• The European markets are trading slightly higher with the European DJ Stoxx 50 up +0.10%. Sentiment on European economic growth improved today after the European April purchasing managers service sector index rose by +0.2 points to 51.8 (versus the market consensus for a -0.2 point decline to 51.4) and Euro-Zone Feb industrial orders rose +0.6% (versus the market consensus for a -0.4 point decline). Asia-Pacific stocks today closed mostly higher: Japan +0.23%, Hong Kong +1.40%, China +4.78%, Taiwan -0.32%, Australia +1.59%, Singapore +0.21%, South Korea +0.58%, Bombay -0.51%.

• Mortgage apps? Following the volatile mortgage activity seen so far this year, mortgage activity is likely to settle down now that mortgage rates have moved sideways for the past five weeks. The 30-year mortgage rate fell sharply by 26 bp to 5.87% in the third week of March and has since moved sideways. The 30-year mortgage rate is currently at 5.88%. Last week, the MBA mortgage applications index was up +2.5%, the purchase sub-index fell -0.8% and refinancing sub-index rose +5.2%. The purchase sub-index remains toward the lower end of the range seen in the past 5 years, indicating poor home buying activity.

• 2-year T-notes? The Treasury today will sell $30 billion in 2-year T-notes. The Treasury has very quickly ramped up the size of the 2-year from $18 billion in the first half of last year to $20 billion in October, $22 billion in December, $24 billion in January, $26 billion in February and $28 billion in March. Now the Treasury has raised the size of the 2-year by another $2 billion to $30 billion in April. Today's 2-year T-note was trading at 2.22% in when-issued trading yesterday. The 2-year yield is trading at such low levels because the Fed is targeting the funds rate at 2.25% and because the market is expecting a further 25 bp rate cut to 2.00% at next week's FOMC meeting. However, the 2-year does not offer particular value at a yield of 2.22% considering that the March CPI was up +4.0% and core CPI is at 2.4%. Still, the 2-year is at least a safe place to park cash during the current financial market crisis, even if the inflation-adjusted return is likely to be negative for 2-year buyers if current inflation rates prevail over the next 2 years. The 12-auction averages for the 2-year are as follows: 2.69 bid cover, $678 million in non-competitive bids, 2.45 bp tail to the median yield, 7.83 bp tail to the low yield, 48% taken at the high yield. Foreign central banks have taken an average of 27.4% of the last twelve 2-year auctions, which is well below the average of 33.9% across all recent Treasury coupon auctions.

• June S&Ps this morning are trading slightly higher by +2.00 points on some short-covering after yesterday's declines. The US stock market yesterday traded in negative territory most of the day and closed lower (Dow -0.82%, S&P 500 -0.88%, Nasdaq Composite -1.29%).

• Bearish factors for stock prices yesterday included (1) the 5.8% drop in Texas Instruments as the second largest chipmaker in the US predicted Q2 profit of 42 to 48 cents a share, missing analysts' estimates of 49 cents as orders for mobile-phone chips slowed, (2) the sell-off in health insurers after UnitedHealth, which fell 9.7%, reported Q1 earnings of 66 cents a share, well below analysts' estimates of 80 cents as sales and the company cut its profit goals for the year, (3) the 4.7% drop in shares of Apple after American Technology Research downgraded the company to "neutral" from "buy" saying the risk/reward at current price levels are not "compelling" and the stock may fall as much as 20%, (4) the 4% drop in DuPont as the third biggest US chemical company said weak US demand for home insulation and automotive paint may overshadow earnings gains from agricultural products in the remainder of the year, and (5) the 16% plunge in CIT Group as the commercial lender tried to avoid a cash shortage by selling $1 billion of shares of common stock at a 14% discount to Monday's closing price.

• Bullish factors for stock prices yesterday included (1) the 5.3% gain in Parker Hannifin as the world's largest maker of hydraulic equipment said Q3 earnings increased 22% and its full-year profit will be higher than forecast in January as international sales rose more than expected, (2) the 4.4% gain in Clear Channel Communications after Citigroup and five other banks that refused to fund a $19.5 billion buyout proposed arbitration to avoid a trial but were rebuffed by the would-be buyers Bain Capital and Thomas H. Lee Partners LP, and (3) the 9.2% gain in Las Vegas Sands after it was reported that Macau's government won't issue new gaming licenses or provide land for new casinos which boosted Las Vegas Sands as they are already developing a $12 billion complex of casinos and hotels in Macau.

• Ambac Financial Group, the world's second largest bond insurer, this morning reported an operating loss of $6.93 per share, which was much worse than the analyst consensus for a loss of $1.82.

• Yahoo! is down -0.7% in European trading this morning after Microsoft CEO Steven Ballmer said Microsoft does not intend to raise its $44.6 billion offer for Yahoo.

• Broadcom is up 9% in European trading this morning after the company reported Q1 EPS of 14 cents, which was substantially above the analyst consensus of 7 cents.

• Raymond James Financial (RJF) rallied almost 9% in after-hours trading yesterday as the biggest US regional brokerage said Q2 profit climbed to 50 cents a share, exceeding the 42 cents estimate by analysts.

• VMware (VMW) surged 15% in after-hours trading yesterday and is up +14.7% in European trading this morning as the company said Q1 sales increased 69% to $438.2 million, topping analysts' estimates of $421.8 million.

Today's U.S. Market Focus

• June 10-year T-notes this morning are trading -2 ticks on slightly higher S&Ps and on continued supply overhang ahead of today's 2-year auction and tomorrow's 5-year auction. June T-notes yesterday closed down -4.5 ticks. Bearish factors for T-note prices yesterday included (1) hawkish comments from Dallas Fed President Fisher who said inflation from rising food and energy costs have been so persistent that they are starting to affect consumers' expectations for future prices, (2) the slightly better than expected Mar existing home sales (-2.0% to 4,93 mln versus expectations of -2.3% to 4.92 mln), (3) the unexpected gain in the Feb house price index (+0.6% versus expectations of -1.5%), (4) supply pressures as the Treasury auctions a record $30 billion 2-year T-notes today and $19 billion in 5-year T-notes tomorrow, the most in 5 years, and (5) carryover weakness from European Bund prices after hawkish comments from ECB Council members Noyer and Mersch that the ECB is right to debate whether it should raise interest rates and that it "will act" to restrain consumer prices if inflation doesn't slow next year.

• The dollar/yen is up +0.07 yen this morning and the euro/dollar is down -0.23 cents. The dollar index yesterday closed lower and posted a 1-month low. The euro rallied to an all-time high yesterday of $1.6018 against the dollar. Bearish factors for the dollar yesterday included (1) the hawkish comment from ECB Council member Noyer that policy makers will act to restrain consumer prices if inflation doesn't slow, fueling talk of a possible ECB rate hike later this year, (2) the comment from ECB Council member Garganas that inflation will "remain high" in the coming months and isn't expected to fall at a "rapid pace" in the the second half of this year, and (3) the comment from Dallas Fed President Fisher that inflation from rising food and energy prices has been so persistent that it's starting to affect consumers' expectations for future prices.

• June crude oil prices this morning are trading -36 cents a barrel and June gasoline is trading -1.61 cents a gallon on some technical long liquidation pressure. June crude oil prices yesterday rocketed higher and closed up +$1.12 a barrel at a contract high settlement. June gasoline closed +3.760 cents a gallon. May crude oil (nearest future) posted an all-time high of $119.90 per barrel yesterday while May gasoline posted a record high of $3.0230 per gallon. May heating oil rose to a record high of $3.3490 per gallon. Bullish factors for crude oil prices yesterday included (1) the sell-off in the dollar as the euro surpassed $1.60 for the first time ever, prompting investors to purchase commodities as an inflation hedge, (2) the rise in gasoline demand despite record high prices as MasterCard said US gasoline demand rose +2.1% from the previous week and +3.1% from a year ago, and (3) the action by Royal Dutch Shell to declare force majeure on oil exports for April and May after 169,000 barrels of daily output in Nigeria was suspended because of rebel attacks. Expectations for today's DOE inventory report are for a +1.5 mln bbl rise in crude oil inventories, a -2.05 mln bbl drop in gasoline inventories, an unchanged reading in distillate stockpiles and a +0.7 point increase in the refinery capacity rate to 82.1%

Today's U.S. Earnings Reports

Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): AAPL-Apple (BEST earnings consensus $1.06 per share), UPS-United Parcel (.87), QCOM-Qualcomm (.52), BA-Boeing (1.35), FCX-Freeport McMoran (2.12), GD-General Dynamics (1.30), XTO-XTO Energy (.91), BUD-Anheuser Busch (.71), AMZN-Amazon.com (.39), EMC-EMC Corp. (.16), AFL-Aflac (.96), PX-Praxair (.95), SGP-Schering-Plough (.38), ALL-Allstate (1.62), WLP-Wellpoint (1.18), APD-Air Products & Chemicals (1.20), BDX-Becton Dickinson (1.03), GENZ-Genzyme (.94), BIIB-Biogen Idec (.79), NE-Noble (1.32), CCI-Crown Castle International (-.09), RRC-Range Resources (.55), MCO-Moody's (.35), PBG-Pepsi Bottling (.12), ATI-Allegheny Technologies (1.48), TEX-Terex (1.41)

Global Financial Calendar