DJ CAPITAL MARKETS REPORT

Mon Jul 19 06:36:00 EDT 2010

US MORNING BRIEFING
SNAPSHOT:
-Stocks seen higher; Treasurys lower; dollar mixed; Nymex crudelower at $75.96; gold lower at
$1192.57.
-Watch for: Fed Governor Duke speaks at 0900 ET; NAHB Housing Market Index at 1300 ET
-Moody's Downgrades Ireland To AA2 As Debt Level Rises; IMF Breakdown Whacks
Hungarian Forint, Debt Markets; BOJ May Consider Easing If Dollar Stays Around Y85.
MARKETS OUTLOOK:
BONDS: Treasurys were slightly down in London as the market consolidated after sharp gains
made last week that pushed the two-year yield to a record low. The euro was also resilient
despite Moody's downgrading Ireland and talks between Hungary and the IMF/EU over a
funding deal being suspended over the weekend. Still the economic outlook remained cloudy as
Fed Chairman Ben Bernanke is also expected to give a cautious assessment at his testimony later
this week, underpinning demand for safe havens. The two-year note was a tad down at 100-02/32
to yield 0.593%; the 10-year note was down at 104-26/32 to yield 2.932%; and the 30-year bond
was lower at 107-15+/32, yielding 3.945%.
Corporate bonds: European corporate credit markets made a weaker start to the week, with the
indexes widening after losses on Wall Street on Friday and Monday's downgrade of Ireland's
credit rating.
FOREX: Currency markets maintained a quiet but buoyant tone in European trading hours
Monday, with the euro and sterling holding onto gains while the dollar weakened slightly.
By 0510 ET, the dollar was up in Europe at Y87.14, while the euro was up at $1.2927 and the
pound was flat at $1.5277.
EQUITIES: Stocks are called to open higher Monday, as traders take advantage of last week's
steep falls to look for a bounce, said David Morrison of GFT in London. On the corporate front,
Delta, IBM and Texas Instruments are due to report second-quarter earnings Monday.
At 0544 ET, Dow Jones Industrial Average futures were trading up 0.5% at 10082.0, while
Nasdaq 100 futures were up 0.3% at 1807.13 and S&P 500 futures were up 0.3% at 1065.95.
European shares declined for the fourth straight session, as Philips and Electrolux lost ground
after disappointing some investors on revenue and banks also came under some selling pressure.
COMMODITIES: Oil futures were a tad lower in European trade, recovering from intra-day
lows as stocks pushed into positive territory and the euro rose against the dollar. Prices have
traded within a narrow range since the markets opened Sunday, although they have stayed below
Friday's settlement price.
Analysts noted an oil spill in China and slim chances of a tropical storm developing in the Gulf
of Mexico could provide support for prices. Money managers, including hedge funds, also
increased net long positions in crude futures, according to CFTC data Friday, which usually
signals improving sentiment.
Spot gold was trading in a narrow $4 range Monday, holding around $1,190 a troy ounce as wary
investors awaited fresh economic news to give the market some direction.
Analysts said market participants are cautious, uncertain about the yellow metal's next move.
They said gold will likely take its cues from new economic figures and the European bank stress
tests results, out Friday.
=======TODAY'S CALENDAR=======
ET PERIOD
0900 Fed Govenor Duke speaks in Arlington
1300 Jul NAHB Housing Market Index
==============================
TOP STORIES OF THE DAY:

FORMER PBOC ADVISER: CHINA SHOULD REDUCE DOLLAR ASSETS IN FX RESERVES

China should reduce the amount of U.S. dollar-denominated assets in its foreign exchange
reserves in favor of those denominated in other currencies or other types of assets, former
People's Bank of China adviser Yu Yongding wrote in an article published in the state-run China
Securities Journal on Monday.

HUNGARY REFUSES MORE AUSTERITY IN IMF, EU TALKS-MATOLCSY

Hungary's talks with the International Monetary Fund and the European Union broke over the
weekend broke down over several issues, including the country's refusal to swiftly implement
strict austerity measures, Hungarian Economy Minister said Monday.

SPANISH BAD BANK DEBT TOPS EUR100B IN MAY FOR FIRST TIME
Bad debt held by Spanish banks topped EUR100 billion for the first time in May, as more
companies filed for bankruptcy and unemployment continued to rise in the economic downturn.

INVESTOR RISK IN HUNGARY UP AFTER TALKS WITH IMF BREAK DOWN

Investors' reaction will be negative to Hungary's failure over the weekend to reach a deal with
the International Monetary Fund and the European Union that would allow it to draw on the
remainder of its existing EUR20 billion IMF/EU standby credit line.

IMF BREAKDOWN WHACKS HUNGARIAN FORINT, DEBT MARKETS

The Hungarian currency and debt markets have slipped sharply after the country failed over the
weekend to reach a funding deal with the International Monetary Fund and the European Union.

GERMAN ECONOMIC RECOVERY TO CONTINUE IN 2H - FINANCE MINISTRY

The German economy will continue to grow in the second half of the year, Finance Ministry
officials said in their monthly report for July published Monday.
PBOC VICE GOVERNOR: INFLATIONARY PRESSURES HAVE EASED
Inflationary pressures have eased since the beginning of the year, but uncertainties remain,
People's Bank of China Vice Gov. Du Jinfu said Monday

PBOC OFFICIAL: NEW YUAN LENDING TO SMES DECLINES IN SOME REGIONS

New yuan lending to China's small and medium-sized enterprises declined in some provinces last
year as banks focused more on bigger clients amid the country's economic stimulus efforts,
Zhang Jianhua, head of the People's Bank of China's research bureau, said Monday.

-By Iman Dawoud; Dow Jones Newswires

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