 500 +0.61%, Nasdaq Composite +0.85%).
• Bullish factors for stock prices yesterday included (1) the +3.6% rally in the S&P 500 Energy Index after it had sold off by -26% from its May record high to 9.9 times trailing earnings Tuesday, the cheapest valuation in 16 months, (2) the +3.7% gain in FedEx after the world's largest air-cargo carrier said Q1 profit will be $1.23 a share, well ahead of analyst estimates of 95 cents a share, and (3) the drop in crude oil prices to a 5-month low and the rally in the dollar index to a 1-year high which helped send commodity prices tumbling to an 8-1/2 month low.
• Bearish factors for stock prices yesterday included (1) the -6.9% drop in Lehman Brothers, adding to Tuesday's 45% plunge, after Moody's Investors Service placed Lehman's credit ratings under review despite Lehman's plan to shed assets and raise capital following its posting of a larger-than-expected $3.9 billion Q3 loss, (2) the -30% drop in Washington Mutual to its lowest price since November 1990 after at least three potential acquirers ended negotiations to buy or invest in the largest US savings and loan and as S&P lowered its credit rating outlook for the bank, citing potential credit losses, and (3) the -3.2% tumble in the S&P 500 Regional Banks Index after Keefe Bruyette & Woods downgraded nine regional savings and loans saying the industry faces a "challenging" operating enviroment "amid slowing economic growth, contraction of credit and constrained capital."
• Lehman Brothers (LEH) fell 5.5% in after-hours trading yesterday after Standard & Poor's reiterated that they are evaluating Lehman for possible debt-rating downgrades.
• Oil majors are trading lower on this morning's 47-cent decline in oil prices. Chevron is down -1.1% and Exxon Mobil is down -0.6%.

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• December 10-year T-notes this morning are trading +7.5 ticks on this morning's sell-off in S&Ps. December T-note prices yesterday gave up most of Tuesday's gains and closed -13 ticks. Bearish factors for T-note prices yesterday included (1) reduced demand for the safety of Treasuries after the stock market rallied on Lehman Brothers plan to shed assets and raise capital, and (2) supply pressures as the Treasury will auction $12 billion 10-year T-notes today. Bullish factors for T-note prices yesterday included (1) the continuing credit crunch as the Fed's Term Auction Facility (TAF) auction of $25 billion in one-month funds were auctioned 4 bp above the Libor rate, the highest in almost 5 months and a sign that banks' are still scrambling for funds as other lending institutions are too fearful to lend to each other, and (2) further indications that economic weakness is spreading in Europe as the EU Commission lowered its growth forecast for Europe for the rest of thi s year and predicted a recession for Germany.
• The dollar is mixed this morning with the dollar/yen down -0.88 yen and the euro/dollar down -0.55 cents. The dollar index yesterday rallied sharply and closed at a 1-year high. Bullish factors for the dollar yesterday included (1) the decline in the euro to an 11-1/2 month low agaisnt the dollar after the European Commission lowered their growth outlook for the Euro-Zone for the rest of the year and predicted that Germany may be heading for a recession, and (2) weakness in the yen as the carry trade became more attractive when the golbal equity markets rallied on Lehman Brothers plan to shore up its capital. Bearish factors for the dollar yesterday included (1) hawkish comments from ECB Council member Liikanen that the recent inflation surge is a "serious concern," and (2) comments from ECB President Trichet that inflation "is likely to remian high for quite some time, moderating only gradually during the course of 2009," as the ECB keeps up its inflation guard desp ite a slowing Euro-Zone economy. 
• October crude oil prices this morning are trading -47 cents a barrel and October gasoline is trading +4.00 cents a gallon. Hurricane Ike is still headed towards the Texas coast and is expected to make landfall early Saturday morning. Oil companies are evacuating platforms and shutting down operations. October crude oil prices yesterday ended the day lower and closed -$0.68 a barrel and October gasoline closed -0.90 cents a gallon. October crude oil posted a 5-month low of $101.36 a barrel yesterday. Bearish factors for crude oil prices yesterday included (1) the rally in the dollar index to a 1-year high, (2) the drop in the refinery capacity rate to a 5-year low of 78.3% for the week ended Sep 5 as US fuel demand over the past four weeks declined -3.8%, (3) the IEA's cut in its 2008 global oil demand forecast by 100,000 bbl a day to 86.8 million bbl a day and cut in its 2009 demand estimate by 140,000 bbl a day to 87.6 million bbl a day, and (4) the action by the European Commission in cutting its growth forecast for the Euro-Zone this year to 1.3% from 1.7%, signaling less energy demand as the Euro-Zone economy weakens. Bullish factors for crude oil prices yesterday included (1) comments from the OPEC president that OPEC members should cut crude production to their quota levels, which would amount to a production cut of about 500,000 bpd given current over-production levels, and (2) the greater-than-expected declines in crude oil and gasoline inventories in yesterday's DOE inventory report (crude oil -5.83 million bbl versus expectations of -3.75 million bbl and gasoline -6.46 million bbl versus expectations of -3.45 million bbl).

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