• The European stock markets are trading mildly lower this morning with the European DJ Stoxx 50 down -0.25% as European confidence fell to a 2-1/2 year low. In addition, SAP reported an earnings miss and Alcatel-Lucent reduced its sales guidance due to the lower dollar. Asia-Pacific stocks today closed mixed: Japan -0.32%, Hong Kong -0.61%, China +4.82%, Taiwan +0.32%, Australia -0.21%, Singapore -0.77%, South Korea +0.75%, Bombay -0.52%.

• European April executive and consumer confidence fell to a 2-1/2 year low of 97.1 from 99.6 in March, which was the 11st consecutive monthly drop.

• Mortgage apps � Today�s weekly MBA mortgage applications report may show some additional weakness since the 30-year mortgage rate during today�s reporting week (i.e., the week ended April 24) rose fairly sharply by 15 bp to 6.03%, a 6-week high. Mortgage activity in the previous week fell fairly sharply with a -14.2% decline in the MBA index, a -14.2% decline in the purchases index, and a -20.2% decline in the refi index.

• Q1 GDP � Today�s Q1 GDP report is expected to show a small increase of +0.5%, which would be slightly below the anemic pace of +0.6% seen in Q4. The consensus is that today�s Q1 personal consumption report will remain in positive territory at +0.7%, though considerably below the Q4 pace of +2.3%. The Q1 GDP price index is expected to rise to an alarming level of +3.0% from +2.4% in Q4. The current consensus expectation is that GDP will fall to +0.1% in Q2, but then rebound to the +1.9% area in the second half of the year, followed by +2.5% growth in 2009. While there has been plenty of talk about a recession in the media, economists at this point are still holding out hope for just a shallow dip and an upward rebound in economic growth in the second half of the year.

• ECI � Today�s Q1 employment cost index is expected to show an increase of +0.8%, matching the +0.8% increase seen in Q4. In the current environment of a weakening labor market, there is not much concern about rising employment costs. Still, the Fed has its hands full on other inflation fronts, most notably involving rising import prices, energy prices and food prices.

• Chicago Purchasing Managers � Today�s April Chicago purchasing managers index is expected to fall -0.7 points to 47.5, giving back part of the +3.7 point gain to 48.2 seen in March. Still, the Chicago manufacturing index is expected to remain below the boom-bust level of 50 for the third consecutive month, suggesting that the Chicago-area manufacturing sector is in a recessionary mode. The market is awaiting tomorrow�s national April ISM manufacturing index, which is expected to show a -0.6 point decline to 48.0 following the small +0.3 point increase to 48.6 seen in March. Another sub-50 report tomorrow would mean that the ISM index has been below 50 for three consecutive months, and in four of the last five months, suggesting that the US manufacturing sector as a whole is in a recessionary mode.

• FOMC meeting � The 2-day FOMC meeting ends today. As mentioned yesterday, the federal funds futures market is discounting an 80% chance that the FOMC at this week�s meeting will cut the funds rate target by 25 bp to 2.00%. The Fed has so far slashed t he funds rate by 300 bp from 5.25% last September to the current level of 2.25%. However, after the expected rate cut to 2.00%, the market is then expecting the Fed to halt its easing move to see how the situation develops for the banking system crisis, the US economy, and inflation. The market is currently expecting the Fed to start raising the funds rate next year by a total of 75 bp to 2.75% by next summer.

• June S&Ps this morning are trading -0.60 points as the market faces another heavy batch of earnings reports today and as Citigroup and Time Warner are trading lower on negative news. The US stock market yesterday traded lower most of the day, except for the tech sector which traded higher (Dow -0.31%, S&P 500 -0.39%, Nasdaq Composite +0.07%).

• Bearish factors for stock prices yesterday included (1) the 13th consecutive monthly drop in US home prices with a record drop in Feb of -12.7% y/y, (2) the decline in US consumer confidence in April to a 5-year low, (3) the doubling of US foreclosures in Q1 q/q and the +112% rise y/y, according to RealtyTrac, as payments rose for subprime adjustable mortgages and falling home prices left owners unable to sell or refinance without losing money, (4) the 10% drop in Merck after the drugmaker failed to win FDA approval for its cholesterol pill Cordaptive, less than a week after it was recommended for marketing in Europe, (5) the 4.4% drop in Freeport-McMoran and the 2.4% fall in Newmont Mining after gold prices fell to a 3-1/4 month low, and (6) the 8.3% fall in McDermott International after the manufacturer of offshore oil and natural gas platforms said is expects Q1 profit of 54 cents a share, below analysts' estimates of 69 cents a share.

• Bullish factors for stock prices yesterday included (1) the 2.4% gain in Chervon as the second biggest US oil company was raised to "buy" from "neutral" at Goldman Sachs who also upgraded the integrated oil industry to "attractive" from "neutral," (2) the 4.2% gain in Microchip Technology after the maker of semiconductors for toasters and garage-door openers reported Q4 profit of 42 cents a share, topping analysts' estimates of 39 cents, (3) the 2.5% rally in Wachovia as the fourth-largest US bank was upgraded to "buy" from "hold" by Deutsche Bank who said "no more capital raises are needed" for the bank, and (4) the drop of more than $3 per barrel in the price of crude oil.

• Citigroup (C) dropped -2.8% in after-hours trading yesterday and is down -2.8% in European trading this morning after the biggest US bank by assets said it will sell $3 billion of stock to raise capital. That announcement comes two weeks after its report of a second straight quarterly loss. An Oppenheimer analyst said late yesterday that she thinks Citigroup may actually need to raise an additional $15 billion to replenish capital.

• Time Warner is down 1.5% in European trading this morning after the company reported Q1 EPS ex-items of 22 cents, which was 1 cent below the analyst consensus of 23 cents.

Today's U.S. Market Focus

• June 10-year T-notes this morning are trading +3 ticks. June T-notes yesterday moved higher into late morning before giving back most of their gains and closing up +1.5 ticks. Bullish factors for T-note prices yesterday included (1) the 13th straight monthly drop in US home prices with a record -12.7% y/y drop in Feb (the most since the S&P/CS home price index was first published in Jan 2001), (2) the first quarterly loss in 5-years for Deutsche Bank, Germany's biggest bank, underscoring concern financial institutions worldwide face additional losses linked to US subprime mortgages, (3) the drop in US consumer confidence in April to a 5-year low (-3.6 to 62.3), and (4) the prediction by Barclays Capital that about half of subprime and Alt-A mortgages made in 2006 and 2007 may be "underwater" or close to it by midyear, putting about $800 billion of debt at greater risk of default. Bearish factors for T-note prices yesterday included (1) trepidation ahead of today's FOMC meeting, and (2) the narrowing of the TED spread to 1.4 percentage points from a 3-month high of 2.0 percentage points on March 19, signaling a reduction in the inter-bank credit crunch.

• The dollar/yen is up +0.29 yen this morning and the euro/dollar is down -0.20 cents. The dollar index yesterday closed slightly higher. Bullish factors for the dollar yesterday included (1) speculation that the Fed may signal it is finished, or nearly finished, with its rate-cutting cycle after today's FOMC meeting, (2) the drop in French April consumer confidence to its lowest level since the series began in Jun 1998, and (3) the slide in Euro-Zone April retail PMI to its lowest level since the series began in Jan 2004. Bearish factors for the dollar yesterday include (1) the drop in US consumer confidence to a 5-year low, (2) the 13th straight monthly drop in US home prices with a record -12.7% y/y decline in Feb, and (3) the comment from ECB President Trichet that current interest rates will help to curb inflation, dampening speculation of an ECB rate cut later this year.

• June crude oil prices this morning are trading -26 cents a barrel and June gasoline is trading -0.41 cents a gallon. June crude oil prices yesterday sold-off sharply and closed down -$3.12 a barrel and June gasoline closed -9.150 cents a gallon at a 1-week low. Bearish factors for crude oil prices yesterday included (1) the restarting of the Forties Pipeline System after a 2-day strike at the Grangemouth refinery in Scotland cut power to the North Sea pipeline which carries up to 700,000 bbl of crude oil per day, (2) the stronger dollar, and (3) the comment from the former Venezuelan oil governor who said that OPEC may meet and consider raising output before its scheduled meeting in September. Bullish factors for crude oil prices yesterday included (1) the continued strike in Nigeria against Exxon Mobil for a sixth day, halting daily output of 860,000 bbl of crude oil per day, and (2) the comment from the CFTC that the crude oil price surge is not driven by speculators. Expectations for today's DOE inventory report are for a +950,000 mln bbl increase in crude oil inventories, a -1 mln bbl drop in gasoline stockpiles, a -400,000 bbl drop in distillate inventories and a 0.3 increase in the refinery capacity rate to 85.9%

Today's U.S. Earnings Reports

Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): PG-Proctor & Gamble (BEST earnings consensus $0.82 per share), TWX-Time Warner.(.23), KFT-Kraft Foods (.41), CL-Colgate-Palmolive (.89), HES-Hess (2.01), PRU-Prudential Financial (1.82), SO-Southern (.42), FPL-FPL Group (.80), NOV-Naional Oilwell Varco (1.09), LVS-Las Vegas Sands (.36), FSLR-First Solar (.48), K-Kellog (.77), RAI-Reynolds American (1.15), MUR-Murphy Oil (1.89), CEG-Constellation Energy Group (1.29), SYMC-Symantec (.34), GM-General Motors (-1.33), CMI-Cummins (.89), IP-International Paper (.51), EQR-Equity Residential (.08), SBUX-Starbucks (.17), AYE-Allegheny Energy (.79), OI-Owens-Illinois (.79), FISV-Fiserv (.75), UNM-Unum Group (.57), AVB-AvalonBay Communities (.60)

Global Financial Calendar