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• The European DJ Stoxx 50 this morning is up +0.73% on higher oil and mining stocks and on some improved confidence in banking stocks with this morning's stronger-than-expected earnings report from Bank of America. Asia-Pacific stocks closed with solid gains today: Hong Kong +3.01%, China +3.40%, Taiwan +3.97%, Australia +3.54%, Singapore +2.51%, South Korea +3.70%, Bombay +1.57%.
• Focus Factors - The markets this week will focus on (1) whether crude oil prices continue to drop in a continuation of the week-long $18 plunge, (2) whether the S&P 500 can sustain its sharp 5.1% upside recovery seen in the latter half of last week, (3) Fed policy which is likely to become more hawkish if the stock market recovery holds and the US economic data remains only mildly negative, (4) T-note prices which have the potential to extend last week’s slide if the stock market recovery holds and there are no fresh banking blow-ups, and (5) this week’s heavy slate of Q2 earnings reports.
• US calendar Monday brings June leading indicators (expected 0.1%). Tuesday brings the July Richmond Fed manufacturing index (expected up 3 points to 9), the May house price index (expected 0.6% m/m), and the Treasury’s auction of 20-year inflation-adjusted TIPS. Wednesday brings the 2-year T-note auction and the Fed’s Beige Book report. Thursday brings weekly initial unemployment claims (expected +14,000), June existing home sales (expected 1.0%), and the 5-year T-note auction. Friday brings June durable goods orders (expected 0.3% overall and 0.2% ex-transportation), the final-July US consumer confidence report (expected 0.3 to 56.3), and June new home sales (expected 1.8%).
• Fed policy? Market expectations last week for Fed policy did not show much shift through year-end, but the market did boost the chances for Fed tightening in 2009 by about 20 bp. The market is currently discounting the chances for a 25 bp rate hike at only about 10% for the next FOMC meeting on August 5 and at about 40% for the following FOMC meeting on September 16. The market is fully discounting that 25 bp rate hike by November 2008. The market is discounting a 50 bp rate hike by March 2009, a 75 bp rat hike by May 2009, and a 100 bp rate hike by August 2009.

Overnight U.S. Stock News

• September S&Ps this morning are trading +5.40 points on Bank of America's better-than-expected earnings and on M&A support from today's Roche-Genentech takeover offer. The US stock market last Friday closed mixed (Dow +0.44%, S&P 500 +0.03%, Nasdaq Composite -1.28%).
• Bullish factors for stock prices last Friday included (1) the +7.7% gain in Citigroup as the biggest US bank by assets posted a 49 cent loss for Q2, less than the 60 cent a share loss expected, (2) the continued weakness in crude oil prices as crude oil prices fell 41 cents a barrel last Friday and fell -$16.30 for the week, (3) the 23% surge in Fannie Mae and the 10% rise in Freddie Mac as the beleagured mortgage lenders extended their rebounds from last week's 17-year lows as Freddie Mac received clearance to register with the SEC to raise $5.5 billion by selling new shares, and (4) the +13% rally in Mattel as the world's biggest toymaker reported Q2 profit that declined less than analysts' estimated on increased international sales.
• Bearish factors for stock prices last Friday included (1) the -9.8% tumble in the price of Google after posting Q2 profit of $3.92 a share, well below analysts estimates of $4.73 a share, (2) the -6% drop in Microsoft as the world's biggest software maker reported Q4 profit that was 2.3% less than estimated and predicted Q1 earnings of 47 cents a share, below analysts estimates of 49 cents a share, (3) the -12% plunge in Advanced Micro Devices after the chipmaker reported a larger-than-expected loss after writing down the value of its 2006 purchase of ATI Technologies by $880 million and the resignation of AMD CEO Hector Ruiz, and (4) the -11% loss for Supervalu as the second-biggest US supermarket chain may follow its rivals and reduce its projected sales for the year, acording to Morgan Stanley.
• Genentech is trading 10% higher in European trading this morning after Roche Holding offered to buy the 44% part of Genentech that it doesn't already own at a premium of 8.8% over last Friday's close.
• Bank of America this morning reported earnings of 72 cents, which was significantly better than the analyst consensus of 54 cents, meaning another major US money-center bank reported stronger-than-expected Q2 earnings.
• Fannie Mae and Freddie Mac are both up about 6% in European trading this morning after US Treasury Secretary Paulson over the weekend said that he is opimtistic that Congress will approve his bailout plan.
• Exxon is up +0.4% this morning on higher oil prices.
• Apple is up +0.7% this morning in European trading ahead of its earnings report after today's close (consensus $1.07)

Today's U.S. Market Focus

• September 10-year T-notes this morning are trading -1.5 ticks on higher S&Ps and Bank of America's better-than-expected earnings report this morning, which reduced flight-to-quality demand for US Treasury securities. September T-notes last Friday sold-off for the third straight session and closed down -9 ticks at a 3-week low. Bearish factors for T-note prices last Friday included (1) the smaller-than-expected loss for Citigroup, which reduced concerns about the banking crisis and allowed the stock market to rally, (2) carry-over weakness from European debt prices after German producer prices in June soared to a 26-year high, (3) comments from Minneapolis Fed President Stern that the Fed shouldn't wait for financial and housing markets to stabilize before raising interest rates, and (4) comments from ECB President Trichet that he sees the risk of a wage-spiral developing in the Euro-Zone, increasing the chances of another ECB interest rate hike.
• The dollar is trading lower this morning with the dollar/yen down -0.03 yen and the euro/dollar up +0.21 cents. The dollar index last Friday closed slightly lower. Bearish factors for the dollar last Friday included (1) comments from ECB President Trichet that the Euro-Zone economy will improve toward the end of the year after a "trough" in the previous six months, and (2) a Market News International report that cited unidentified "central banking sources" that the ECB will raise interest rates again if the inflation outlook worsens. Bullsh factors for the dollar last Friday included (1) better-than-expected earnings from Citigroup which eased concerns of a banking melt-down after Wells Fargo and JPMorgan also posted better-than-expected earnings, and (2) weakness in the yen as the stock market rally encouraged the carry trade and undercut the yen.
• August crude oil prices this morning are trading +$1.68 a barrel and August gasoline is trading +3.91 cents a gallon. Crude oil is trading higher as Tropical Storm Dolly heads into the Gulf of Mexico and has a 29% chance of turning into a hurricane. In addition, there was no real progress at the weekend negotitations with Iran on its nuclear program. EU Foreign Policy chief Javier Solana said "We did not get what we were looking for" from Iran. August crude oil prices last Friday moved lower for the fourth day in a row and closed down -$0.41 a barrel while August gasoline closed +0.76 cents a gallon. August crude oil has now fallen -$16.30 (-11%) for the biggest weekly decline in more than three years. Bearish factors for crude oil prices last Friday included (1) lessened geopolitical tensions in the Middle East as President Bush sent the State Department's third-ranking official to multinational talks in Geneva, Switzerland with Iran, and (2) the 3% drop in US fuel consumption in the first half of 2008 for the biggest decline in 17 years, according to the API. Bullish factors for crude oil prices last Friday included (1) the weaker dollar, and (2) the action by Goldman Sachs in maintaining its $149 per barrel year-end price target because inventories remain "extremely low" and the market is vulnerable to supply shocks.

Today's U.S. Earnings Reports

Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): AAPL-Apple (BEST earnings consensus $1.07 per share), BAC-Bank of America (.54), MRK-Merck & Co. (.83), TXN-Texas Instruments (.46), SGP-Schering-Plough (.40), WFT-Weatherford International (.45), BSX-Boston Scientific (.13), UB-Unionbancal Corp. (.93), STLD-Steel Dynamics (.93), AME-Ametek (.57), HAS-Hasbro (.22), EFX-Equifax (.62), MHK-Mohawk Industries (1.25), SNDK-Sandisk (.13), RX-IMS Health (.40), AMLN-Amylin Pharmaceuticals (-.48), ALB-Albermarle (.65), LRY-Liberty Property Trust (.34)

Global Financial Calendar

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