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Overnight Global News

• The European DJ Stoxx 50 this morning is trading slightly higher by +0.12% on favorable news from Hewlett Packard, which supported the tech sector, and on some strength in oil and mining companies. Asia-Pacific stocks today closed mostly higher: Japan -0.10%, Hong Kong +2.18%, China +7.85%, Taiwan +0.89%, Australia +1.30%, Singapore +0.86%, South Korea -0.11%, Bombay +0.92%.
• Mortgage applications This morning's MBA mortgage applications report showed new weakness. The market index fell -1.5%, the refinancing sub-index fell -3.7%, and the purchases sub-index fell -0.4%. The refinancing sub-index fell to a new 7-1/2 year low of 1,034.5. The purchases sub-index of 314.0 was slightly above the 5-1/2 year low of 309.50 posted in the last week of July. The housing market has recently taken a fresh hit from the sharp rise in mortgage rates. The 30-year mortgage rate is currently at 6.52%, which is just mildly below the 1-year high of 6.63% posted in the third week of July. The current 30-year mortgage rate of 6.52% is up sharply by more than 1/2 point from the levels near 6.00% seen as recently as May. Mortgage rates remain high due to the lack of available mortgage credit and the desire of banks to give themselves a larger default buffer. The 30-year mortgage rate is currently just mildly below the 6.60-6.70% area seen before the banking crisis began last summer, despite the fact that the federal funds rate is down by 325 bp from the levels seen prior to the start of the banking crisis last summer. The Fed's sharp rate cut is therefore providing little help for mortgage rates, although it is at least putting banks in a stronger position with an upward sloping yield curve so they can afford to put more capital to work in providing mortgage loans

Overnight U.S. Stock News

• September S&Ps this morning are trading +3.50 points on tech-sector strength driven by positive guidance from Hewlett-Packard. The US stock market yesterday traded in negative territory throughout the day and closed lower (Dow -1.14%, S&P 500 -0.93%, Nasdaq Composite -1.35%).
• Bearish factors for stock prices yesterday included (1) the jump in the July PPI to a 27-year high of +9.8% y/y and the core PPI to a 17-year high of +3.5% y/y, (2) the drop in US July housing starts and permits to 17-1/3 year lows, (3) hawkish comments from Dallas Fed President Fisher that the Fed may raise rates sooner than many people expect and from Richmond Fed President Lacker that higher interest rates may be needed to bring down inflation even before growth and financial markets return to normal, (4) the 5.9% drop in AIG as Goldman Sachs said its "increasingly likely" the world's biggest insurer will have to raise more capital due to losses on credit-default swaps, (5) the 13% plunge in Lehman Brothers after JPMorgan Chase said the fourth-biggest US securities firm may write down $4 billion in credit-related investments and other assets when it reports Q3 earnings, and (6) the prediction from former chief economist of the IMF, Kenneth Rogoff, that the US has fallen into a recession that may topple some of the nation's biggest banks and that "The worst is yet to come in the US."
• Bullish factors for stock prices yesterday included (1) the 11% jump in WellCare Health Plans after the company said it will pay $35.2 million in an agreement with US prosecutors in a Medicaid fraud investigation, and (2) the rally in energy stocks and oil service companies as crude oil prices moved higher for the first time in four days by $1.66 a barrel.
• Hewlett-Packard (HPQ) is up +2.8% in European trading this morning after HP CEO Mark Hurd said that strong notebook demand from Europe and Asia will boost Q3 earnings by 14% and sales by 10%. That news boosted Dell by +2.0% and Apple by +0.1%.
• Morgan Stanley may receive a boost today after JPMorgan analysts released a report saying that Morgan Stanley would earn $4.08 in 2008 and that writedowns would be "manageable."
• Citigroup (C) is down -0.6% after Goldman Sachs released a research report giving a "sell" recommendation on Citigroup and forecasting breakeven earnings in Q3.
• Lehman Brothers (LEH) is down -2.8% after Goldman Sachs released a research report forecasting a Q3 loss for Lehman of $2.75 per share versus its previous forecast for a 68-cent profit.
• VeriFone Holdings (PAY) rallied 30% after the manufacturer of electronic-payment systems restated past results and provided 2008/09 fiscal year earnings guidance of $1.35-1.55 per year versus the analyst consensus of $1.28 per share

Today's U.S. Market Focus

• September 10-year T-notes this morning are trading +3.5 ticks. September T-note prices yesterday rallied to a 4-month high early before selling-off and closing down 4 ticks. Bearish factors for T-note prices yesterday included (1) a stronger-than-expected July PPI (+1.2% m/m and a 27-year high of +9.8% y/y versus expectations of +0.6% m/m and +9.3% y/y) and July PPI ex-food and energy (+0.7% m/m and a 17-year high of +3.5% y/y versus expectations of +0.2% m/m and +3.2% y/y), and (2) hawkish comments from Richmond Fed President Lacker that Fed policy is "very stimulative right now" and that the Fed shouldn't wait "too long" to raise interest rates and from Dallas Fed President Fisher who said that the US economy may face a persistent rise in inflation as higher food and energy costs prompt companies to pass on cost increases. Bullish factors for T-note prices yesterday included (1) continued housing market weakness as both July housing starts and permits fell to 17-1/3 year lows, (2) flight-to-safety as the equity market sold-off, and (3) concerns that financial firms face widening losses from credit markets after JPMorgan Chase predicted Lehman Brothers may post $4 billion in writedowns when it reports Q3 earnings.

• The dollar is trading moderately higher with the dollar/yen up +0.32 yen and the euro/dollar down -0.51 cents. The dollar index rallied to a 7-3/4 month high yesterday before reversing course and closing lower. Bearish factors for the dollar yesterday included (1) the continued strength in the yen as the carry trade was unwound with the sell-off in global stock markets, (2) continued concerns about the US economy as both US housing starts and permits for July tumbled to 17-1/3 year lows, and (3) the rally in the euro from a 6-month low against the dollar after German producer prices in July surged to a 26-3/4 year high and the Aug ZEW economic sentiment figures for Germany and the Euro-Zone came in better-than-expected. Bullish factors for the dollar yesterday included (1) the greater-than-expected rise in July PPI to a 27-year high of +9.8% y/y and the rise in the core PPI for July to a 17-year high of +3.5% y/y, and (2) comments from Dallas Fed President Fisher who said the US economy may face a persistent acceleration in inflation as higher food and energy prices prompt companies to pass on cost increases.

• September crude oil prices this morning are trading +16 cents a barrel and September gasoline is trading +0.63 cents a gallon. September crude oil prices yesterday rallied and closed +$1.66 a barrel and September gasoline closed +4.87 cents a gallon. Bullish factors for crude oil prices yesterday included (1) the weaker dollar, (2) the comment from Venezuela's Energy and Oil Minister that if crude oil prices continue to fall then Venezuela, South America's biggest oil producer, will propose that OPEC cut oil production quotas, and (3) expectations that today's weekly DOE inventory report will show a large drop in gasoline inventories. Bearish factors for crude oil prices yesterday included (1) the forecasts that Tropical Storm Fay will miss all oil rigs and platforms in the Gulf of Mexico, and (2) the 17-1/3 year low in US housing starts and permits for July, fueling concern that energy demand will continue to weaken as the US economy slows. Expectations for today's DOE inventory report are for a +1.0 million bbl rise in crude oil inventories, a -3.0 million bbl drop in gasoline stockpiles, and a +850,000 bbl climb in distillate inventories

Today's U.S. Earnings Reports

Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): CRM-Salesforce.com (BEST earnings consensus $0.18 per share), LTD-Limited Brands (0.19), ROST-Ross Stores (0.54), EV-Eaton Vance (0.46), SNPS-Synopsys (0.39), BJ-BJ's Wholesale (0.57), LDG-Longs Drug Stores (0.76), JDSU-JDS Uniphase (0.12), GYI-Getty Images (0.51), PVH-Phillips-Van Heusen (0.66), BYI-Bally Technologies (0.53), RGS-Regis (0.56), GYMB-Gymboree (0.25)

Global Financial Calendar