Job Market Still Healthy, ISM Non-Manufacturing Surges to 14-Month High

- Initial Jobless Claims for last week rose to 318K versus estimates of 315K and 316K prior.

- Continuing Claims rose to 2569K versus estimates of 2503K and 2485K prior.

- ISM Non-Manufacturing for June rose to 60.7 versus estimates of 58.0 and 59.7 in May.

BOTTOM LINE: First-time claims for jobless benefits barely rose last week, remaining at a level that points to strength in the US labor market, Bloomberg reported. The four-week moving-average of jobless claims rose to 318,500 from 316,750 the prior week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, rose to 2.0% from 1.9% the prior week. However, the ADP Employment Change report showed US companies added 150,000 jobs in June, the biggest gain in seven months. As well, Challenger Job Cuts fell 17% in June, according to another report today. I suspect tomorrow’s non-farm payrolls report will likely show a gain of around the estimate of 125,000.

Growth in US service industries unexpectedly accelerated to the fastest pace in 14 months in June, reinforcing evidence the economy picked up steam last quarter, Bloomberg said. The Employment component of the index rose to 55.0, the highest since May 2006. The New Orders component fell to 56.9 from 57.4 in May. The Prices Paid component fell to 65.5 from 66.4 in May. The Inventories component fell to 52.5 from 61 the prior month. I suspect the service sector will weaken modestly over the next couple of months before strengthening again in 4Q.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Dynamic random access memory, or DRAM, contract prices will advance 15%-20% in the first half of July from the second half of last month, a “significant rise,” CJ Investment & Securities said. Demand is rising while chip supply may increase less than expected this year, wrote Song Myung Sup, an analyst. Dramexchange.com, Asia's biggest DRAM spot market, said yesterday that prices will rise at least 10% this month from June.
- Coca-Cola(KO) may consider making a bid for Cadbury Schweppes’ Snapple fruit-beverage unit, a move that would fit into its plan to expand with water and teas as soda consumption falls.
- Hilton Hotels Corp.(HLT) agreed to be taken private by buyout firm Blackstone Group LP for $20 billion, ending more than 60 years as a public company.
- Asian stocks rose for a fifth day, led by Samsung Electronics and Kookmin Bank, after North Korean leader Kim Jong Il signaled he’s ready to dismantle the country’s nuclear program.
- Apollo Management LP, a NY-based private-equity firm, offered to buy US chemical maker Huntsman Corp.(HUN) for about $6 billion, topping a bid from billionaire Len Blavatnik’s Access Industries Holdings.
- China said one-fifth of its consumer products don’t meet government safety and quality standards, underscoring the nation’s challenge in restoring confidence after scandals ranging from tainted pet food to defective toys.
- Kohlberg Kravis Roberts, the leader in leveraged buyouts this year, plans to raise as much as $1.25 billion in an IPO to help finance its appetite for the biggest takeovers.

Wall Street Journal:
- Starwood Hotels & Resorts(HOT) could be the next hotel chain to be purchased after private equity firm Blackstone Group LP announced its $20 billion takeover of Hilton Hotels(HLT).

NY Times:
- A riddle: Why has the Toyota Prius enjoyed such success, with sales of more than 400,000 in the United States, when most other hybrid models struggle to find buyers? One answer may be that buyers of the Prius want everyone to know they are driving a hybrid.
- Only a week ago, the buyout boom seemed ready to deflate. Then over the last week, a torrent of big buyout activity swept in: Bell Canada agreed to be acquired on Saturday for $48.8 billion, the largest leveraged buyout ever. The Blackstone Group, newly public, made a $26 billion offer for Hilton Hotels late Tuesday. And Kohlberg Kravis Roberts & Company, credited with creating the leveraged buyout, said at last that it would go public, in a $1.25 billion stock offering.

Financial Times:
- Telefonica SA’s O2 wireless unit is close to signing a contract with Apple Inc.(AAPL) to become the exclusive UK network partner for the iPhone.
- Lead prices show how the long-running world commodities boom is continuing yet also may demonstrate how fragile that expansion is.

Miami Herald:
- Three of the five senior forecasters at the National Hurricane Center in Miami called for the ouster of the center’s new director on the grounds he has damaged public confidence in their forecasts.

Globe and Mail:
- Research In Motion(RIMM) has obtained permission to sell its BlackBerry e-mail phone in China for the first time.

Jornal de Negocios:
- The European Union won’t be ready to classify China as having a market economy any time soon, EU Trade Commissioner Peter Mandelson said in an interview.

Xinhua News Agency:
- China’s planned issuance of $200 billion of special government bonds won’t “directly affect” the stock market’s financial liquidity, citing the finance ministry.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are +.25% to +.75% on average.
S&P 500 indicated +.20%.
NASDAQ 100 indicated +.20%.

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Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to rise to 315K versus 313K the prior week.
- Continuing Claims are estimated to rise to 2503K versus 2490K prior.

10:00 am EST:
- ISM Non-Manufacturing for June is estimated to fall to 58.0 versus 59.7 in May.

Other Potential Market Movers
- The ECB Policy Meeting, Challenger Job Cuts, ADP Employment Change and weekly MBA Mortgage Applications report could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by technology and commodity stocks in the region. I expect US equities to open mixed and rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish Near Session Highs Despite High Oil and Terror Worries

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Today's Headlines

Bloomberg:
- Corn and soybeans may fall in Chicago as rains and cool weather aid reproduction of the two biggest US crops. Wheat may fall as drier weather firms muddy fields and allows increased harvesting in the Great Plains.
- US Treasuries are falling the most in a week today as a drop in a measure of the perceived risk of owning US corporate bonds reduced demand for the safety of government debt.
- Apple Inc. ran out of iPhones at more than half its stores less than a week after introducing the combination iPod music player and handset in the US. Buyers emptied outlets in 10 states, with 95 of 164 stores reporting sellouts last night, according to Apple’s web site.
- Billionaire Nelson Peltz said his Triarc Cos. investment company is considering a bid for Wendy’s Intl., the third-largest US hamburger chain.
- SAP AG(SAP) said it made “inappropriate” downloads of Oracle Corp.(ORCL) code, responding to a lawsuit that claims the German company stole programs from its competitor.

Wall Street Journal:
- KLM Royal Dutch Airlines, Eli Lilly and Britain’s Royal Mail Group Plc are among companies that are experimenting with letting employees pick their own computers or electronic equipment.
- Bear Stearns(BSC) intends to strengthen risk controls in its money-management business.
- More companies are using electronic signatures, or “e-signatures,” as a way of cutting costs and reducing fraud.
- Kana Software, Teneros Inc. and some other US technology companies are scaling back software development in India because salaries there have risen to as much as 75% of those in California’s Silicon Valley.

NY Times:
- Companies are adding “chief sustainability officers” and similar positions to their executive rosters. As well as ensuring environmentally sound practices, these executives work to discourage regulation and try to identify ways companies can make more money or improve their brands through “green” initiatives.

Washington Post:
- US officials say the next terrorist attack in the country will probably be similar to the failed attempts in Britain last weekend. Unsophisticated, simultaneous stacks by groups indirectly linked to al-Qaeda are difficult to prevent and are aimed at causing widespread panic rather than mass casualties, citing US intelligence and counter-terrorism officials.

Handelsblatt:
- German Chancellor Angela Merkel said the German armed forces should be given more scope to help police defend the country against terrorist attacks.
- The German government wants to boost subsidies for planemaker Airbus SAS, citing a draft of the 2008 budget law.

Ham Mihan:
- A black market in gasoline is emerging in Iran after the government imposed rationing, with fuel being sold for about six times the official price.

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