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Morning Update


Moody’s lowered its outlook on AAA rated Germany, Netherlands, and Luxembourg to negative. Finland, the most financially isolated of the Euro-zone countries, was kept on a stable outlook with an AAA rating.

“The Chinese HSBC Flash PMI for July rose to 49.5 from June's 48.2, and touched the highest level since February. ‘Earlier easing measures are starting to work. That said the below-50 July reading implied demand still remaining weak and employment under increasing pressure. This calls for more easing efforts to support growth and jobs,’ HSBC said” (SeekingAlpha.com).

US PMI Flash came in this morning at 51.8 versus 52.6 consensuses, implying that the US manufacturing sector is growing the slowest in years. The weakest component of the repot is exports, which are struggling due to a stronger dollar and weakening demand in Europe and Asia.

Spanish 10-year bonds hit a Euro-area high yield of 7.5% yesterday. Spain’s market regulator completely banned all short selling on all stocks following a 5% decline in the country’s benchmark stock index. Italy banned short selling of financial stocks for one week.

AT&T, the second largest mobile carrier in the US, reported better than expected earnings this morning of $0.66 versus $0.60 expected. Revenue fell short of expectations however, coming in at $31.6 billion versus the consensus $31.7 billion. This quarter’s strength can be attributed to the company’s wireless business, which saw 320,000 contract customers added and a 45% profit margin before interest, taxes, depreciation, and amortization.

Apple will report earnings after the bell today. Price action in the stock was bullish yesterday; after gapping lower with the broader market nearly 3% the stock clawed its way back to close within pennies of its previous close. The S&P 500, meanwhile, closed down 0.89%. Open interest in the options expiring this week is strongest in the 650 calls and 590 puts; yesterday's Put/Call ratio was 0.634. This suggests traders believe there is greater risk of a strong move to the upside than downside, which has certainly been the case during past earnings announcements. For more commentary on Apple and an earnings trade watch my latest video on CNBC.com.

The S&P 500 (SPY) appears to have significant short term downside support here after yesterday’s bullish price action. The SPY has made a series of high lows on its daily chart since June and bounced off a rising trend line yesterday. Yesterday’s low also coincided with the 50-period simple moving average. The market will likely react to Apple earnings and follow the stock up or down. But the news that will drive the market over the longer term will come later this week end next with GDP, a Fed announcement, and NFP report due out.

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