For the week, the Dow was about unchanged, while the S&P500 added 0.5%. Economically sensitive issues shined. The Transports jumped 4%, and the Morgan Stanley Cyclical index gained 2%. The Utilities were about unchanged, while the Morgan Stanley Consumer index posted a slight gain. The broader market was strong. The small cap Russell 2000 rose 2%, and the S&P400 Mid-cap average increased 1.3%. The NASDAQ100 gained 1.5%, while the Morgan Stanley High Tech index slipped fractionally. The Semiconductors jumped 2.5%. The Street.com Internet Index added 1.4%, and the NASDAQ Telecommunications index posted a 0.4% advance. The Biotechs added 0.5%. The financials were mixed. The Broker/Dealers rose 2%, while the Banks declined 0.5%. With bullion up $3.45, the HUI index jumped 4%.

Treasuries remained on the defensive. For the week, two-year Treasury yields rose 5 basis points to 3.90%, the highest level since July 2001. Five-year government yields jumped 6 basis points to 4.03%. Ten-year Treasury yields added 5 basis points for the week to 4.22%, and long-bond yields gained 4 basis points to 4.44%. The spread between 2 and 10-year government yields added one to 32. Benchmark Fannie Mae MBS yields rose 6 basis points. The spread (to 10-year Treasuries) on Fannie's 4 5/8% 2014 note added 0.5 basis points to 31.5, and the spread on Freddie's 5% 2014 note added one basis point to 31. The 10-year dollar swap spread gained 1.25 to 44.0. Corporate bonds outperformed, with auto bond and CDS spreads generally narrowing moderately. Junk bond spreads narrowed sharply again this week. The implied yield on 3-month December Eurodollars rose 2.5 basis points to 4.17%.

Corporate issuance slowed to about $10 billion (from Bloomberg). Investment grade issuers included Bank of America $2.75 billion, BAE Systems $1.75 billion, Union Pacific $340 million, and Union Electric $300 million.

Junk bond funds reported inflows of $(80.7) million (from AMG). Junk issuers Rosana Global Securities $1.15 billion, and Ashstead Holdings $250 million.

Foreign dollar debt issuance included Brazil $4.4 billion, Asian Development Bank $1.0 billion, BBVA Bancomer $500 million, Southern Peru $800 million, Digicel Limited $300 million, and Iansa Overseas $100 million.

Japanese 10-year JGB yields declined 4 basis points this week to 1.23%. Emerging debt markets showed increased vulnerability. Brazilian benchmark dollar bond yields jumped 19 basis points to 7.95%. Mexican govt. yields ended the week 9 basis points higher at 5.50%. Russian 10-year dollar Eurobond yields were unchanged at 6.04%.

Freddie Mac posted 30-year fixed mortgage rates rose 7 basis points to 5.73%, up 20 basis points in three weeks (down 25 basis points from one year ago). Fifteen-year fixed mortgage rates jumped 7 basis points to 5.32%. One-year adjustable rates added 3 basis points to 4.42%, up 30 basis points from a year earlier. The Mortgage Bankers Association Purchase Applications Index was about unchanged last week. Purchase applications were 11% compared to one year ago, with dollar volume up 21%. Refi applications added 2.5%. The average new Purchase mortgage slipped to $235,500. The average ARM declined to $340,100. The percentage of ARMs increased to 28.5% of total applications.

Broad money supply (M3) dropped $24.9 billion to $9.719 Trillion (week of July 11). Year-to-date, M3 has expanded at a 4.7% growth rate, with M3-less Money Funds expanding at a 6.1% pace. For the week, Currency declined $1.6 billion. Demand & Checkable Deposits sank $37.2 billion. Savings Deposits rose $12.0 billion. Small Denominated Deposits added $3.0 billion. Retail Money Fund deposits gained $2.1 billion, while Institutional Money Fund deposits declined $8.9 billion. Large Denominated Deposits added $0.2 billion. For the week, Repurchase Agreements rose $3.1 billion, and Eurodollar deposits gained $2.3 billion.

Bank Credit rose $14.5 billion last week. Year-to-date, Bank Credit has expanded $474 billion, or 13.0% annualized. Securities Credit gained $6.6 billion during the week, with a year-to-date gain of $146 billion (14.0% ann.). Loans & Leases have expanded at a 13.1% pace so far during 2005, with Commercial & Industrial (C&I) Loans up an annualized 18.1%. For the week, C&I loans dipped $0.4 billion, while Real Estate loans jumped $17.3 billion. Real Estate loans have expanded at a 16.1% rate during the first 28 weeks of 2005 to $2.762 Trillion. Real Estate loans were up $348 billion, or 14.4%, over the past 52 weeks. For the week, Consumer loans added $1.4 billion, while Securities loans declined $6.7 billion. Other loans dipped $3.9 billion.

Total Commercial Paper rose $8.2 billion last week to $1.545 Trillion. Total CP has expanded $131 billion y-t-d, a rate of 16.6% (up 14.9% over the past 52 weeks). Financial CP rose $4.7 billion last week to $1.402 Trillion, with a y-t-d gain of $118 billion (16.4% ann.). Non-financial CP gained $3.4 billion to $143 billion (up 18.7% ann. y-t-d and 9.6% over 52 wks).

ABS issuance increased to $20 billion (from JPMorgan). Year-to-date issuance of $414 billion is 23% ahead of comparable 2004.

Fed Foreign Holdings of Treasury, Agency Debt rose $3.4 billion to $1.446 Trillion for the week ended July 20. "Custody" holdings are up $110.3 billion, or 14.8% annualized, year-to-date (up $207.3bn, or 16.7%, over 52 weeks). Federal Reserve Credit increased $4.3 billion to $796.3 billion. Fed Credit has increased 1.3% annualized y-t-d (up $40.1bn, or 5.3%, over 52 weeks).

Currency Watch:

The dollar index was about unchanged for the week. On the upside, the slightly revalued Chinese renminbi gained 2%, the South Korean won 2.7%, the Singapore dollar 1.5%, and the Australia dollar 1.3%. On the downside, the Brazilian real dropped 2.6%, the Iranian real 1.6%, the Turkish lira 0.6%, and the British pound 0.6%.

Commodities Watch:

July 20 - Bloomberg (Jason Gale and Makiko Suzuki): "Natural rubber prices rose to a record on the Tokyo Commodities Exchange spurred by rising demand for tires in China, and as surging oil prices make synthetic alternatives more expensive."

September crude oil fell 48 cents to $58.65. For the week, the CRB index declined 1.7%, reducing y-t-d gains to 7.2%. The Goldman Sachs Commodities index dropped 1.6%, with 2005 gains falling to 25.9%.

China Watch:

July 20 - MarketNews: "China's economy grew by a bigger than expected 9.5% in the second quarter of this year, powered by a red hot trade sector and heady levels of investment, offering scant evidence that a widely-expected slowdown is taking hold."

July 19 - Bloomberg (Yanping Li): "China's urban jobless rate was unchanged at 4.2 percent at the end of the second quarter, the state-run Xinhua News Agency reported... Some 5.95 million new jobs were created in the nation's towns and cities during the first half..."

July 18 - XFN: "China's nominal retail sales rose 13.2% year-on-year to 2.96 trln yuan in the first half of the year, the National Bureau of Statistics said... That compares with a 12.8% year-on-year growth rate recorded in the first half of 2004 and 13.3% for 2004."

July 20 - Bloomberg (Nerys Avery): "China's real estate investment rose 21.1 percent in June to 155 billion yuan ($18.7 billion), Zheng Jingping, spokesman for the National Bureau of Statistics told a press conference in Beijing today."

July 21 - China Knowledge: "The number of phone users in China hit a record 700 million at the end of June, according to the Ministry of Information Industry. Of them, 337 million were fixed-line phone users and 363 million were mobile phone users. In less than a year, the number of phone users has nearly increased by 100 million."

July 18 - Bloomberg (Joshua Fellman): "Hong Kong luxury-apartment prices are likely to near 1997's record high as investors bet a shortage of larger homes will outweigh the impact of rising interest rates. 'This city is awash in liquidity and people here have a property obsession,' said Andrew Ness, a Hong Kong-based executive director at property agent CB Richard Ellis Inc."

Asia Boom Watch:

July 18 - Bloomberg (Cherian Thomas and Kartik Goyal): "India's exports of gems, steel and textiles rose 19 percent in June, helping industry accelerate in the current financial year. Exports rose to $7.1 billion in June, the Commerce and Industry Ministry said... Imports rose 30 percent to $11.1 billion in June, widening the trade deficit to $3.9 billion from $2.5billion a year earlier."

July 21 - Bloomberg (Yu-huay Sun): "Taiwan's export orders rose more than expected in June as the island's electronics makers sold more laptop computers, semiconductors and flat-screen displays abroad. Orders rose 16.7 percent from a year earlier after climbing 13.1 percent in May..."

July 20 - Bloomberg (Stephanie Phang): "Malaysia's inflation rate accelerated in June to its highest since February 1999 as rising oil prices pushed up transport costs and tax increases made beer and cigarettes more expensive. The consumer price index rose 3.2 percent from a year earlier..."

July 19 - Bloomberg (Anuchit Nguyen): "Bangkok office rents rose as much as 25 percent in the second quarter to an eight-year high on rising demand from banks, brokerages and insurance companies, CB Richard Ellis (Thailand) Co. said."

Unbalanced Global Economy Watch:

July 21 - Bloomberg (Lily Nonomiya): "Japan's exports grew more than expected in June, signaling that overseas demand may contribute to a recovery from last year's recession in the world's second-largest economy. Exports rose 3.6 percent in June from a year earlier..."

July 21 - Bloomberg (Laura Humble): "Retail sales in the U.K., Europe's second largest economy, rose the most in 1 1/2 years in June as warmer weather encouraged consumers to buy summer clothing and sports goods. Sales rose 1.3 percent, the most since December 2003..."

July 18 - Bloomberg (Joao Lima): "House prices in Spain rose 13.7 percent in the 12 months through June, driven by increases in the regions of Castilla La Mancha and Valencia..."

July 21 - Bloomberg (Jacob Greber): "Switzerland had the biggest trade surplus in at least 30 years in June as exports of drugs, chemicals and precision instruments surged. The surplus rose to 1.71 billion Swiss francs ($1.33 billion) from 1.15 billion francs in May..."

July 21 - Bloomberg (Halia Pavliva): "Russian retail sales rose an annual 12.5 percent in June as economic growth pushed up wages, the Federal Statistics Service said..."

Latin America Watch:

July 21 - Bloomberg (Patrick Harrington): "Mexico's unemployment rate in June fell for the first time in six months as companies such as Volkswagen AG hired to increase production. Mexico's jobless rate fell to 3.5 percent from 4.3 percent in May..."

July 21 - Bloomberg (Peter Wilson): "Venezuela, which imports about 70 percent of the food it consumes, said supermarket sales rose 16.3 percent in the first quarter compared with the same year-ago period, El Universal reported."

Bubble Economy Watch:

July 18 - Bloomberg (Alex Tanzi): "Shipments of major home appliances in the U.S. rose 16.4 percent in June compared with a year ago, boosted by deliveries of air conditioners and clothing dryers, according to the Association of Home Appliance Manufacturers."

July 18 - Bloomberg (Kristen Hallam): "U.S. companies expect an 11 percent rise in employee health costs in the next year and, as a result, some may slow wage growth, hire fewer permanent workers or ask workers to share more of the expense, according to a survey of 150 executives..."

July 21 - Bloomberg (Josh P. Hamilton): "New York City's unemployment rate fell in June to 5.5 percent, adjusted for seasonal variations, down from 5.9 percent in May, the state labor department said today."

I'm on "working holiday," so this week it's "just the facts." Thanks for reading!