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Overnight Global News

• The European DJ Stoxx 50 this morning is trading sharply higher by +3.95%. The main bullish factor is a rally in banking sector stocks after yesterday's announcement of the US government takeover of Fannie Mae and Freddie Mac. UBS today is up sharply 10%, Deutsche Bank is up 8%, Mizuho is up 12%, Macquarie is up 15%, Citigroup is up 6%, JPMorgan Chase is up 2.6%, and AIG is up +4.7%. Oil and mining stocks are higher today on higher oil and metals prices. Nokia Oyj is down 1% today after Deusche Bank downgraded the shares to "hold" from "buy" due to expectations for a market share loss in Q3. The London Stock Exchange today had a computer problem that closed the exchange for 8 hours. Asia-Pacific stocks today closed sharply higher as well: Japan +3.38%, Hong Kong +4.32%, China -2.61%, Taiwan +5.57%, Australia +3.90%, Singapore +4.77%, South Korea +5.25%, Bombay +3.18%.
• Focus factors - The market this week will focus on (1) the details of the Treasury's announcement on Sunday of the takeover of Fannie Mae and Freddie Mac and whether it reduces concern about the stability of the US banking and mortgage system, (2) this week's economic data after last Friday's news of a 84,000 decline in payrolls and a sharp +0.4 point increase in the Aug unemployment rate to a 5-year high of 6.1%, (3) global stocks which sold off sharply last week on concern about the economy, (4) last week's continued sharp rally in T-note prices on an influx of capital from stock sales and from the continued improvement in the inflation outlook with the drop in oil and commodity prices, (4) the dollar which continued to rally last week due to weak Euro-Zone economic data and ECB President Trichet's recognition that the Euro-Zone economy is going through an episode of weak activity, and (5) oil and commodity prices which continued lower last week on dollar strength and technical selling.
• US economic calendar - On this week's US economic calendar, today brings July consumer credit (expected +$9.0 billion). Tuesday brings July pending home sales (expected 1.4%), and July wholesale inventories (expected +0.6%). Wednesday brings weekly MBA mortgage applications. Thursday brings weekly initial unemployment claims (expected 6,000), July US trade deficit (expected wider at -$58.0 billion vs -$56.8 billion in June), and the Treasury's 10-year T-note auction. Friday brings the Aug PPI (expected 0.5% m/m and +10.2% y/y), Aug retail sales (expected +0.2% overall and 0.2% ex-autos), July business inventories (expected +0.5%), and the early-Sep US consumer confidence index from the University of Michigan (expected +1.0 to 64.0).
• Fed policy The market last week further curbed expectations for Fed tightening. The market is now discounting no chance of a Fed tightening at next Tuesday's FOMC meeting or indeed through the end of the year. The market is not discounting a 25 bp rate hike until July 2009 nor a 50 bp rate hike until October 2009. The market expects the Fed to keep its funds rate target at the expansionary level of 2.00% to soften the extended blow from the banking and housing crisis and historically high fuel and commodity prices.

Overnight U.S. Stock News

• September S&Ps this morning are trading sharply higher by +35.70 (+2.88%) on the Fannie/Freddie takeover by the US government and ideas that the financial sector may have finally seen its bottom. The US stock market last Friday overcame early sharp losses and closed mixed (Dow +0.29%, S&P 500 +0.44%, Nasdaq Composite -0.14%).
• Bullish factors for stock prices last Friday included (1) reports that the US government had finalized a plan to prop up Fannie Mae and Freddie Mac, (2) the -$1.66 a barrel sell-off in crude oil to a 5-month low for the sixth straight decline, (3) the prediction from hedge fund manager Barton Biggs that the US stock market is near a bottom from which it can "mount a fairly powerful rally," (4) the +3.4% rally in Monsanto after Credit Suisse upgraded the world's largest seed producer to a "buy," and (5) the +31% surge in SanDisk after Samsung Electronics, the world's second-largest chipmaker after Intel, said it may buy the memory-card maker.
• Bearish factors for stock prices last Friday included (1) concerns the US economic slowdown may be worsening after Aug nonfarm payrolls came in weaker-than-expected with the unemployment rate unexpectedly rising to a 5-year high, (2) the increase in Q2 US mortgage delinquencies to a record high, showing no bottom yet to the housing market's woes, (3) the action by JPMorgan's chief equity strategist in cutting his year-end forecast for the S&P 500 Index by 5.2% to 1,375, citing a renewed threat of economic weakness, and (4) the -3.9% fall in Safeway after Morgan Stanley cut the third-biggest US supermarket chain to "underweight," saying its prices are too high for "economizing" consumers.
• Fannie Mae and Freddie Mac are each down about 50% today as the takeover by the US government is likely to nearly wipe out common shareholders since they now stand last in line to receive any eventual value from the two mortgage companies and since dividends from the two companies were eliminated. The US government now has 79.9% ownership in the two companies. The final status of the two mortgage companies will be decided by Congress next year.
• Altria Group will buy UST for $10.3 billion, confirming reports that emerged last week.
• Congnizant Technology Solutions (CTSH) may get a boost today from a favorable weekend article in Barron's saying that the technology support company's stock should climb to $40 a share on a global economic recovery.

Today's U.S. Market Focus

• December 10-year T-notes this morning are trading sharply lower by 1-11.5 points on the Fannie/Freddie bailout which substantially reduced credit risks. December T-note prices last Friday closed -10 ticks. Bearish factors for T-note prices last Friday included (1) speculation the US government is close to a plan to rescue ailing mortgage lenders Fannie Mae and Freddie Mac, easing the demand for the safety of US Treasuries, and (2) profit-taking and long liquidation as 10-year T-note prices rallied over 2-1/2 points in the last three sessions. Bullish factors for T-note prices last Friday included (1) the weaker-than-expected Aug nonfarm payroll report (-84,00 versus expectations of -75,000) for the eighth consecutive monthly decline, (2) the unexpected jump in the unemployment rate for Aug to a 5-year high (+0.4 to 6.1% versus expectations of unchanged at 5.7%), (3) the rise in Q2 US mortgage delinquencies to the highest level since records began 29 years ago, and (4) the prediction from the Conference Board that risks to economic growth are intensifying globally and that the US faces a period of "stagnant growth."

• The dollar is trading higher with the dollar/yen up +0.94 yen and the euro/dollar down -0.39 cents. The yen is lower on increased carry trades with the global stock market rally today. The dollar index last Friday closed higher. Bullish factors for the dollar last Friday included (1) speculation of a US government takeover of Fannie Mae and or Freddie Mace after it was reported last Friday that US Treasury Secretary Paulson met with Fed Chairman Bernanke and Fannie Mae's and Freddie Mac's CEOs to discuss plans on propping up the ailing mortgage lenders, and (2) continued weak Euro-Zone economic data as German industrial production for July came in weaker than expected. Bearish factors for the dollar last Friday included (1) the weaker-than-expected Aug nonfarm payroll report with the US unemployment rate in Aug unexpectedly jumping to a 5-year high of 6.1%, (2) the rise in Q2 US mortgage delinquencies to the highest level since records began 29 years ago, and (3) hawkish comments from ECB President Trichet and fellow ECB Council members Stark and Gonzalez-Paramo that inflation is still the central bank's biggest concern despite a slowing Euro-Zone economy.

• October crude oil prices this morning are trading +$1.05 a barrel and October gasoline is trading +7.09 cents a gallon. The main bullish factor is that Hurricane Ike, which is currently near Cuba, is headed towards the Gulf of Mexico. The National Hurricane Center currently has the hurricane headed toward the northern Texas coast with a landfall this Saturday. October crude oil prices last Friday sold-off for the sixth straight session and closed -$1.66 a barrel at a 5-month low and October gasoline closed -5.43 cents a gallon. Bearish factors for crude oil prices last Friday included (1) the continued rally in the dollar as the euro fell to a 10-1/2 month low against the dollar, (2) concern the economic slowdown in the US is deepening as the unemployment rate in Aug unexpectedly jumped to a 5-year high, and (3) speculation OPEC will leave production levels unchanged when it meets tomorrow in Vienna. Bullish factors for crude oil prices last Friday centered on the continued threats of hurricanes entering the Gulf of Mexico.

Today's U.S. Earnings Reports

Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): MLNM-Millennium Pharmaceuticals (BEST earnings consensus $0.05 per share), CGI-Commerce Group I (0.66), PNY-Piedmont Natural Gas (-0.14)

Global Financial Calendar