• The European stock markets are closed today for the Labour Day Holiday, although in England the FTSE Index is trading up +0.28%. Most Asian markets were also closed today except for Japan which closed -0.60% and Australia -0.17%.

• After the Federal Reserve cut its benchmark interest rate for a seventh time since September to 2.00% yesterday, two former Fed officials say it wouldn't be wise for policy makers to cut rates below the current 2.00%. Former St. Louis Fed President William Poole yesterday said "We have an adjustment in housing that has to take place and I don't think rate cuts are going to solve the basic problem." The Federal Reserve has lowered the benchmark rate a total 350 bp since September to try to fuel economic growth and calm financial markets following the collapse of the subprime-mortgage market. Former Fed Governor Susan Bies said yesterday "I don't think the Fed should continue to cut because the risk is that it's taking away from people's spendable income." The former Fed officials remarks underscore the risk that more rate reductions may fan inflation, which is accelerating due to the weakening dollar and rising prices of food, energy and other commodities. The post FOMC statement yesterday stated the "uncertainty about the inflation outlook remains high," and policy makers may have hinted to a pause in rate cuts by dropping the reference to "downside" risks to growth.

• Unemployment claims � Today's weekly unemployment claims report is expected to show an increase of +23,000 to 365,000, reversing over one-half of last week's sharp �33,000 decline to 342,000. Meanwhile, weekly continuing claims are expected to rise +16,000 to 2.950 mln, reversing a small part of last week's plunge of �65,000 to 2.934 mln. Despite last week's sharp declines in initial and continuing claims, both series remain at high levels that indicate that layoffs have picked up substantially and that the number of people on the unemployment rolls is at high levels. The market is looking ahead to tomorrow's April unemployment report, which is expected to show the third consecutive decline in payrolls (-75,000) and a +0.1 point rise in the unemployment rate to a 3-year high of 5.2%.

• PCE Deflator � Today's March personal income report is expected to show an increase of +0.4% following the +0.5% increase seen in February. March personal spending is expected to rise +0.2%, remaining weak after the +0.1% increase seen in February. The March PCE deflator is expected to ease a bit to +3.2% y/y from +3.4% y/y in February. The March PCE core deflator is expected to show a modest increase of +0.1% m/m and +2.0% y/y, matching February�s report of +0.1% m/m and +2.0% y/y. If the overall PCE deflator in fact eases to +3.2% from +3.4%, and the core PCE deflator remains unchanged at +2.0%, the Fed would have a little more breathing room on the inflation front as it tries to reflate the economy to prevent a collapse in the banking system and the housing market.

• ISM manufacturing index � Today's April ISM manufacturing index is expected to show a 0.6 point decline to 48.0, more than reversing the small upward rebound of +0.3 points to 48.6 seen in March. The expected report today of 48.0 would leave the ISM index below the boom-bust level of 50 for the third consecutive months and for the fourth month in the last five, suggesting that the US manufacturing sector is presently in a recession. The markets will also be watching the April ISM prices-paid sub-index, which is expected to be unchanged at 83.5. The ISM prices-paid index soared by +8.0 points to 83.5 in March, illustrating the extreme upward price pressure that is being seen at the factory price level due to the surge in energy and raw materials costs.

• Vehicle sales � Today's April total vehicles sales report is expected to tick down slightly to 15.0 mln units from March's 15.1 mln units. The March level of 15.1 mln units was a 2-1/2 year low and was the second lowest level in the past 10 years. US vehicle sales have faded fast due to financial pressures on consumers from high energy and food prices, falling home prices, and the weakening labor market.

• June S&Ps this morning are trading +3.30. The US stock market yesterday traded higher until the FOMC announcement and then sold-off into the close and ended the day lower (Dow -0.09%, S&P 500 -0.38%, Nasdaq Composite -0.55%).

• Bearish factors for stock prices yesterday included (1) the somber sounding Fed as the post FOMC statement said "tight credit conditions and the deepening housing contraction are likely to weigh" on economic growth, (2) the 4% drop in Citigroup as the biggest US bank by assets is selling $4.5 billion of stock to raise capital depleted by mortgage losses, (3) the 5.1% drop in Colgate-Palmolive as the world's biggest toothpaste maker said gross margin will be "flat to slghtly up" this year because of higher fuel and agricultural-commodity costs, after previously forecasting gross margin would widen by as much as 1.25%, and (4) the 9.3% fall in MEMC Electronic Materials after JPMorgan Chase lowered its recommendation on the maker of silicon wafers to "neutral" from "overweight," citing the risk of weaker demand from Europe.

• Bullish factors for stock prices yesterday included (1) the slightly higher than expected growth in US Q1 GDP, (2) the lower than expected rise in the Q1 employment cost index, (3) the unexpected gain in the April Chicago purchasing managers index, (4) the 9.4% gain in GM after the automaker reported a Q1 loss of 62 cents a share, narrower than the $1.52 a share forecast by analysts, and (5) the 3.2% gain in Dean Foods as the biggest US dairy producer reported Q1 profit of 23 cents a share, topping analysts' estimates of 18 cents a share.

• Las Vegas Sands (LVS) dropped almost 10% in after-hours trading yesterday as the world's largest casino company by market value reported an unexpected Q1 loss on expenses from borrowing money to develop resorts in Macau, China.

• Itron (ITRI) gained 5.5% in after-hours trading yesterday as the largest US maker of electric-utility meters said yearly profit could be as high as $3.45 a share, more than analysts' estimates of $3.36 a share.

• Tyco International (TYC) may get a boost this morning after the company said Q2 profit rose 66% on higher sales and that 2008 profit will be higher than its previous forecast. Tyco said Q2 earnings were 67 cents a share, higher than analysts' estimates of 58 cents, and also raised its full-year profit forecast by 5 cents a share

Today's U.S. Market Focus

• June 10-year T-notes this morning are trading +1.5 ticks. June T-notes yesterday traded with small gains into the FOMC announcement and then rallied into the close and settled +13.5 ticks. Bullish factors for T-note prices yesterday included (1) the smaller than expected increase in the Q1 employment cost index (+0.7% versus expectations of +0.8%, (2) the smaller than expected increase in the Q1 GDP price index (+2.6% versus expectations of +3.0%), and (3) the action by Fitch Ratings to overhaul the way it assesses risk on $110 billion of collateralized debt obligations (CDOs) based on company debt in a move that may lead to more downgrades of the securities. Bearish factors for T-note prices yesterday included (1) the unexpected increase in employment in the ADP April employment change (+10,000 versus an expected drop of -60,000), (2) the greater than expected increase in US Q1 GDP (+0.6% versus expectations of +0.5%), (3) the unexpected increase in the Chicago April purchasing managers index (+0.1 to 48.3 versus expectations of -0.7 to 47.5), and (4) speculation that the Fed is nearing an end to its rate-cutting cycle as policy members said "substantial" easing to date should promote economic growth.

• The dollar/yen is trading +0.15 yen this morning and the euro/dollar is -0.88 cents. The euro/dollar this morning is trading at a 5-week low as investors bet on a pause in the Fed's rate-cutting regime, although currency moves today may be exaggerated due to today's Labour Day Holiday in Europe. The dollar index yesterday rallied to a 1-month high but sold-off after the FOMC announcement and ended the day lower. Bearish factors for the dollar yesterday included (1) the prediction by Bank of America, the second largest US bank, that the Fed will cut the funds rate to 1.5% by the end of August, and (2) market disappointment that the Fed wasn't more hawkish in their post FMOC meeting statement after cutting the funds rate and the discount rate an as expected 25 bp and saying the economy "remains weak." Bullish factors for the dollar yesterday include (1) the unexpected rise in employment in the ADP April employment change, (2) the slightly higher than expected gain in US Q1 GDP, (3) the smaller than expected rise in the Q1 employment cost index, (4) the unexpected rise in the April Chicago purchasing managers index, and (5) the fall in Euro-Zone April economic confidence to a 2-1/2 year low.

• June crude oil prices this morning are trading -28 cents a barrel and June gasoline is trading -0.63 cents a gallon. June crude oil prices yesterday continued Tuesday's sell-off and closed down -$2.17 a barrel and June gasoline closed -0.800 cents a gallon, both at 1-1/2 week lows. Bearish factors for crude oil prices yesterday included (1) the greater than expected increase in crude oil stockpiles and the unexpected increase in distillate inventories in yesterday's DOE inventory report (crude oil +3.85 mln bbl versus expectations of +950,000 and distillates +1.13 mln bbl versus expectations of -400,000 bbl), and (2) the return to work by striking Nigerian oil workers as part of the bargaining agreement between Exxon Mobil and the workers to end the 7-day long strike. Bullish factors for crude oil prices yesterday included (1) the comments from OPEC members Kuwait, Libya and Qatar that crude oil prices have soared because of investors speculating on commodities and that OPEC has no plans to hold an emergency meeting before its scheduled September meeting, and (2) the comments from the former Saudi Arabian Oil Minister Yamani that OPEC has to increase production as they are "keeping commercial stocks as dry as possibe and are producing only enough for consumption.

Today's U.S. Earnings Reports

Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): XOM-Exxon Mobile (BEST earnings consensus $2.13 per share), CMCSA-Comcast (.19), CVS-CVS Caremark (.55), APA-Apache (3.02), MET-Metlife (1.48), MRO-Marathon Oil (.83), TRI-Thomson Reuters (.35), CHK-Chesapeake Energy (.93), FE-FirstEnergy (.82), ADP-Automatic Data Processing (.75), WMB-Williams Companies (.51), CAH-Cardianl Health (1.02), NBL-Noble Energy (1.67), AOC-Aon (.62), JAVA-Sun Microsystems (.19), WYNN-Wynn Resorts (.68), CI-Cigna (.96), CAM-Cameron International (.53), NRG-NRG Energy (.43), KIM-Kimco realty (.36), RRI-Reliant Energy (.15), XEL-Xcel Energy (.33), NMX-Nymex Holdings (.82), EQT-Equitable Resources (.68), MLNM-Millennium Pharmaceuticals (.05), AIZ-Assurant (1.51), HOLX-Hologic (.28), CLX=Clorox (.76), DNR-Denbury Resources (.38), EXPE-Expedia (.22)

Global Financial Calendar