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• The European DJ Stoxx 50 this morning is trading -0.56%. The main bearish factor was today's report that the IFO August German business climate index fell by -2.7 points to 94.8 from 97.5 in July, which was substantially weaker than market expectations for a report of a -0.3 point decline to 97.2. European automakers are lower today despite lower oil prices (-$1.83) due to concern about weaker consumer confidence. BMW is down -1.4% and Renault is down -2.6%. Oil and mining companies are trading lower today on lower oil and metals prices, sparked in part by today's very sharp rally in the dollar. The financial sector continues to be under pressure with UBS down -1.1% and Commerzbank down -1.8%. Asia-Pacific stocks today closed lower: Japan -0.78%, Hong Kong -0.23%, China -2.88%, Taiwan -0.94%, Australia -0.15%, Singapore -0.96%, South Korea -0.84%, Bombay +0.22%.
• US home prices – Today’s June S&P/CaseShiller home price index is expected to fall further to -16.2% y/y from -15.8% y/y in May. The May level of –15.8% was a record low, although the series only has history back to 2001. Separately, the June U.S. house price index from the Office of Federal Housing Enterprise Oversight (OFHEO) is expected to fall –0.4% m/m, adding to the –0.3% m/m decline seen in May. US home prices are likely to continue to fall given slack buyer demand and the huge supply of homes that are on the market. There had originally been hopes in the marketplace that home prices might find a bottom this year, but now the market consensus for a bottom has shifted to next year.
• US consumer confidence – Today’s Aug U.S. consumer confidence index from the Conference Board is expected to rise +1.1 points to 53.0, adding to the small upward rebound of +0.9 points to 51.9 seen in July. The Conference Board’s US consumer confidence index hit a 16-year low of 51.0 in June. US consumer confidence seems to have bottomed out recently as gasoline prices have abated somewhat from record highs and as the federal stimulus program injected some cash into the economy to keep GDP growth afloat. Nevertheless, there is little reason to expect any major improvement in US consumer confidence given the continued banking and housing crises, falling home prices, the progressively weaker labor market, and the fading effects of the federal stimulus program.
• New home sales – Today’s July new home sales report is expected to fall –0.9% to 525,000, adding to the –0.6% decline to 530,000 seen in June. Today’s expected report of 525,000 would be just 2.3% above the 17-year low of 513,000 posted in March 2008. The supply of new homes on the market was at 10.0 months in June. That was down from the 28-year high of 11.2 months seen in March but was still at an extraordinarily high level that is putting continued severe downward pressure on home prices. Yesterday’s July existing home sales report of +3.1% to 5.00 mln units was stronger than the expected report of 4.91 million units. However, the increase in existing home sales activity was not enough to make much of a dent in the huge supply of existing homes on the market, since the supply of existing homes on the market only fell to 10.6 months in July from the peak of 11.0 months in June.
• FOMC minutes – The Fed today will release the minutes from the Aug 5 FOMC meeting. The FOMC at that meeting left its funds rate target unchanged at 2.00%, which was fully in line with market expectations. The markets will be trying to gauge the Fed’s latest thinking on the conflicting concerns about inflation and weak economic growth. The recent sharp decline in oil and commodity prices has taken a significant amount of pressure off the Fed on the inflation front, which has led the market to suspect that the Fed will leave its funds rate target at the very low level of 2.00% for the remainder of this year.

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• September S&Ps this morning are trading +3.20 on some light short-covering after yesterday's sharp losses. The US stock market yesterday closed sharply lower (Dow -2.08%, S&P 500 -1.96%, Nasdaq Composite -2.03%).
• Bearish factors for stock prices yesterday included (1) the sell-off in banking stocks after Columbian Bank & Trust became the ninth US bank to collapse this year, (2) the -5.5% decline in AIG to a 13-year low after Credit Suisse Group predicted the world's largest insurer may lose $2.41 billion this quarter on mortgage-related writedowns, (3) the sell-off in trucking stocks after Wachovia cut its rating on the sector to "market weight" from "overweight," saying demand is "slowing" despite what is typically peak shipping seaon from late-August through November as the benefit of the stimulus program has abated and consumers contend with inflationary pressures, and (4) Morgan Stanley's cut in its year-end forecast for the S&P 500 Index by 7.1% to 1,300 citing concern that banks' will report more credit-related writedowns and the global economic slowdown will cut profits at technology and industrial companies.
• Bullish factors for stock prices yesterday included (1) the larger-than-expected gain in US existing home sales for July, (2) the drop in the US 10-year T-note yield to a 3-month low, and (3) the prediction by JPMorgan Chase that the recent sharp decline in commodity prices sets the stage for a US stock market rally into year-end.
• General Motors (GM) is up +0.8% this morning on lower oil prices.
• Electronic Arts (ERTS) is down -2% and Take-Two Interactive (TTWO) is down -0.1% after news the companies entered talks about a possible acquisition of Take-Two by Elecronic Arts.

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• September 10-year T-notes this morning are trading +2 ticks as the market looks forward to today's raft of economic reports and the 2-year and 5-year T-note auctions tomorrow and Thursday. September T-note prices yesterday rallied sharply and closed +25.5 ticks at a 4-3/4 month high. Bullish factors for T-note prices yesterday included (1) a flight-to-quality as the stock market tumbled on concerns that the credit-market turmoil may be widening, and (2) last Friday's collapse of Columbian Bank & Trust, the ninth US bank failure this year, adding fuel to concern subprime mortgage losses will worsen and bring down more US banks. Bearish factors for T-note prices yesterday included (1) the stronger-than-expected rise in July existing home sales (+3.1% to 5.0 million units versus expectations of +0.9% to 4.91 million), and (2) supply concerns as the US Treasury said it will auction a record $32 billion 2-year T-notes Aug 27 and $22 billion in 5-year T-notes Aug 28, a 5- 1/2 year high.
• The dollar is trading higher today with the dollar/yen up +0.58 yen and the euro/dollar down sharply by -1.74 cents. The euro was undercut by today's IFO German business confidence report. The dollar index yesterday closed little changed. Bearish factors for the dollar yesterday included (1) the rally in the yen as the carry trade was unwound due to stock market weakness, (2) the failure of Columbian Bank & Trust from Topeka, Kansas because of bad real-estate loans, and (3) concerns that Korea Development Bank will reconsider an investment in Lehman Brothers. Bullish factors for the dollar yesterday included (1) the larger-than-expected gain in US existing home sales for July, and (2) concerns that today's German IFO business confidence index might be weaker than expected. 
• October crude oil prices this morning are trading -$1.83 a barrel and October gasoline is trading -4.02 cents a gallon. Bearish factors this morning include the sharp rally in the dollar and the recent reopening of the Baku-Tbilisi-Ceyhan pipeline. Those bearish factors have overcome concern for the moment about Tropical Storm Gustav. October crude oil prices yesterday ended higher after a volatile day and closed +$0.52 a barrel. October gasoline closed +1.43 cents a gallon. Bullish factors for crude oil prices yesterday incuded (1) the action by Russian lawmakers in voting to recognize the independence of two breakaway Georgia regions, South Ossetia and Abkhazia, raising concern of new tensions in the region, and (2) the formation of Tropical Storm Gustav in the central Carribean, raising concern that the storm may form into a hurricane and head west towards the oil producing regions of the Gulf of Mexico. Bearish factors for crude oil prices yesterday included (1 ) the stronger dollar, and (2) the prediction from the think tank of China's top oil producer, CNPC, that China's fuel-demand growth will slow in the second-half of this year as energy-conservation methods are adopted.

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Earnings reports (confirmed releases for companies with market caps above $10.0 bln listed by mkt cap): SFD-Smithfield Foods (BEST earnings consensus -$0.02 per share), AEO-American Eagle Outfitters (0.28), BIG-Big Lots (0.27), SOLR-GT Solar International (n/a), JCG-J Crew Group (0.32), COCO-Corinthian Colleges (0.09), HAIN-Hain Celestial Group (0.32)

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