U.S. Market Update

Dow +96 S&P +7.2 NASDAQ +5

- Markets are digesting the in-line jobs number and ECB rate hikes this morning, with indices opening higher, plunging into the red and rebounding sharply on good volume. The June employment reading showed US employers cutting jobs for the sixth month in a row, although investors have been encouraged by the fact that the number came in even with expectations. The ECB raised rates a quarter of a percentage point, to 4.25%, as expected, helping the USD to strengthen. Highflying commodities names in the coal, potash and steel sectors saw a rash of upgrades overnight after getting knocked around yesterday. Financials are mixed after RBC downgraded the US financial sector overnight and JP Morgan predicted additional write-downs at MER; LEH+6% is continuing its uptrend. NVDA-28% has fallen off a cliff this morning, helping to drag down the Nasdaq, after cutting its Q2 sales forecast and reporting a significant charge against revenue from a product recall yesterday after the close; the name got pummeled by multiple downgrades and price target cuts overnight. PENN was trading off as much as 5% this morning after announcing the merger with a buyout group lead by FIG has been terminated. Healthcare names HNT-12%, AET-5% and UNH-5% are weak after downgrades.

- The US yield curve has been seen steepening following this morning's jobs data with better sellers at the long end and buyers in the 2- year. The Nov fed fund future has seen the odds of a 2.5% fed funds rate by this fall slip under 10%.

- The USD firmed following the ECB's first interest rate hike in 13 months. The ECB duly noted that the rate decision was taken to prevent second-round inflationary effects, as expected. Oil hit fresh all-time highs of $145.85 ahead of the decision. Currency dealers debated whether the rate hike was a “one-off” measure or the beginning of a series of interest rate increases to stem inflationary expectations. Trichet noted that the most recent data confirmed weakness in mid 2008, but reiterated that Euro Zone fundamentals remain sound with a strong Q1 GDP being impacted by the weaker Q2 GDP. He also announced that the ECB has “no bias on interest rates” for the time being. Dealers concluded that the lack of the words “heightened alertness” and “vigilance, ” plus the bias comment indicated a pause in interest rate hikes going forward.

- The EUR/USD cross elected sell stops below the 1.5850 level and tested the 1.5700 level by mid morning; the euro is currently weaker among the major pairs, with the EUR/GBP lower by 40 pips at 0.7925 and EUR/JPY down 40 pips at 167.75. Sept Bunds rose above the 111 level. Verbal intervention continues in the euro pairs. French Finance Minister Lagarde noted that the euro is at an "extremely high" level, while Trichet reiterated that the US believes a strong USD is in their interest.