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Overnight Global News

• The European DJ Stoxx 50 this morning is trading slightly lower by -0.18%. The European Commission today updated its economic forecasts and cut its 2008 GDP forecast to +1.2% from +1.5% and issued a forecast for 2009 GDP growth of only +0.1%. The European Commission said that Q3 GDP is expected to be negative, which would combine with the -0.2% q/q decline in Q2 to produce the unofficial definition of a recession. Financial sector stocks are generally higher today with ING Groep NV up +3.5%, Hannover Re up +6.5%, Citigroup up +1.8%, and American Express up +1.2%. Interbank lending rates today continued to decline with the 3-month dollar Libor rate falling 17 bp to 2.86% and the overnight dollar Libor rate falling 2 bp to 0.39%. The 3-month Euribor fell 3 bp to a 7-month low of 4.73%. Asia-Pacific stocks today are generally trading higher: Hong Kong +2.69%, China -0.61%, Taiwan +2.55%, Australia +5.06%, Singapore +4.99%, South Korea +0.89%, Bombay +5.62%. Stocks in India benefited today after India's central bank on Saturday announced the second interest rate cut in two weeks, cutting its repo rate by 50 bp to 7.50%.
• Market factors - The markets this week will focus on (1) any fresh flare-ups in the credit crisis although interbank lending rates continued to steadily decline last week as the extensive list of US and European government rescue measures have managed to bolster confidence in the banking system, (2) the fall-out for the global economy as reflected in incoming economic data and anecdotal information, (3) the wind-down of Q3 earnings season as 83 of the S&P 500 companies are due to release earnings this week, (4) global stock markets as the S&P 500 last Friday was able to edge up to a 2-week high on hopes the global credit crisis has been contained although the jury remains out on the extent of the global slowdown, (5) the dollar which remains generally strong on the global flight to dollar liquidity and on U.S. investor repatriation of overseas investments, (6) the T-note market which moved lower last week as the credit crisis receded and global stocks stabilized, (7) crude oil prices which stabilized in the low-$60 area last week after OPEC members agreed to cut production and the global credit crisis receded a bit, and (8) Tuesday's US election and the implications for US economic policy. Overseas, the markets are expecting the European Central Bank at its meeting this Thursday to cut its 2-week refi rate by 50 bp rate to 3.25%, adding to the ECB's emergency 50 bp rate cut to 3.75% on October 8.
• US economic calendar - This week's US economic calendar is busy and is capped by Friday's October unemployment report, which will provide some indication of the extent to which businesses are panicking and are laying off employees. Today brings the Oct ISM manufacturing index (expected 1.5 to 42.0), Sep construction spending (expected 0.8%), and Oct vehicle sales (expected 12.0 million vs 12.5 million in September). Tuesday brings Sep factory orders (expected 1.0%). Wednesday brings Oct ADP employment change (expected 90,000), the Treasury's announcement of next week's refunding operation, and the Oct ISM non-manufacturing index (expected 2.2 to 48.0). Thursday brings weekly initial unemployment claims (expected 2,000), Q3 non-farm productivity (expected +1.0%), and Oct ISCS chain store sales. Friday brings Sep wholesale inventories, Sep pending home sales (expected 3.5%), Sep consumer credit (expected -$200,000), and the Oct unemployment report. Oct payrolls are expected to fall 180,000, adding to the 159,000 decline seen in September. The Oct unemployment rate is expected to rise +0.2 points to 6.3%, which would be match the 14-year high posted in 2003.
• Fed policy. The market last week boosted expectations for Fed easing by about 25 bp for the next several months as expectations grow for a steep recession. The FOMC last Wednesday cut the funds rate target by 50 bp to 1.00%, which was in line with market expectations. The market is fully expecting a 25 bp rate cut at the next FOMC meeting on Dec 16 and a 44% chance of a 50 bp rate cut at that meeting. The market is then expecting the funds rate to remain below 1.00% through July 2009, and is then expecting a 75 bp rate rise in the funds rate to the 1.75% area by late 2009.

Overnight U.S. Stock News

• December S&Ps this morning are trading slightly higher by +1.60% as interbank lending rates continue to decline and as Asia stocks rally. The US stock market last Friday managed to eke out modest gains (Dow +1.57%, S&P 500 +1.54%, Nasdaq Composite +1.32%). The S&P 500 Index rallied 10% last week for its largest weekly gain in 34 years.
• Bullish factors for stock prices last Friday included (1) the +9.7% gain in JPMorgan Chase after the largest US bank by market value said it will suspend US mortgage foreclosures for 90-days and modify up to $110 billion of US mortgages to help families stay in their homes, (2) the +5.5% rally for financial companies in the S&P 500 as interbank lending rates continue to fall with the 3-month dollar Libor rate dropping to a 1-1/2 month low, a hopeful sign that the credit crunch is easing, and (3) the drop in interest rates on the highest-ranked 30-day commercial paper by 39 bp to 2.02%, a 4-year low, as the Fed said it absorbed more than 9% of the total market in its newly implemented Commercial Paper Funding Facility.
• Bearish factors for stock prices last Friday included (1) the -0.3% drop in US Sep personal spending, the biggest monthly decline in 4-1/3 years, (2) the larger-than-expected fall in the Oct Chicago purchasing managers index to a 7-1/2 year low, and (3) the record $70.7 billion withdrawal from US stock mutual funds in Oct, as TrimTabs said redemptions by individual investors and institutions jumped 26% from Sep.
• Boeing is down -0.3% in European trading this morning after Goldman Sachs put Boeing on its "conviction sell" list.
• Motorola is down -0.7% in European trading this morning after Merrill Lynch downgraded its rating on the stock to "neutral" from "buy" because of its view that the company's overhaul of its mobile-phone business will take longer than expected.
• GM is up 4% this morning on lower crude oil prices.
• Halliburton is down -0.3% this morning after Goldman Sachs cut its rating on the company to "neutral" from "buy" due to product risks and valuation.
• VeraSun, a major US ethanol producer, announced a Chapter 11 filing over the weekend after the company was hurt by imploding corn hedges

Today's U.S. Market Focus

• December 10-year T-notes this morning are trading +8.5 ticks. December T-note prices last Friday rallied into mid-morning but reversed course and sold off the remainder of the day to close -16 ticks at a 1-1/2 week low. Bearish factors for T-note prices last Friday included (1) a decrease in demand for Treasuries as the stock market rallied on JPMorgan's plan to suspend foreclosures and modify $110 billion of US mortgages, (2) the drop in interbank lending rates with the 3-month dollar Libor rate falling to a 1-1/2 month low, and (3) the prediction by Goldman Sachs that the US government's borrowing needs will almost double this fiscal year to $2 trillion, sharply increasing Treasury issuance. Bullish factors for T-note prices last Friday included (1) the weaker-than-expected US personal spending for Sep (-0.3%, the biggest monthly decline in 4-1/3 years, versus expectations of -0.2%), and (2) the larger-than-expected decline in the Oct Chicago purchasing managers index to a 7-1/2 year low (-18.9 to 37.8 versus expectations of -8.7 to 48.0).
• The dollar/yen this morning is up +0.77 yen and the euro/dollar is up +1.18 cents in largely technical moves. The dollar index last Friday closed higher. Bullish factors for the dollar last Friday included (1) the action by the Bank of Japan in lowering their benchmark rate 20 bp to 0.30%, weakening the yen, and (2) weakness in the euro after consumer prices in the Euro-Zone for October fell to to their lowest level of the year, increasing the chances of an ECB rate cut this Thursday. Bearish factors for the dollar last Friday included (1) the weaker-than-expected US Sep personal spending report of -0.3% m/m, and (2) the weaker-than-expected Oct Chicago purchasing managers index which plunged to a 7-1/2 year low.

• December crude oil prices this morning are trading -76 cents a barrel and December gasoline is trading -3.45 cents a gallon on continued concerns about weaker demand. December crude oil prices last Friday overcame early weakness and closed +$1.85 a barrel and December gasoline closed +4.89 cents a gallon. Bullish factors for crude oil prices last Friday included (1) forecasts for colder temperatures in the US Midwest and Northeast this week, thus boosting heating oil demand, and (2) the prediction from Dresdner Kleinwort Group that OPEC will make a further production cut of 500,00 to 1 million bpd at its next cartel meeting in December. Bearish factors for crude prices last Friday included (1) the rally in the dollar, (2) the -0.3% m/m decline in US consumer spending for September, the largest monthly decline in 4-1/3 years, and (3) the drop in the Oct Chicago purchasing managers index to a 7-1/2 year low, increasing concerns of even weaker energy demand

Today's U.S. Earnings Reports

Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): EOG-EOG Resources (BEST earnings consensus $2.24 per share), MA-Mastercard (2.25), ADP-Automatic Data Processing (0.50), APC-Anadarko Petroleum (1.48), SYY-Sysco (0.47), SPG-Simon Property Grou[ (0.60), VIA-Viacom (0.55), AMT-American Tower (0.13), COL-Rockwell Collins (1.07), DVA-Davita (0.89), PFG-Principle Financial Group (0.94), AYE-Allegheny Energy (0.67), PBI-Pitney Bpwes (0.69), HCN-Health Care REIT (0.42), POM-Pepco Holdings (0.70), MHK-Mohawk Industries (1.12), MCY-Mercury General (0.91), FST-Forest Oil (1.40), UDR-UDR (-0.10), MMP-Magellan Midstream Partners (0.70), GAS-Nicor (0.13), GT-Goodyear Tire (0.30), SRP-Sierra Pacific Resources (0.62)

Global Financial Calendar