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• The European stock market is trading little changed with the European DJ Stoxx 50 index up +0.03%. Barclays is down 3% this morning after the UK's third largest bank said Q1 earnings were undercut by 1.7 billion pounds worth of write-downs and the bank's statement that it could not rule out the possible need to raise more capital. Asia-Pacific stocks today closed higher except for Hong Kong and China: Japan +0.4%, Hong Kong -0.08%, China -0.70%, Taiwan +1.54%, Australia +0.31%, Singapore +0.28%, South Korea +2.56%, Bombay +2.21%.
• Euro-Zone Q1 GDP rose by a relatively strong +0.7% q/q and +2.2% y/y, which was stronger than market expectations of +0.2% q/q. Euro-zone growth was supported by strong German GDP growth of +1.5% q/q and French GDP growth of +0.6% q/q. The report supported the ECB's current stance of refusing to consider a rate cut due to inflation concerns and ideas that the Euro-Zone economy is so far weathering the banking crisis.
• Claims – Today’s weekly unemployment claims report is expected to show a small gain of +5,000 to 370,000, reversing about one-third of last week’s decline of –18,000 to 365,000. Meanwhile, weekly continuing claims are expected to show an increase of +15,000 to 3.035 mln, more than reversing last week’s decline of -10,000 to 3.020 mln. Initial claims have been volatile in the past several weeks but remain near a 5-year high, indicating that the level of layoffs by businesses is fairly high. Meanwhile, continuing claims are just below the recent 4-year high, indicating that the number of people on the unemployment rolls is high. The US labor market remains in weak shape with payrolls falling for four consecutive months and with the April unemployment rate of +5.0% falling just 0.1 point below the March 3-year high of 5.1%.
• Industrial production – Today’s April industrial production report is expected to show a decline of –0.3%, reversing the +0.3% increase seen in March. On a year-on-year basis, industrial production in April was up +1.6%. However, the ISM manufacturing index has been below the boom-bust level of 50 for three consecutive months, suggesting that the US manufacturing sector is in a recession.
• Empire and Philadelphia mfg reports - For more up-to-date data on the US manufacturing sector, the markets will be watching today’s NY Empire and Philadelphia Fed manufacturing indexes for May. Today’s May Empire manufacturing index is expected to fall -0.6 points to 0.0, fading a bit after the +22.8 point surge in March that took the index back into slightly positive territory at 0.6. Still, the Empire index is in sickly shape, having been well below the boom-bust level of zero in February and March and being near zero in April. Meanwhile, the Philadelphia Fed’s manufacturing index is expected to remain in firmly-negative territory with a +5.9 point increase to –19.0, following the –7.5 point decline to –24.9 seen in April.
• NAHB housing market index – Today’s May NAHB housing market index is expected to be unchanged at 20, which would match the unchanged report of 20 seen in April. The National Association of Home Builders index measures the general state of the single-family home market, with 50 being the demarcation between a “good” versus “poor” outlook for the single-family home marketplace. The NAHB index has been bumping along just above the record low of 18 posted in December for the past eight months. That essentially means that sentiment in the US homebuilding market has hit rock bottom and has stayed there for eight months. There is little reason to expect any near-term improvement in homebuilder sentiment given 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. The big supply of new homes means that US homebuilders cannot even think about starting to build new homes until the current supply of homes on the market is worked down to more manageable levels.

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• June S&Ps this morning are trading +2.00 points. The US stock market yesterday closed with slight gains (Dow +0.52%, S&P 500 +0.40%, Nasdaq Composite +0.06%).
• Bullish factors for stock prices yesterday included (1) easing of inflation concerns with the smaller-than-expected rise in the Apr CPI, (2) the 9.2% advance in Freddie Mac, the second-largest US mortgage finance company, after the company reported a smaller-than-expected Q1 loss of 66 cents a share (versus the 84-cent loss expected by analysts) and said also said it will raise $5.5 billion in capital and doesn't plan to cut its dividend, and (3) the rally in department stores after Macy's, the second biggest US department-store chain, rallied 4.5% after reporting that Q1 sales fell less than expected and reiterating their annual forecasts.
• Bearish factors for stock prices yesterday included (1) the 9.9% fall in Deere after the world's largest maker of tractors and combines said profit this quarter will fall short of analysts' estimates as US construction slows and material prices jump, (2) the 3.3% drop in Electronic Arts as the biggest video-game maker reported a Q4 loss of $94 million and said profit for the first half of fiscal 2009 probably will miss analysts' estimates as more of the games expected to be big hits will be released later in the year, and (3) the 14% fall in Whole Foods Market after the largest US natural-foods grocer reported Q2 profit that fell more than analysts estimated and said sales growth slowed.
• Exxon Mobil and Chevron are trading higher in European trading this morning after UBS issued a research report raising its crude oil forecast for 2008 by 32% to $115 per barrel and saying that major oil companies are "notably inexpensive." Chevron is up +0.3% after UBS raised the rating on the second-largest US oil company to "buy" from "neutral."
• GE is up +0.6% in European trading this morning after reports that GE may sell its appliance business. GE refused to comment on the reports.
• Agilent Technologies (A) rallied 4% in after-hours trading yesterday after the company reported strong fiscal Q2 earnings and full-year 2008 guidance that was above the analyst consensus.
• Brocade Communications Systems (BRCD) fell 2% in after-hours trading yesterday after reporting fiscal Q2 earnings.

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• June 10-year T-notes this morning are trading +0.5 tick. June T-notes yesterday continued lower and closed down -11.5 ticks at a 2-1/2 month low. Bearish factors for T-note prices yesterday included (1) the rally in the stock market which drew capital away from Treasuries, and (2) carryover weakness from European debt prices after comments from EU Monetary Affairs Commissioner Almunia that it is the responsibility of governments "to fight against inflation." Bullish factors for T-note prices yesterday included (1) smaller than expected gain in Apr core CPI (+0.1% m/m and +2.3% y/y versus expectations of +0.2% m/m and +2.4% y/y), and (2) according to RealtyTrac Inc., the 65% y/y gain in US Apr home foreclosures as rates on adjustable mortgages increased and vacated homes added to a glut of unsold homes on the market.
• The dollar is mixed this morning with the dollar/yen up +0.08 yen and the euro/dollar up +0.21 cents. The dollar index yesterday closed slightly higher. Bullish factors for the dollar yesterday included (1) the drop in the yen as the stronger equity market encouraged the yen carry trade, (2) comments from French Finance Minister Lagarde that the euro may be overvalued by as much as 20%, and (3) the comment from Minneapolis Fed President Stern that policy makers "shouldn't wait" until the economy has fully recovered before starting to raise borrowing costs. Bearish factors for the dollar yesterday include (1) comments from former Fed Chairman Volker that the dollar's recent decline should be "watched" as a loss of confidence in the dollar will put the US "in trouble," and (2) the 65% y/y jump in US home foreclosures in April, the most since statistics began in Jan 2005. 
• June crude oil prices this morning are trading +81 cents a barrel and June gasoline is trading +1.38 cents a gallon. June crude oil prices yesterday fell from record levels and closed down -$1.58 a barrel and June gasoline closed -1.960 cents a gallon. June heating oil yesterday posted a record high of $3.7228 per gallon before closing lower. Bearish factors for crude oil prices yesterday included (1) the larger than expected increase in distillate inventories in yesterday's DOE inventory report (distillates +1.34 mln bbl versus expectations of +1.0 mln bbl), (2) the 2.4% drop in US fuel consumption in the first four months of 2008 compared with the same period a year earlier, according to the API, (3) the bigger than expected jump in the refinery capacity rate to a 4-month high of 86.6% in the weekly DOE inventory report, and (4) the 2.7% drop in total implied US fuel demand last week from the same time last year, showing that record high energy prices are crimping demand. Bullish factors for crude oil prices yesterday included (1) the smaller than expected gain in crude oil inventories and larger than expected decline in gasoline stockpiles in yesterday's DOE inventory report (crude oil +176,000 bbl versus expectations of +2.25 mln bbl and gasoline -1.72 mln bbl versus expectations of -220,000 bbl), and (2) the prediction from former Fed Chairman Greenspan that oil prices will keep rising as energy companies have invested too little in production and infrastructure to cope with higher demand.

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Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): KSS-Kohls (BEST earnings consensus $0.44 per share), JCP-J.C. Penney (.50), ADSK-Autodesk (.48), JWN-Nordstrom (.49), BMC-BMC Software (.51), URBN-Urban Outfitter (.23), AAP-Advance Auto Parts (.78), CPWR-Compuware (.22)

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