U.S. Preview

• The European DJ Stoxx 50 this morning is down 4.42% on Lehman's bankruptcy filing last night. UBS is down 9% and Societe Generale is down 8%. The Asia-Pacific stock markets that were open today closed lower: Taiwan -4.09%, Australia -1.76%, Singapore -3.27%, and Bombay -3.35%. There were holidays today in Japan, Hong Kong, China, and South Korea.
• The fundamental situation changed for the banking crisis this weekend after the US Treasury refused to provide any capital or loan guarantees to facilitate the sale of Lehman Brothers As a result, Lehman Brothers declared bankruptcy last night after Bank of America and Barclays walked away from negotiations to buy Lehman Brothers without help from the US government. Lehman's stock is down 80% to 67 cents in European trading. Meanwhile, Bank of America on Sunday announced the acquisition of Merrill Lynch for $50 billion at a 70% premium to last Friday's close, which at least took Merrill Lynch off the hit list for today. Bank of America's stock this morning is down 14% in European trading. AIG is down 25% this morning in European trading after the insurer over the weekend rejected offers from private equity firms and asked the Fed for a $40 billion bridge loan to give it time to sell assets and raise capital.
• The ECB today injected 30 billion euros in liquidity and the Bank of England loaned banks 5 billion stlg in order to ease liquidity concerns in the UK/European banking systems. The Fed yesterday announced an expanded loan program where it will boost its dealer Term Securities Lending Facility by $25 billion to $200 billion and allow a wider range of collateral. In addition, a consortium of Wall Street firms yesterday announced a new $70 billion fund to ensure liquidity during the Lehman crisis. The market is now trying to sort out the impact of Lehman's bankruptcy filing on its customers, debt-holders, and counter-parties in trades. The markets are already looking at which financial institutions will be hit by losses caused by the Lehman bankruptcy. In addition, the markets are worried about the massive derivatives market where Lehman was a counter-party on many trades, particularly in the credit-default swaps market where Lehman was one of the 10 largest counterpa rties.
• China's central bank today cut its benchmark lending rate by 27 bp and cut its reserve ratio by 1 point in an attempt to provide some help for its slowing economy. Today's move was the first Chinese rate cut in 6 years.
• Focus factors - Market attention this week will focus on (1) fall-out from the Lehman Brothers bankruptcy, (2) any fresh news on the US banking system crisis and whether other banks or financial institutions come under renewed attack this week, (3) the US stock market which closed moderately higher on the week as the market was roiled by Lehman speculation, (4) T-note prices which have traded on a volatile note in the past two weeks at the top of the 3-month rally, (5) the dollar index which fell on long liquidation pressure last Friday after the sharp rally seen since July, and (6) crude oil prices which closed just above $100 per barrel last Friday on downward pressure from OPEC’s lack of decisive action to cut production and on ideas that disruptions from Hurricane Ike will be manageable.
• Weekly calendar – Today brings the Sep Empire manufacturing index (expected –1.8 to 1.0) and Aug industrial production (expected –0.3%). Tuesday brings Aug CPI (expected unchanged overall and +0.2% core), the Sep NAHB housing market index (expected +1 to 17), and the FOMC meeting (funds rate target expected unchanged at 2.00%). Wednesday brings Q2 current account deficit (expected wider at -$179.3 billion vs -$176.4 billion in Q2), and Aug housing starts (expected –1.6%). Thursday brings weekly initial unemployment claims (expected –5,000), Aug leading indicators (expected –0.2%), and the Sep Philadelphia Fed index (expected +2.7 to –10.0).
• Fed policy – The market last week took a more dovish view of Fed policy given the troubles at Lehman Brothers and other financial institutions. The market is now discounting a small 10% chance of a 25 bp rate cut to 1.75% at tomorrow’s FOMC meeting. The market is discounting a 34% chance of a 25 bp rate cut by the end of this year. The market is not fully discounting a 25 bp rate hike to 2.25% until August 2009, and is not discounting a 50 bp rate hike until November 2009.
• Industrial production – Today’s Aug industrial production report is expected to show a decline of –0.3%, more than reversing July’s +0.2% increase. US industrial production on a year-on-year basis in July turned negative (at –0.1% y/y) for the first time since 2003. Meanwhile, the Sep Empire manufacturing index is expected to fall –1.8 points to 1.0, remaining just above the expansion/contraction level of zero. The market is generally expecting manufacturing production to fall in coming months due to expectations for slower demand from US consumers and for US exports.

CRB TrendTrader is a position trading system for trading Commodities, Futures, Forex, and Options.

TrendTrader helps you Find the Trend, Execute the Trade, and Manage your trade to optimize profits.

Click here for more information

• September S&Ps this morning are trading sharply lower by -48.20 points (-3.83%) on the Lehman bankruptcy news. The market is very worried about systemic risk and how the losses will spread through the financial system. The US stock market last Friday overcame early sharp losses to close mixed (Dow -0.10%, S&P 500 +0.21%, Nasdaq Composite +0.14%).
• Bullish factors for stock prices last Friday included (1) hopes that Lehman Brothers could be sold over the weekend, (2) a continued rally in refinery stocks as the crack spread (measuring crude oil processing profitability) rose 6.2% last Friday, adding on to last Thursday's 34% increase, (2) the larger-than-expected rise in the Sep University of Michigan consumer confidence index to a 6-month high, and (3) an 8.2% rise in Freeport-McMoRan and 6.4% gain in Newmont Mining as gold and copper both rallied on a sharp drop in the dollar.
• Bearish factors for stock prices last Friday included (1) the weaker-than-expected US August retail sales, (2) the 31% plunge in AIG on fears that the largest insurer in the US will have difficulty raising capital, and (3) the 14% fall in Lehman Brothers as the fourth largest US securities firm tried to fend off collapse by seraching for a buyer which was made more difficult by Treasury Secretary Paulson's refusal to allow government money be be used to rescue Lehman.

Do you think the market is headed for a fall?

If you have a $500,000 portfolio, you should download the latest report by Forbes columnist Ken Fisher.

This must-read report includes his latest stock market prediction, plus research and analysis you can use in your portfolio right now.

Click here to download your report!

• December 10-year T-notes have soared by 2-01/32 points this morning on the Lehman bankruptcy on flight-to-quality concerns and on ideas that the Fed may have to cut the funds rate another notch. December T-note prices last Friday sold off and closed -22.5 ticks. Bearish factors for T-note prices last Friday included (1) the rise in the core PPI for Aug to a 17-year high of +3.6% y/y, (2) the larger-than-expected increase in the Sep University of Michigan consumer confidence (+10.1 to a 6-month high of 73.1 versus expectations of +1.0 to 64.0), and (3) reduced demand for the safety of Treasuries as the stock market overcame early weakness and closed higher. Bullish factors for T-note prices last Friday included (1) the weaker-than-expected retail sales report for Aug (-0.3% and -0.7% less autos versus expectations of -0.2% and -0.2% less autos), (2) the larger-than-expected increase in July business inventories (+1.1% versus expectations of +0.5%), and (3) uncertainty about the Lehman Brothers situation.
• The dollar/yen is sharply lower by -2.73 yen this morning as the yen rallied on the exit of yen carry trades. The euro/dollar is moderately lower by -0.38 cents as the market tries to assess fallout on the US versus Europe from the worsened banking crisis. The dollar index last Friday sold off sharply and closed lower. Bearish factors for the dollar last Friday included (1) the weaker-than-expected US Aug retail sales, and (2) the rise in US foreclosures in Aug to a record as home prices continue to decline. Bullish factors for the dollar last Friday included (1) the larger-than-expected rise in the Sep University of Michigan consumer confidence report, and (2) the weaker-tham-expected Euro-Zone industrial production for July as the -1.7% y/y decline is the largest y/y drop in 5 years. 
• October crude oil prices this morning are trading -$4.42 a barrel and October gasoline is trading -17.74 cents a gallon. Bearish factors include the fact that Hurricane Ike does not appear to have caused major refinery damage and the Lehman bankruptcy news which is likely to further undercut US economic growth and demand for energy. October crude oil prices last Friday overcame early weakness and closed +$0.31 a barrel and October gasoline closed +2.08 cents a gallon. October crude oil last Friday posted a 5-1/4 month low of $99.99 a barrel although October gasoline posted a 1-1/2 week high. Bearish factors for crude oil prices last Friday centered on the continued slowing of the global economy which will curtail energy demand as (1) US retail sales in Aug were weaker-than-expected, and (2) Euro-Zone industrial production for July was weaker-than-expected. Bullish factors for crude oil prices last Friday included (1) the rally in gasoline prices to a 1-1/2 week hig h on closure of refineries along the Texas coast due to Hurricane Ike where almost one fifth of the total US refining capacity is located, and (2) the fears of significant supply disruptions to gasoline supplies, which are already at 8-year lows, because of the two major hurricanes in just two weeks.

Complimentary Market Forecasts!

VantagePoint's market forecasts are nearly 80% accurate.
Take a look at actual VantagePoint forecasts, and see for yourself
the difference VantagePoint forecasts will make in your trading!

Click here to see a recent forecast now.

Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): PLL-Pall (BEST earnings consensus $0.60 per share)

Morning Quote Board