• China's Shanghai & Shenzhen 300 index today fell sharply by -4.50% on concern that government plans for $200 billion in bond sales will sap liquidity from stocks. In addition, Chinese investors are opening brokerage accounts at a slower rate than in the last few months. However, the other Asian stock markets were buoyed by yesterday's US stock market rally (Nikkei index +0.46%, Hang Seng +1.07%, Australia +1.32%). The European stock markets this morning are trading with solid gains due to yesterday's US rally. The European DJ Stoxx 50 is up +0.74% this morning.

   

• Unemployment claims - Today’s weekly unemployment claims report is expected to show some labor market strength with a -9,000 decline in initial claims to 315,000 and a -23,000 decline in continuing claims to 2.500 mln. That would follow last week’s increases of +10,000 to 324,000 in initial claims and +39,000 to 2.523 mln in continuing claims. Initial claims have risen fairly steadily in the past 5 weeks but it appears unlikely that the rise portends labor market weakness. In general, job creation in the US continues to chug along at a strong enough pace to have kept the US unemployment rate in May at 4.5%, which was just 0.1 point above its recent 6-year low of 4.4%.

   

• Q1 GDP revision - Today’s Q1 GDP report is expected to show a small upward revision to +0.8% from the last estimate of +0.6%. The market has already written off the weakness in Q1 and is looking ahead to GDP growth for the second quarter, which ends this Saturday. The recent market consensus is that US GDP will pick up to +2.6% in Q2 and Q3 and then improve further to +2.9% in Q4. US GDP growth has recently been supported by continued strong consumer spending and a pickup in business spending. However, GDP growth will probably have difficulty reaching the consensus expectations because of the 55 bp surge in mortgage rates in the past 1-1/2 months, which will knock the US housing sector down another notch, not to mention undercut consumer and business spending a bit.

   

• FOMC meeting - The FOMC concludes its 2-day policy meeting today. As discussed yesterday, the market is unanimously expecting the FOMC today to announce an unchanged monetary policy with the funds rate at 5.25%, where it has been since last June. FOMC members will likely be pleased that the marketplace finally believes the Fed’s theme for the past year that the Fed is concerned with inflation and has no intention of cutting interest rates. The market several months ago thought the Fed had it wrong and that the Fed would have to ease 50 bp by the end of the year, mainly because of the weak housing sector. However, consumer spending remains strong and business spending has picked up, thus supporting economic forecasts and causing the market to finally give up on hopes for a Fed easing by year-end.

   

• There is little reason for FOMC to change the language in its post-meeting. Even though the inflation statistics in the past several months have fallen back a bit, the Fed is likely to keep its inflation bias language unchanged. The FOMC in the post-meeting statement at its last meeting on May 9 said that, "Core inflation remains somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures. In these circumstances, the Committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected."

   

• Sep S&Ps this morning are trading -1.40 points. Bearish factors include this morning -5 tick sell-off in T-notes, the +33 cent rally in crude oil prices, and nervousness ahead of today's FOMC meeting outcome. The US stock market yesterday rallied fairly sharply (Dow +0.68%, S&P 500 +0.90%, Nasdaq Composite +1.21%). Bullish factors included short-covering, positive revenue guidance from Oracle, a positive earnings report from Nike, and general optimism about the earnings outlook.

   

• Apple (AAPL) is up +0.3% in European trading this morning as the stock continues to see strength ahead of Friday's launch of the company's eagerly-awaited iPhone product.

   

• Intel (INTC) is up 1.2% in European trading this morning after Lehman Bros upgraded its rating on the stock to "overweight" from "equal-weight."

   

• Monsanto (MON) is up 1.3% in European trading this morning on market expectations for a positive earnings report today (analyst consensus $1.00 per share).

   

• UAL (UAUA) is up +0.8% in European trading this morning after JPMorgan upgraded its rating on the stock to "overweight" from "underweight."

   

• Bed, Bath & Beyond (BBBY) is down 4.7% in European trading this morning after the company late yesterday said it expected earnings in 2007 to be at or below the 2006 level. The analyst consensus was for a 3.2% increase in 2007 earnings to $2.23 from $2.16 in 2006.

   

• Capitol One Financial (COF) rose +1.5% in after-hours trading yesterday after the company announced that it is cutting 2,000 jobs or 6% of its workforce to address higher consumer and mortgage debt defaults.

   

• Sep 10-year T-notes this morning are trading -5 ticks as the market today faces the likelihood that the FOMC in its post-meeting statement will retain its inflation bias. Sep T-note prices yesterday closed +7 ticks and posted a new 3-week high. Bullish factors included the weaker than expected May durable goods report of -2.8% (-1.0% ex-transportation), the -3.9% drop in MBA mortgage applications, technical buying and short-covering with the new 3-week high, and continued worries about mortgage bond fall-out.

   

• The dollar this morning is mixed with the dollar/yen up +0.23 yen and the euro/dollar up +0.06 cents. The dollar index yesterday continued to consolidate near a 3-week low on yesterday's weaker than expected US durable goods orders report. Meanwhile, the yen fell back yesterday as concerns faded about any big short-covering rally tied to the reversal of yen carry trades.

   

• August crude oil prices this morning are trading +33 cents and August gasoline is trading +1.03 cents. The market is seeing some carry-over upward momentum from yesterday's rally on the DOE report. Aug crude oil prices yesterday closed +1.20 at $68.97 and Aug gasoline prices closed +0.85 cents. Bullish factors yesterday centered on the weekly DOE report which showed the first decline in gasoline inventories after 7 straight weeks of gains. The 749,000 bbl decline in gasoline inventories, versus expectations for a +750,000 gain, left gasoline inventories 4.4% below the 5-year seasonal average. Meanwhile, crude oil inventories rose +1.562 mln bbl, which a bit below the expected rise of +1.85 mln bbl.

Earnings reports (confirmed releases for companies with market caps above $2.5 bln listed by mkt cap): MON-Monsanto (BEST consensus earnings estimate: $1.00 per share), GIS-General Mills (.63), BMET-Biomet (.48), MU-Micron Technology (-.24), APOL-Apollo (.71), CBR-Constellation (.15), FDO-Family Dollar (.41), RAD-Rite Aid (.00), KBH-KB Home (.07), MSM-MSC Indl Direct (.66), SLR-Solectron (.05)
 

Morning Quote Board