Intraday Market Update
US equities are drifting higher but trading in a fairly tight range as investors digest mixed US economic data. The ADP Employment Report for June was a big miss which caused a pre-market sell-off in the futures. The weak report is causing a lack of conviction by traders ahead of tomorrow's jobless claims report and June's non-farm payrolls report on Friday. However, a smaller than expected decline in the Chicago PMI data seemed to calm the anxiety. In addition, European financial market concerns, which were a large contributor to yesterday's big declines, are also being soothed as the demand for borrowing by the European banks from the European Central Bank was not as high as expected, signaling the banks may have enough liquidity to pay back emergency loans that are due tomorrow. The emergency loans were borrowed from the ECB one year ago Thursday. European markets were slightly higher while the selling from Tuesday continued in Asian, but at a slower pace.

The ADP Employment Report showed private sector payrolls rose by +13,000 in June compared to estimates that called for a +60,000 increase. Friday's non-farm payrolls report is a broader measure the employment situation and estimates are calling for a wide range of -165,000 to +431,000 new jobs in June. Jobs increased +431,000 in May but most of that increase was due to government census hiring. It is going to take some time to dissect Friday's report so there are sure to be knee jerk reactions.

The Chicago PMI declined from 59.7 in May to 59.1 in June which was a smaller decline than expected. Estimates called for a decline to 59.0. A reading of 50 or above signals expansion in business activity in the Midwest. The employment component of the report jumped back into expansion territory, rising from 49.2 in May to 54.2 in June, while the prices paid component fell from 64.0 to 61.9. Other key components of the report such as production, new orders, and order backlogs all deteriorated in June.

Meanwhile, the MBA Mortgage Application Index increased +8.8% last week after falling -5.9% in the previous week. The increase came as the Refinance Index jumped +12.6%, which offset a -3.3% decline in the Purchase Index. The gains in refinance applications came amid a -8 bps drop in the average 30-year mortgage rate to 4.67%, which is near the record low rate of 4.61% from March 2009. Realtytrac published a report showing that in Q1 homes in foreclosure made up 31% of all residential homes in the US, although this is -14% q/q and -33% y/y.

In equities, Ford (F) is up nearly +5% after it announced plans to reduce its debt by more than $4 billion by retiring debt owed to the United Auto Workers Retiree Medical Benefits Trust ahead of schedule. F is still down -12.7% since its June 21st high. Monsanto (MON) has pared early losses after reporting earnings of 81 cents which was 2 cents above estimates, however, revenues declined -6% y/y to $2.96 billion which was short of the estimates calling for $3.16 billion. General Mills was in-line in its Q4 earnings report, however, revenue declines -2% y/y. Apparently investors didn't like their guidance as GIS is off -3.4%, but it is off the lows the day. In M&A news, Celgene (CELG) announced a definitive merger agreement in which it will acquire Abraxis BioScience (ABII) for $58/share in cash and 0.2617 shares of CELG stock. The deal is valued $2.9 billion. CELG is down -4% while ABII is up +22%.

The 10-year US Treasury Note printed another new 52-week high in early trading but has since backed off. Crude Oil is almost -$2 off of its highs. Gold and silver are flat, while copper and natural gas have posted modest gains.

Core Sector List:
Overall reading: 16 sectors advancing, 0 sectors declining
Strongest Sectors: Oil Services, Home Construction, Retail
Weakest Sectors: Internet, Biotechnology, Banks

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