• The European DJ Stoxx 50 this morning is trading with a solid gain of +1.08%. European stocks were boosted by a positive earnings report from British Airways and by improved sentiment on earnings in general. There was also more M&A activity with Trico Marine Services making a 3.5 billion kroner ($680 million) offer for DeepOcean ASA (Oslo: DEEP). European food retailers were boosted today by UBS's upgrade of European food retailers to "overweight" from "underweight." Asia-Pacific stocks today closed higher except for Japan and China: Japan -0.23%, Hong Kong +0.41%, China -0.30%, Taiwan +0.44%, Australia +0.68%, Singapore +1.06%, South Korea +0.18%, Bombay +0.47%.
• Housing starts? Today's April US housing starts report is expected to show a small decline 0.8% to 939,000, adding to the plunge of 11.9% to 947,000 seen in April. Meanwhile, April building permits are expected to fall 1.4% to 915,000, adding to the 5.7% decline to 928,000 seen in March. Both the housing starts and housing permits series in March were at 17-year lows, near the lowest levels seen during previous housing busts in 1974, 1981, and 1991. US housing starts are unlikely to perk up anytime soon considering that the supply of new homes on the market in March hit a new 27-year high of 11.0 months, which is nearly triple the average of 4 months seen before the housing crisis began. US homebuilders will not start building new homes until home buying starts to pick up and the level of home inventories starts falling back to more manageable levels.
• US consumer confidence? Today's early-May U.S. consumer confidence index from the University of Michigan is expected to show a small decline of -0.6 points to 62.0, adding to the unexpectedly-large decline of 6.9 points to 62.6 seen in April. The March level of 62.6 was a 26-year low, illustrating the extent of consumer pessimism. US consumers have little to be optimistic about at present, except that the Fed has slashed interest rates and the US stock market has maintained its balance. Otherwise, US consumers are facing sharply higher gasoline and food prices, a fading US labor market, and falling home prices and household wealth.

• June S&Ps this morning are trading +4.10 points on firm European stocks and the recent general improvement in the credit and earnings outlook. The US stock market yesterday rallied throughout the day and closed near its highs (Dow +0.73%, S&P 500 +1.06%, Nasdaq Composite +1.48%).
• Bullish factors for stock prices yesterday included (1) the 4.7% gain in Intel as the world's largest chipmaker rallied on a Friedman analyst's statement that Q2 demand for personal computers was stronger-than-expected and that semiconductor share valuations "are very cheap" as current prices largely reflect the riskk of a global recession, (2) the rally in big name oil companies after an UBS analyst lifted his recommendation for global oil stocks to "a modest overweight," (3) speculation that M&A activity will accelerate as Carl Ichan announced a plan to take control of Yahoo! Inc.'s board in order to renew merger discussions with Microsoft, and (4) the stronger-than-expected May Philadelphia Fed manufacturing index.
• Bearish factors for stock prices yesterday included (1) the rise in weekly US continuing unemployment claims to a 4-year high, (2) the unexpected contraction in the May Empire manufacturing index, (3) the weaker than expected Apr industrial production and capacity utilization, (4) the 61% fall in Q1 US mergers and acquisitions from a year earlier as a jump in credit costs deterred buyers, and (5) the unexpected drop in the May NAHB housing market index as weakness continues in the housing sector.
• Lockheed Martin (LMT) is up +0.5% in European trading this morning after the defense contractor won a $1.5 billion contract from the US Air Force to build a network of navigation satellites.
• Nordstrom (JWN) is up +1.2% in European trading this morning after the department store chain reported stronger than expected Q1 earnings as it cut costs fast enough to address slowing sales.
• Kraft Foods (KFT) (+1.2%) and Wells Fargo (WFC) (+0.8%) are trading higher in European trading after filings showed that Warren Buffett's Berkshire Hathaway (BRK) increased its stake in both companies.
• Genentech (DNA) is up +1.0% in European trading this morning after the company reported promising study results for two experimental treatments for certain types of cancer.
• Kohl's (KSS) may show weakness today after reporting a 27% drop in earnings and providing guidance that was below the analyst consensus

Today's U.S. Market Focus

• June 10-year T-notes this morning are trading -0.5 tick. June T-notes yesterday rallied and closed up +29.5 ticks. Bullish factors for T-note prices yesterday included (1) the unexpected contraction in the May Empire manufacturing index (-3.8 to -3.2 versus expectations of -0.6 to 0), (2) the rise in US weekly continuing unemployment claims to a 4-year high (+28,000 to 3.060 mln), (3) the weaker than expected Apr industrial production and capacity utilization (industrial production -0.7% versus expectations of -0.3% and capacity utilization -0.7 to a 2-1/2 year low of 79.7% versus expectations of -0.4 to 80.1%), and (4) the unexpected drop in the May NAHB housing market index (-1 to 19 versus expectations of unchanged at 20). Bearish factors for T-note prices yesterday included (1) the stronger than expected May Philadelphia Fed manufacturing index (+9.3 to -15.6 versus expectations of +5.9 to -19.0), and carryover weakness from European debt markets as the 10-year German bund yield soared to 4-1/2 month high as Q1 European GDP reports came in much stronger than expected.
• The dollar/yen is trading unchanged this morning and the euro/dollar is trading +0.21 cents. The dollar index yesterday closed little changed. Bullish factors for the dollar yesterday included (1) the better than expected May Philadephia Fed manufacturing index, and (2) increasing speculation that the Fed is finished with its rate cutting regime as federal fund futures now show only a 6% chance of a 25 bp rate cut at the Fed's next policy meeting in June. Bearish factors for the dollar yesterday include (1) the weaker than expected US Apr industrial production and the drop in the Apr capacity utilization rate to a 2-1/2 year low, (2) the rise in US weekly continuing unemployment claims to a 4-year high, and (3) the better than expected Q1 GDP reports from Europe which strengthened the euro.

• June crude oil prices this morning are trading +$1.44 a barrel and June gasoline is trading +3.21 cents a gallon. Goldman Sachs today raised its forecast for crude oil in the second half of 2008 by 32% to $141 per barrel and forecast $148 oil for 2009 due to supply constraints. Oil prices are also being boosted by speculation that China will need to buy diesel fuel for electricity generation due to the earthquake. June crude oil prices yesterday traded higher into mid-morning and then gave up all of its gains and closed down -$0.10 a barrel and June gasoline closed -1.460 cents a gallon. June gasoline yesterday posted a record high of $3.2370 per gallon before closing lower. Bearish factors for crude oil prices yesterday included (1) the larger than expected increase in natural gas supplies in yesterday's weekly inventory report from the Energy Department, (2) long liquidation pressure as crude oil has rallied over $16 per barrel in the past 2-weeks, and (3) OPEC's cut in its 2008 global oil demand forecast for the second time in 3-months by 20,000 bpd to 86.95 mln bbl a day from 86.97 mln bbl a day. Bullish factors for crude oil prices yesterday included (1) UBS's hike in its 2008 crude oil price forecast by 32% to $115 per barrel, (2) comments from the Saudi Oil Minister that turmoil in financial markets is to blame for record oil prices, rather than a shortage of supply, (3) the stronger-than-expected Q1 GDP reports from Europe, signaling continued European demand for energy, and (4) Sanford C. Bernstein's hike in its 2008 crude oil price forecast to $100 from $92 per barrel saying "the potential for significant price weakness is unlikely due to the onset of the high demand period associated with the US and European driving seasons.

Today's U.S. Earnings Reports

Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): ANF-Abercrombie & Fitch (BEST earnings consensus $0.65 per share)

Global Financial Calendar