NY Manufacturing Outlook Solid, International Investors' Demand for US Assets Accelerates

- Empire Manufacturing for August rose to 23.0 versus estimates of 18.5 and a reading of 23.9 in July.
- Net Foreign Security Purchases for June rose to $71.2B versus estimates of $64.5B and $55.8B in May.

BOTTOM LINE: Manufacturing in New York state expanded more than expected in August as new orders surged to a high for the year, Bloomberg reported. The new orders component of the index soared to 33.8 from 19.2 in July. Manufacturers’ optimism about the next six months rose to 53.3 from 47 in July. The current employment gauge within the index rose to 10.2 from 1.4 the prior month. Finally, the prices paid component of the index rose to 29 from 21.57 in July. Bloomberg is now forecasting the US economy will growth at a 4.1% rate this quarter, the most since the first quarter of 2004, according to a recent survey. I continue to believe that manufacturing will add to US GDP growth throughout the remainder of the year.

International investors increased their holdings of US assets in June by the most in four months, led by record purchases of corporate bonds, Bloomberg reported. The US economy grew 3.6% during the second quarter, more than twice the rate in Japan, Germany, the UK and France. Demand for US assets will likely remain strong as the US dollar firms, the budget deficit improves and the gap between US growth and other industrialized nations widens further.

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Monday Watch

Weekend Headlines
Bloomberg:
- Wal-Mart Stores said August sales at its US stores open at least a year are rising within its forecast range as food sales outpaced general merchandise for the fifth straight week.
- Delta Air Lines is seeking financing from its lenders that will allow it to keep flying if it declares bankruptcy.
- The US dollar is rising against the euro and yen in Asia on expectations a Treasury Department report today will show international investors increased buying of US assets.
- The role of Islam and how much autonomy to grant various geographical regions remained at issue as Iraqis sought to meet tomorrow’s deadline for drafting a constitution.

Barron’s:
- The number of US residents with diabetes is forecast to rise to more than 30 million in about 20 years from 17 million now, and the cost of treating the disease annually may approach $200 billion by then.
- IPOs of US stocks raised $22 billion, with 113 companies going public through Aug. 9.

New York Times:
- The NHL approved Comcast’s offer to carry two regular-season games per week starting this season.
- The leaders of Iraq’s three main ethnic groups – the Kurds, Shiites and Sunnis – have agreed on a formula to share the country’s oil wealth between the central government and the 18 regional provinces.
- Americans have resorted to more creative ways to get around rising gas prices such as using Web sites that keep track of the cheapest prices or showing up for free gas giveaways.
- Increasing corruption among Russian government officials during Vladimir Putin’s presidency is now seen as part of the cost of doing business in the country.

LA Times:
- Tighter enforcement along the border with Mexico has caused a shortage of farm workers in California’s Central Valley.

Washington Post:
- Travelers will no longer have to pull their shoes off at airport security checkpoints under rule changes being considered by the Homeland Security Department.
- Iraqi Sunni Muslims battled insurgents to defend their Shiite neighbors yesterday in Ramadi, a development that may signal increasing resistance to foreign-born terrorists such as Abu Musab al-Zarqawi.

Time Magazine:
- Iran has forged ties with some militant and insurgent groups in Iraq and is funding Islamic fundamentalist politicians there as it seeks to build influence.

Financial Times:
- Lenovo Group Ltd. will use the Think brand on its high-end products.

The Mail on Sunday:
- Wal-Mart Stores has held talks with Carrefour SA that might lead to a takeover bid for the French supermarket owner.

Weekend Recommendations
Bulls and Bears:
- Had guests that were positive on SNY, INMD, DELL, mixed on MDT and negative on BIDU.

Forbes on Fox:
- Had guests that were positive on AMR, DIS, OKE and mixed on APA, XOM, SJM.

Cashin' In:
- Had guests that were positive on XMSR, SIRI, AKAM, MNT, TSRA, UTSI, mixed on DYN and negative on BIDU, SBSA.

Cavuto on Business:
- None of note

Barron's:
- Had positive comments on IMAX, VNO, JNJ, BXP, PXD and AVB.

Goldman Sachs:
- Reiterated Outperform on A.
- Reiterated Underperform on PFG.

Night Trading
Asian indices are -.50% to +.25% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated +.06%.

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Earnings of Note
Company/Estimate
A/.26
LOW/1.02
SNIC/.14

Upcoming Splits
None of note

Economic Releases
8:30 am EST
- Empire Manufacturing for August is estimated to fall to 18.5 from 23.9 in July.

9:00 am EST
- Net Foreign Security Purchases for June are estimated to rise to $64.5B versus $60.0B in May.

1:00 pm EST
- The NAHB Housing Market Index for August is estimated at 70 versus a reading of 70 in July.

BOTTOM LINE: Asian Indices are mostly lower as record energy prices pressure exporters in the region. I expect US stocks to open mixed as economic optimism offsets high energy prices. The Portfolio is 50% net long heading into the week.

Weekly Outlook

There are several important economic reports and some significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - Empire Manufacturing, Net Foreign Security Purchases, NAHB Housing Market Index
Tues. - CPI, Housing Starts, Industrial Production, Capacity Utilization
Wed. - PPI
Thur. - Initial Jobless Claims, Leading Indicators, Philly Fed.
Fri. - None of Note

A few of the more noteworthy companies that release quarterly earnings this week are:

Mon. - Agilent Technologies(A), Lowe’s(LOW)
Tues. - Abercrombie & Fitch(ANF), American Eagle Outfitters(AEOS), Applied Materials(AMAT), Deere & Co.(DE), Estee Lauder(EL), Hewlett Packard(HPQ), Home Depot(HD), JC Penney(JCP), Nordstrom(JWN), Staples(SPLS), TJX(TJX), Wal-Mart Stores(WMT)
Wed. - BEA Systems(BEAS), Medtronic(MDT), Network Appliance(NTAP)
Thur. - Aeropostale(ARO), Autodesk(ADSK), Barnes & Noble(BKS), GameStop(GME), Gap Inc.(GPS), Limited Brands(LTD), Marvell Technology(MRVL)
Fri. - AnnTaylor Stores(ANN)

Other events that have market-moving potential this week include:

Mon. - None of note
Tue. - None of note
Wed. - None of note
Thur. - Semi Book-to-Bill
Fri. - None of note

BOTTOM LINE: I expect US stocks to finish the week mixed-to-lower on energy fears and Retail sector earnings worries. The Retail sector may come under pressure this week on disappointing earnings and high gas prices. However, record homes sales, soaring auto sales and very hot weather in many parts of the country were the main culprits behind any downturn in clothing sales in recent weeks. I would use any temporary weakness in retailers to accumulate select shares ahead of a strong fourth quarter. I continue to believe we are in a consolidation phase within a significant intermediate-term move higher in the major averages. My trading indicators are still giving bullish signals and the Portfolio is 50% net long heading into the week.

Economic Week in Review

Canceled this week due to technical problems.

Market Week in Review

S&P 500 1,230.39 +.32%*



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was positive considering the rise in energy prices, uninspiring earnings reports in the tech sector and 10th straight Fed rate hike. The advance/decline line fell slightly, sector performance was mixed and volume was slightly below average on the week. Measures of investor anxiety were higher. The AAII % Bulls fell again for the week and is now modestly below average levels. The average 30-year mortgage rate rose to 5.89%, but is still only 68 basis points above all-time lows set in June 2003 and below April 2005 highs of 6.04%. Moreover, the benchmark 10-year T-note yield fell 15 basis points on the week, which will send mortgage back down. Dollar weakness, as a result of some better economic data from Europe and Japan, again led to underperformance by US small-cap stocks. As well, technology shares underperformed as earnings reports from Dell and Cisco disappointed investors. Finally, crude oil hit another inflation-unadjusted record as worries over Iran intensified and some refinery glitches further spurred fears of a fourth quarter supply shortfall.

*5-day % Change