U.S. Market Update

Dow -83 S&P -9.4 NASDAQ -16

Markets opened somewhat higher this morning despite the surprisingly high ADP employment numbers, which provided a troubling preface to Friday's payrolls data. The final Q2 GDP numbers were slightly better than expected, and numerous speakers, including many Fed governors, have already predicted that GDP will turn positive in Q3. But it was the Chicago PMI that really upset the applecart, with the widely watched regional manufacturing survey registering a much lower-than-expected reading, spooking investors just after the open. Front-month NYMEX crude moved higher after weekly DOE inventories, but the biggest mover was heating oil after distillate inventories saw a smaller than expected build. Bond prices remain firm with yields looking to finish out at or near their lowest levels in months.

The banks are heading lower with overall markets this morning, however comments from the IMF on global finance minimizing potential declines this morning. Overnight the IMF reduced its estimates for writedowns faced by the industry on a global basis by $600B, while also warning that up to $1.5T in writedowns are still expected through 2010. The IMF also cautioned that while bank capital positions have improved, earnings will not offset or prevent more writedowns. In other finance sector news, Bank of America sold its long-term asset management unit Columbia Management to Ameriprise for $1B in cash, far less than the $2-3B pricetag speculated several months ago. Note that earlier price may have included short-term asset management business as well, which was apparently not part of the deal announced today. The WSJ reported that CIT is preparing to cede control to bondholders, who are facing a 30-40% haircut.

More tech firms crushed analysts' estimates and offered much improved guidance in quarterly reports yesterday after the close. DRAM market power Micron Tech's loss was half the expected amount, while revenue came in a hair above expectations. Its DRAM sales were notably higher, up 28% sequentially. Custom electronics manufacturer Jabil Circuit reported double the expected profit and guided well above the consensus for next quarter. Shares of JBL are up 8% in early trade, although investors are not impressed with MU, which is down 2%. Nike is up 8% after beating earnings projections in its Q1 report, although sales numbers were weak. Iconix is down 20% after cutting its 2009 view and guiding Q3 below par. PSYS is down a few percent after reducing its full year guidance. The mover of the day is certainly Discovery Labs, which was up 50% after announcing that it had worked out an approach for resolving issues with Surfaxin with the FDA. Shares of DSCO are up 30% mid morning.

In currencies, greenback sentiment was soft on fresh risk appetite in the early going. EUR/USD surged to 1.4675 following the results of the ECB 12-month tender operation, which saw less demand than expected, prompting optimism that balance sheet stresses in the Euro Zone and emerging market countries have fallen significantly. However, the dire Chicago PMI number turned market sentiment around and sparked risk aversion, helping the dollar move into positive territory against the European pairs and recoup most earlier losses against the commodity currencies as energy commodities dipped into the red. EUR/CHF continued to test its 200-day moving average, as has been the case since mid-August. Dealers were watching for any CHF demand from Swiss institutions taking advantage of the cheap euros available from the ECB 12-month tender, pointing out that the last round of SNB intervention had coincided with an initial 12-month tender. Intervention rumors made the rounds, sending the cross from 1.5080 to test above 1.52. The South African Rand exhibited weakness after's India's Bharti disengaged merger talks with MTN [MTN.SA], noting that the South African gov't said it could not accept terms offered.

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