MARKET AVERAGES

In the first hour of trading market has found some enthusiasm from buyers. Even though personal income is up only 0.2% compared the estimate of 0.3%. The U.S. net investment deficit with the rest of the world grew by $327.5 billion in 2004 from 2003. Labor market picture improved slightly with the initial claims of unemployment declined by 6,000 by last week.

This afternoon Federal Reserve raised the fed funds rate by 25 basis points as expected to 3.25%. Fed left little doubt that more hikes are to follow and market sold-off the minute the report was released. Fear was shared across many sectors.

ECONOMIC NEWS

The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 3-1/4 percent. The report from the Fed noted the following.

The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. Although energy prices have risen further, the expansion remains firm and labor market conditions continue to improve gradually. Pressures on inflation have stayed elevated, but longer-term inflation expectations remain well contained.

Commerce Department reported personal income and consumption for the month of May.

Personal income increased $23.5 billion, or 0.2 percent, and disposable personal income increased $16.0 billion, or 0.2 percent, in May, according to the Bureau of Economic Analysis. Personal consumption expenditures increased $0.5 billion, or less than 0.1 percent. In April, personal income increased $65.4 billion, or 0.6 percent, DPI increased $41.9 billion, or 0.5 percent, and PCE increased $55.4 billion, or 0.6 percent, based on revised estimates.

Private wage and salary disbursements increased $6.2 billion in May, compared with an increase of $39.7 billion in April. Goods-producing industries' payrolls increased $3.6 billion, compared with an increase of $7.1 billion; manufacturing payrolls increased $2.2 billion, compared with an increase of $2.9 billion. Services-producing industries' payrolls increased $2.6 billion, compared with an increase of $32.6 billion. Government wage and salary disbursements increased $1.8 billion, compared with an increase of $1.9 billion.

The U.S. net investment position deteriorated in 2004 from 2003 according the Commerce Department.

The U.S. net international investment deficit position at yearend 2004 was $2,484.2 billion (preliminary) with direct investment valued at current cost, as the value of foreign investments in the United States exceeded the value of U.S. investments abroad. At yearend 2003, the U.S. deficit in net international investment position was $2,156.7 billion.

The $327.5 billion change in the net investment position from yearend 2003 to yearend 2004 was largely due to substantial net foreign purchases of U.S. Treasury securities and U.S. corporate bonds. The impact of these net purchases was partly offset by appreciation of most foreign currencies against the U.S. dollar, which raised the dollar value of U.S.-owned assets abroad, especially of U.S.-owned foreign stocks. In addition, increases in stock market prices raised the value of U.S. holdings of foreign stocks somewhat more than they raised the value of foreign holdings of U.S. stocks.

With direct investment valued at the current stock market value of owners’ equity, the net investment position was ($2,542.2 billion) at yearend 2004, compared with ($2,372.4 billion) at yearend 2003.

Labor department reported in the weekly unemployment report a slightly better labor market. In the week ending June 25, the advance figure for seasonally adjusted initial claims was 310,000, a decrease of 6,000 from the previous week's revised figure of 316,000. The 4-week moving average was 323,500, a decrease of 10,250 from the previous week's revised average of 333,750.

INTERNATIONAL MARKETS

Asian markets ended mixed as investors were cautious in their movements awaiting key economic data due out later in the U.S and Japan. The Nikkei closed almost flat, South Korea’s Kospi added 0.9%, Taiwan’s Taiex climbed 0.2%, but China’s Shanghai Composite tumbled 2.2% led by steelmakers. The dollar traded at 110.23 yen.


EARNINGS AND CORPORATE NEWS

MBNA, one of the largest credit card issuer, has agreed to be acquired by Bank of America for $35 billion. The bank will issue 0.5009 shares of BofA and $4.125 cash for each share valuing it at 31% higher than the share price of MBNA at $27.50 per share. BofA plans to cut 6,000 jobs to achieve its overall savings goal of $850 million.

Boeing has named James N. McNerney CEO of 3M as its new CEO. Mr. McNerney has been on the board of Boeing and he has said in the past that he has been happy at 3M. Boeing has been with permanent CEO since Mr. Harry Stonecipher, the CEO, was forced out. Boeing stock is up close 6.5%.