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Overnight Global News

• The European DJ Stoxx 50 this morning is trading mildly higher by +0.26% on some value buying. The market has so far been able to shake off higher oil prices. Auto stocks are generally lower this morning after Toyota fell -0.6% after cutting its sales forecast for 2009 by 6.7% due to weak demand. Damiler is down -2.6% this morning, Renault is down -2.3%, and GM is down -0.6%. The financial sector was undercut by news of a loss by French-bank Natixis (which fell 5%) and that Swiss Life Holding (down 9%) will miss its 2008 earnings target. Asia-Pacific stocks today closed mixed: Japan +0.12%, Hong Kong -2.29%, China +0.45%, Taiwan -0.67%, Australia +1.10%, Singapore -0.52%, South Korea -1.49%, Bombay -1.74%.
• Claims Today's weekly initial unemployment claims report is expected to decline 7,000 to 425,000, adding to last week's decline of 13,000 to 432,000. Meanwhile, weekly continuing claims are expected to rise +28,000 to 3.390 mln, more than reversing last week's 17,000 decline to 3.362 million. The initial claims series has fallen in the past two weeks but is still just mildly below the 6-year high of 457,000 posted in the week ended August 1. The continuing claims series fell last week but is just slightly below the 4-1/2 year high of 3.379 million posted in the week ended August 1. The initial claims series indicates that businesses are laying off employees at a relatively high rate ahead of expectations for weaker growth in the second half of the year. The sharp rise in continuing claims in the past year indicates how the number of people on unemployment is accumulating. In next Friday's August unemployment report, the market is looking for a 70,000 decline in payrolls and an unchanged unemployment rate from July's 4-year high of 5.7%.
• Q2 GDP revision Today's first revision for Q2 GDP is expected show an upward revision to +2.7% from the Commerce Department's estimate last month of +1.9%. The upward revision is expected to stem mainly from stronger-than-expected US exports. Meanwhile, today's Q2 personal consumption report is expected to be revised slightly higher to +1.6% from +1.5%. No revisions are expected for the Q2 GDP price index (from +1.1%) or the Q2 core PCE (from +2.1% q/q). While today's Q2 GDP report is expected to be strong at +2.7%, the market is looking for a significant drop-off in GDP growth in the second half of the year as the federal stimulus program wears off and as tight credit conditions dampen spending by businesses and consumers. The market consensus is that US GDP will ease to +1.2% in Q3-2008 and then to +0.4% in Q4-2008. However, the market is looking for an rebound upward to +1.4% in Q1-2009 and +2.1% in Q2-2009.

Overnight U.S. Stock News

• September S&Ps this morning are trading -0.60 points on higher oil prices. The US stock market yesterday rallied and held most of their gains into the close (Dow +0.79%, S&P 500 +0.807%, Nasdaq Composite +0.87%).
• Bullish factors for stock prices yesterday included (1) the unexpected gain in durable goods orders for July, (2) the 20% rise in Freddie Mac and the 15% rally in Fannie Mae after Citigroup said the mortgage-finance companies may get their biggest profits on new investments since 1998 and as Freddie and Fannie sold $3 billion of short-term notes at yields that suggest the largest US mortgage-finance companies are still capable of financing their businesses without government assistance, (3) the almost 5% jump in Merrill Lynch ater Singapore's Temasek Holdings Pte sovereign wealth fund said it has "great confidence" in Merrill's CEO and plans to increase its stake in Merrill, and (4) a rally in independent oil refinery companies as refining margins to turn crude oil into usable products of gasoline and diesel rose more than 6%.
• Bearish factors for stock prices yesterday included (1) comments from Atlanta Fed President Lockhart that US home prices will fall an additional 10% to 15% before bottoming, (2) the report from the Treasury's Office of Thrift Supervision (OTS) that US savings and loans posted $5.4 billion in losses in Q2 and that the OTS list of "problem thrifts" increased to 17 from 12 in Q1, (3) the +$1.88 a barrel rally in crude oil prices as crude oil has rallied every day this week, and (4) the fall in airline stocks after a Citigroup analyst said demand may weaken for the US carriers and "significant risks remain" for the industry as crude oil is still near historic highs.
• MBIA is trading 4% higher today in Europe after news that MBIA reinsured $184 million in municipal bonds for Financial Guaranty Insurance company, illustrating that it can still win businesss despite losing its triple A credit rating. Ambac, the second largest bond insurer, rallied 12% on the MBIA news.
• Wal-Mart is down -0.2% in European trading this morning on higher oil prices.
• Fannie Mae fell -1.7% in after-hours trading yesterday after a management change in which Fannie Mae's finance chief and chief business officer was replaced.
• Men's Wearhouse (MW) rallied 5% in after-hours trading yesterday after the retailer reported better than expected earnings of 72 cents per share

Today's U.S. Market Focus

• September 10-year T-notes this morning are trading -3.5 ticks on some supply overhang ahead of today's record-sized 5-year T-note auction. September T-note prices yesterday overcame early weakness and rallied the remainder of the day and finally closed +6.5 ticks at a 4-3/4 month high. Bullish factors for T-note prices yesterday included (1) comments from Atlanta Fed President Lockhart that the Fed's interest-rate stance is "consistent" with slowing inflation and that US home prices still have 10% to 15% more to fall before bottoming, (2) the report from the Treasury's Office of Thrift Supervision that US savings and loans posted $5.4 billion in losses in Q2 and that the list of "problem thrifts" increased to 17 in Q2 from 12 in Q1, and (3) increased demand for Treasuries from foreign central banks as US Treasuries held by foreign central banks increased to a record $1.4 trillion as of Aug 20. Bearish factors for T-note prices yesterday included (1) the unexpected gain in July durable goods orders (+1.3% and +0.7% ex transportation versus expectations of unchanged and -0.7% ex transportation), (2) supply pressures as the Treasury auctions $54 billion in 2-year and 5-year T-notes this week, the most ever, (3) carryover weakness from European debt prices after ECB Council member Weber said expectations of ECB interest-rate cuts were "premature," and (4) reduced demand for the safety of Treasuries as the stock market rallied.
• The dollar this morning is trading mildly lower with the dollar/yen down -0.31 yen and the euro/dollar up +0.46 cents. The dollar index yesterday closed lower. Bearish factors for the dollar yesterday included (1) hawkish comments from ECB Council member Smaghi that cutting interest rates would boost inflation and from fellow Council member Weber that there's "no scope for interest-rate cuts" and that ECB policy makers may need to raise rates once the Euro-Zone economy recovers, and (2) the report from the Treasury's Office of Thrift Supervision that a list of "problem thrifts" increased to 17 from 12 from Q1 to Q2 as US savings and loans posted a $5.4 billion loss in Q2 as lenders set aside a record $14 billion in provisions for loan losses related to the slumping housing market. Bullish factors for the dollar yesterday included (1) the larger-than-expected gain in durable goods orders for July, and (2) weakness in the yen as the stock market rallied and encouraged the carry trade.

• October crude oil prices this morning are trading +$1.00 a barrel and October gasoline is trading +1.28 cents a gallon. Tropical Storm Gustav is currently south of Cuba and is expected to strengthen and move into the Gulf of Mexico by Saturday. October crude oil prices yesterday rallied for the third day in a row and closed +$1.88 a barrel and October gasoline closed +5.75 cents a gallon. Bullish factors for crude oil prices yesterday incuded (1) concerns that Hurricane Gustav will become the most damaging hurricane since Katrina as it moves toward oil rigs and production platforms in the Gulf of Mexico, (2) the decline in the dollar, and (3) the unexpected decline in crude oil inventories in yesterday's weekly DOE inventory report (crude oil -177,000 bbl versus expectations of +1.1 million bbl). A bearish factor for crude oil prices yesterday was the comment from the Executive Director of the IEA who said OPEC should maintain its current output when it meets in Vienna next month to help curb still-high crude oil prices.

Today's U.S. Earnings Reports

Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): DELL-Dell (BEST earnings consensus $0.37 per share), SHLD-Sears Holdings (0.47), BF-Brown-Forman (0.89), TIF-Tiffanny & Co. (0.54), ENER-Energy Conversion Devices (0.22), PETM-Petsmart (0.28), MCRS-Micros Systems (0.39), NOVL-Novell (0.05), WSM-Williams-Sonoma (0.07), DLM-Del Monte Foods (-0.05), ESL-Esterline Tech (0.59)

Global Financial Calendar