Overnight Developments

• European stocks are lower with the European DJ Stoxx 50 down -0.03% and Dec S&Ps down -2.60 points. The euro retreated from a 1-week high against the dollar and Treasuries strengthened after German investor confidence tumbled. The Sep German ZEW economic sentiment survey fell for the fifth consecutive month and by a larger-than-expected -18.3 to a 19-month low of -4.3 as budget cuts across the Euro-Zone and slowing global growth clouded the outlook for Europe’s largest economy. Declines in utility stocks also pressured stock prices with E.ON sliding 3.0% after Germany’s biggest utility was downgraded to "hold" from "buy" at UniCredit SpA, which cited uncertainty on nuclear power plant extensions. Aug UK consumer prices unexpectedly rose +3.1% y/y, the same pace as July, and the sixth straight month prices have exceeded the government’s 3.0% limit as higher costs from airfare to food stoked price pressures.
• The Asian markets today closed mixed with Japan down -0.24%, Hong Kong +0.17%, China +0.09%, Taiwan +0.51%, Australia +0.25%, Singapore -0.59%, South Korea -0.15%, India +0.72%. Japanese stocks fell as the yen climbed to a fresh 15-year high against the dollar after Japanese Prime Minister Kan beat his rival Ozawa in a party vote today, reducing the likelihood the government will intervene in the foreign-exchange markets to weaken the yen. China’s yuan gained after the PBOC fixed the reference rate at 6.7378 per dollar, the highest since a peg against the dollar was scrapped in July 2005, on speculation the Chinese government will allow faster appreciation of the yuan to head off US trade sanctions. The action by the European Commission to raise its Euro-Zone GDP estimate yesterday for this year to 1.7% from 0.9% gave support to Asian equity markets on optimism that demand for Asian exports will remain strong. Asian bank stocks rallied for a second day after regulato rs agreed to give banks as long as 8 years to comply with new capital requirements and after Zhu Min, former deputy governor of the PBOC and current vice president of Bank of China Ltd. said that banks in Asia have high capital ratios and will be able to avoid the degree of fundraising needed elsewhere to meet the new international standards.

Overnight U.S. Stock News

• Dec S&Ps this morning are down -2.60 points. The stock market yesterday gapped higher and traded in positive territory the entire day and finished moderately higher (Dow +0.78%, S&P 500 +1.11%, Nasdaq Composite +1.93%). The Nasdaq rose to a 2-1/2 month high and the S&P 500 and the Dow both rallied to 1-month highs. Bullish factors included (1) carry-over support from stronger-than-expected Chinese economic data and comments from China’s Premier Wen Jiabao who said that China’s economy is in "good shape," which eases concern that the global economy will lapse back into recession, (2) a rally in bank stocks after the Basel Committee on Banking Supervision reached a compromise that doubles capital requirements for banks while giving them until 2019 to meet the buffer requirements to withstand future crisis, (3) carry-over strength from a rally in European equity markets after the European Commission raised its economic growth forecast for the Eur o-Zone this year to 1.7% instead of a previously projected 0.9%, (4) gains in raw-materials and energy producers as the slumping dollar pushed most commodities higher, with crude oil climbing to a 1-month high, (5) strength in chipmakers after research firm Gartner Inc. predicted that semiconductor equipment spending will double in 2010, (6) the smaller-than-expected US budget deficit in Aug as the economic recovery generated more tax revenue for the Treasury (-$90.5 billion versus expectations of -$100.0 billion), and (7) the prediction from CLSA Ltd. that US stock prices are "screamingly cheap" and will rally at least 30% in the next 12 months as the cheapest valuations in decades lure investors.
• Bearish factors included (1) the statement from IMF Managing Director Strauss-Kahn that the global economy may not generate much employment growth in coming years, and (2) the prediction from well-known bank analyst Richard Bove that legislators who don’t understand the banking industry and a sense of "mass hysteria" led to the passage of financial-reform law that will hurt US consumers.
• Campbell Soup (CPB) fell 2.3% in European trading after Goldman Sachs cut the stock to "sell" from "neutral" as they downgraded the packaged foods industry to "cautious" from "neutral," citing a mixed outlook for US sales, margin risks and valuations.

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Overnight Developments

• European stocks are higher with the European DJ Stoxx 50 up +0.86% and Dec S&Ps are up +9.40 points, both at 1-month highs. The dollar and Treasuries are weaker while most commodities rallied with crude oil at a 1-month high as a larger-than-expected increase in Aug China industrial production lifted mining stocks and raw material producers and boosted optimism in the global recovery. The European Commission raised its economic growth forecast for the Euro-Zone this year to 1.7% instead of a previously projected 0.9%, and said the economy may slow to a more "moderate" expansion in the second half. Bank stocks and the euro currency strengthened after the Basel Committee on Banking Supervision reached a compromise that more than doubles capital requirements for the world’s banks and gives them as long as 8 years to comply with the higher capital requirements intended to prevent future crisis. Credit Agricole jumped 6.7%, Societe Generale climbed 4.6% and Commerzbank advanced 2.0%. Deutsche Postbank AG slipped 6.8% after Deutsche Bank AG said it plans to raise at least 9.8 billion euros in its biggest-ever share sale to take over Postbank and meet stricter capital rules. Deutsche Bank expects to offer between 24 euros and 25 euros a share in cash to Postbank shareholders to increase its 29.95% stake in the lender.
• The Asian markets today closed higher with Japan up +0.89%, Hong Kong +1.89%, China +1.01%, Taiwan +2.55%, Australia +1.20%, Singapore +1.47%, South Korea +1.03%, India +2.17%. Strong economic data from China lifted Asian stocks and eased concern about a slowdown in the economic recovery. China’s Aug industrial production increased 13.9% y/y, more than market expectations of 13.0% y/y and Aug China retail sales rose +18.4% y/y. The PBOC reported Aug new loans of 545.2 billion yuan ($80 billion) and a 19.2% y/y increase in M2, the broadest measure of money supply. Both numbers were stronger than expected with the increase in M2 growth the first in 9 months. Aug China consumer prices rose 3.5% y/y, their biggest increase in 22 months due to a rise in food costs.

Today’s U.S. Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap) FUL-HB Fuller (BEST earnings consensus $0.45), LRN-K12 Inc. (-0.07), PCYC-Pharmacyclics (-0.07), PMFG-PMFG Inc. (0.10), MTRX-Matrix Service (0.10), VALV-Shengkai Innovations (0.16), GCOM-Globecomm Systems (0.17).

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Overnight Developments

• European stocks are lower with the European DJ Stoxx 50 down -0.62% and Sep S&Ps down -6.10 points. The dollar and Treasuries rallied while the euro and most commodities weakened on concern Europe’s debt crisis may worsen. Banks led stocks lower on concern they might require more capital after Germany’s banking association said yesterday that its lenders need to raise $135 billion and Pacific Management Co. said Greece still faces "substantial" default risk. Greek bonds plunged and pushed the yield on 10-year Greek bonds up 28 bp relative to 10-year German bunds to 941 bp, the most since the European Union and the IMF crafted a bailout package in May. Also undercutting European stocks was the unexpected -2.2% m/m decline in July German factory orders, their biggest monthly decrease in 17 months and a sign that momentum in Europe’s largest economy is losing momentum. Irish banks also fell with Allied Irish Bank Plc and Bank of Ireland Plc down over 2% after they had their ratings cut to "neutral" from "outperform" at Davy, which cited concerns over whether the Irish government bank guarantee will be extended. On the positive side, Nokia rallied 3.5% after the largest maker of mobile phones was raised to "overweight" from "underweight" at Morgan Stanley.
• The Asian markets today closed mixed with Japan down -0.81%, Hong Kong +0.22%, China +0.27%, Taiwan -0.08%, Australia -0.05%, Singapore +0.05%, South Korea -0.14%, India +0.46%. A decline in Japanese automakers led the Nikkei 225 Stock Index lower as the yen strengthened to near a 15-year high against the dollar. Asian steel companies rallied which helped China’s Shanghai Index close slightly higher after US President Obama proposed a $50 billion spending plan on infrastructure to fix US roads, railways and runways. Japan’s and Australia’s central banks signaled that the outlook for US growth is deteriorating and making it harder for them to set monetary policy. The RBA extended a pause in raising interest rates "for the time being" even after the nation’s GDP rose the most since 2007, while the BOJ said it’s prepared to add more monetary stimulus. Both central banks singled out the US, with the RBA saying growth there looked "weaker" in the seco nd half, and the BOJ citing "uncertainty about the future, especially for the US."

Overnight U.S. Stock News

• Sep S&Ps this morning are down -6.10 points on fresh European debt concerns. The stock market last Friday moved higher and finished with solid gains (Dow +0.49%, S&P 500 +0.91%, Nasdaq Composite +1.06%). The S&P 500 and the Nsadaq rallied to 3-week highs and the Dow climbed to a 2-week high. Bullish factors included (1) the better-than-expected Aug nonfarm payrolls and the upward revision to Jul (Aug -54,000 versus expectations of -100,000 and Jul -54,000 versus the previously reported -131,000), (2) the larger-than-expected increase in Aug private payrolls and the upward revision to July (Aug +67,000 versus expectations of +42,000 and July +107,000 versus the previously reported +71,000), (3) the better-than-expected increase in Aug avg hourly earnings for all employees which may benefit consumer spending (+0.3% m/m and +1.7% y/y versus expectations of +0.1% m/m and +1.6% y/y), and (4) comments from Atlanta Fed President Lockhart who said some economi sts and business people have been "too gloomy" about the prospects for the US and that the recovery remains on a "gradual recovery track."
• Bearish factors included (1) the unexpected decline in Aug US manufacturing payrolls (-27,000 versus expectations of +10,000), (2) the larger-than-expected decline in the Aug ISM non-manufacturing index which fell to a 7-month low (-2.8 to 51.5 versus expectations of -1.1 to 53.2), and (3) comments from former Fed Governor Kroszner who said that the better-than-forecast Aug US payrolls report reduces the chances of the Fed providing additional stimulus to the economy.
• Bank of America (BAC) lost 1.7% and Citigroup (C) fell 1.2% in pre-market trading on carry-over weakness from a fall in European bank stocks after the WSJ reported that European stress tests published in July may have understated some financial institutions’ sovereign debt holdings of potentially risky governemnt debt, along with a seperate report from the Association of German banks that its top 10 lenders might need about 105 billion euros ($134 billion) in fresh capital.

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Overnight Developments

• European stocks are higher with the European DJ Stoxx 50 up +0.59% and Sep S&Ps up +0.10 of a point, both at 2-week highs. The dollar is weaker while Treasuries and most commodities are little changed as the markets anxiously await the monthly US payrolls report. Speaking to reporters in Seoul today, ECB Council member Draghi said that while the economic recovery remains "fragile," it is becoming more broad-based. Draghi, who is also the governor of Italy’s central bank, said the ECB’s monetary stance would remain "accommodative." The euro strengthened after ECB Council member Wellink told Market News International that the yen’s appreciation against the euro is helping some Euro-Zone exporters. Yell Group Plc rose 6.2% as the publisher of the UK’s yellow pages directories rallied for a third straight day on takeover speculation, while Theolia SA plunged 9.4% after the French wind-power company reported a first-half net loss of 24.2 milli on euros, larger than the 14.1 million-euro loss a year earlier.
• The Asian markets today closed mostly higher with Japan up +0.57%, Hong Kong +0.49%, China -0.04%, Taiwan +1.42%, Australia +0.19%, Singapore +0.53%, South Korea +0.16%, India -0.09%. Asian stocks rose after US reports showed an unexpected increase in pending home sales and improved retail sales that eased concerns of an economic slowdown. Sony, the electronics maker that gets 22% of sales from the US, rose 2.4% and James Hardie Industries SE, the biggest seller of home siding in the US, climbed 2.1%. Technology stocks also advanced with Wintek Corp., a component maker for Apple’s iPads, surging 7% after saying its Aug revenue rose 17% m/m, while Chimei Innolux, Taiwan’s largest maker of liquid-crystal displays, closed 6.9% higher amid speculation that Q4 demand for consumer electronics will improves from the previous 3 months. Japan’s economy probably grew more than three times the government’s initial estimate of +0.4% annualized in Q2 after a Finance Ministry repo rt today showed Japan Q2 capital investment excluding software fell -1.5% y/y, its smallest decrease since 2007 as a result of strong overseas demand. Japan will release its revised Q2 GDP growth estimate on Sep 10.

Overnight U.S. Stock News

• Sep S&Ps this morning are up +0.10 of a point. The stock market yesterday finished on its high with modest gains (Dow +0.49%, S&P 500 +0.91%, Nasdaq Composite +1.06%). The S&P 500 and the Dow climbed to 2-week highs and the Nasdaq posted a 1-1/2 week high. Bullish factors included (1) carry-over strength from a boost to European equity markets after the ECB raised its 2010 GDP estimate for the Euro-Zone to between 1.4% and 1.8%, up from a previous forecast of between 0.7% and 1.3%, (2) comments from ECB President Trichet who said a double-dip recession in the Euro-Zone is "not in the cards," which boosts confidence in the global economic recovery, (3) the unexpected decrease in weekly US initial unemployment claims (-6,000 to 472,000 versus expectations of +2,000 to 475,000), (4) strength in homebuilders after the unexpected increase in Jul pending US home sales (+5.2% m/m versus expectations of -1.0% m/m), and (5) a rally in retailers after Aug ICSC chain store sales rose +3.2% y/y, their ninth straight monthly increase.
• Bearish factors included (1) the weaker-than-expected Jul factory orders (+0.1% versus expectations of +0.2%), (2) the prediction from the chief economist at FTN Financial who said that with "the rate of layoffs still uncomfortably high, there’s no reason to expect an acceleration in US consumer spending," and (3) the prediction from Edward Prescott, senior adviser to the Minneapolis Fed, that the US economy is likely to experience a period of stagnation until the country reduces its debt.
• Take-Two Interactive (TTWO) surged 13% in European trading after the video game publisher reported an unexpected Q3 profit of 28 cents a share and boosted its earnings outlook on sales of the newest release "Red Dead Redemption."
• H&R Block (HRB) climbed 3.8% in pre-market trading after it reported a fiscal Q1 loss of 36 cents a share, beating analysts’ estimates for a loss of 40 cents.

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Overnight Developments

• European stocks are slightly weaker with the European DJ Stoxx 50 down -0.36% and Sep S&Ps down -1.20 points. The dollar and Treasuries are little changed while copper rose to a 4-month high after the IMF raise its economic forecast for South Korea, the world’s fourth largest copper consumer. European and US stock prices are fluctuating on either side of unchanged ahead of the conclusion of today’s ECB’s monetary policy meeting in which policy makers are likely to extend emergency lending measures to banks into 2011. The French Q2 jobless rate unexpectedly slipped -0.2 to 9.7%, its first decline in 2 years as companies began hiring again. DSG International Plc rose 1.2% after the UK’s largest consumer-electronics retailer reported an increase in Q1 sales, boosted by the World Cup soccer tournament and the introduction of Apple’s iPad. On the negative side, Pernod Ricard SA slid 2.2% after it reported first-half profit of 951 million euros ($1.2 billion), bel ow analysts’ estimates of 987 million-euros, while Yara International ASA, the largest publicly traded maker of nitrogen fertilizer, dropped 3.2% after Morgan Stanley downgraded the shares to "equal weight" from "overweight."
• The Asian markets today closed higher with Japan up +1.52%, Hong Kong +1.19%, China +1.30%, Taiwan +0.69%, Australia +0.82%, singapore +0.13%, South Korea +0.54%, India +0.18%. Asian stocks rose after faster-than-estimated growth in US Aug manufacturing supported confidence in global economic growth. Japanese exporters rose as the yen weakened with Honda Motor up 1.9%, Nissan Motor up 3% and Sony up 2.2%. Chinese automakers advanced after China’s passenger-car sales grew 59% y/y in Aug, more than 3 times July’s pace, while Ping An Insurance, China’s second-largest insurer, gained 2.7% on plans to merge its bank unit with Shenzhen Development Bank after it said it will pay 29.1 billion yuan ($4.3 billion) for a stake that will give it control of Shenzhen. South Korean stocks rallied after the IMF raised its economic growth forecast for the country to 6.1% this year from 5.75% previously, and said the country still has room to raise its benchmark interest rate to a mor e neutral 4.0% from 2.25% currently. The Bank of Korea raised its benchmark rate 25 bp to 2.25% on July 9 as it joined Asian counterparts including India and Malaysia in removing monetary stimulus.

Overnight U.S. Stock News

• Sep S&Ps this morning are down -1.20 points. The stock market yesterday rallied sharply and closed on its high (Dow +2.54%, S&P 500 +2.95%, Nasdaq Composite +2.97%). The Nasdaq climbed to a 1-1/2 week high, while the S&P 500 and the Dow rallied to 1-week highs. Bullish factors included (1) carry-over strength from a rally in Asian and European stock markets which bolstered confidence in the global economic outlook after China’s manufacturing activity accelerated more than expected in August and Australia’s economy expanded in Q2 at its fastest pace in 3 years, (2) a rally in industrial stocks after the unexpected increase in the US Aug ISM manufacturing index (+0.8 to 56.3 versus expectations of -2.7 to 52.8), (3) strength in commodity and energy producers after a slide in the dollar and increased optimism that an expanding global economy will boost demand for raw materials lifted most commodity prices, and (4) gains in semiconductor makers after resea rch firm Gartner predicted chip sales will grow by +32% to $300 billion this year.
• Bearish factors included (1) the unexpected decline in jobs in the Aug ADP employment change (-10,000 versus expectations of +15,000), which fuels concern about Friday’s Aug nonfarm payroll report, (2) the larger-than-expected decline in July US construction spending which fell for the third straight month along with the downward revision to June construction spending (Jul -1.0% versus expectations of -0.5% and Jun revised down to -0.8% from +0.1%), and (3) comments from Dallas Fed President Fisher who said he is "reluctant" to expand the Fed’s balance sheet to stimulate the economy unless there are additional tax and regulatory policies in place to spur job growth.
• Collective Brands (PSS) sank 7.3% in pre-market trading after the company reported Q2 earnings of 32 cents a share, missing analysts’ estimates of 45 cents.
• Costco (COST) may be active to the upside today after the largest warehouse club chain in the US reported sales rose 9% to $5.9 billion in the four weeks that ended Aug 29 with comparable revenue increasing 7% during the period.

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Overnight Developments

• European stocks are weaker with the European DJ Stoxx 50 down -1.01% and Sep S&Ps down -4.20 points. The dollar and most commodities are lower while Treasuries and bunds are higher. European bank stocks are leading share prices lower with Raiffeisen International Bank Holding AG down 1.8% after the Austrian bank that operates in 17 former communist countries in eastern Europe reported Q2 net income of 71 million euros ($89.75 million), below analysts’ estimates of 99 million-euros. Eurobank Ergasias SA fell 3.1% as Greece’s second-largest lender said first-half profit fell after loan losses and taxes increased. Aug Euro-Zone inflation slowed to 1.6% y/y from 1.7% y/y in July, while the Aug Euro-Zone unemployment rate held at 10.0% for a fifth month, the highest in 12 years. In Germany, the number of people out of work declined -17,000 in Aug, its 14th consecutive month of declines, as the unemployment rate held steady at 7.6%. The German economy is leading Europe’s recovery as exports and investment surge, and may limit any slowdown in the Euro-Zone.
• The Asian markets today closed lower with Japan down -3.55%, Hong Kong -0.97%, China -0.41%, Taiwan -1.61%, Singapore -0.23%, South Korea -1.23%, India -0.34%. Asian stocks fell after slower-than-estimated growth in US personal income increased concern the economic recovery may falter. Japanese stocks tumbled despite an unexpected +0.3% m/m increase in Jul Japan industrial production and the larger-than-expected +0.7% m/m increase in Jul Japan retail sales. Stock prices in Japan remain under pressure on concern that the steps taken Monday by the BOJ and the government to halt the yen’s gain and boost economic growth will be insufficient. Q2 GDP in India expanded 8.8% annualized, its fastest pace in 2-1/2 years, which increases pressure on the Reserve Bank of India (RBI) to extend its recent string of interest rate hikes. The markets now expect another 25 bp rate hike by the RBI at its next meeting Sep 16 to cool inflation as India’s wholesale-price inflation has rem ained stubbornly around 10% since Jan.

Overnight U.S. Stock News

• Sep S&Ps this morning are down -4.20 points. The stock market yesterday opened lower and sold-off steadily the entire day and finished on its low (Dow -1.39%, S&P 500 -1.47%, Nasdaq Composite -1.56%). Bearish factors included (1) comments from the BOJ after its emergency meeting in which it expanded its bank loan program and said that "uncertainty" regarding the American economy is growing, (2) the weaker-than-expected Jul US personal income which fuels concern the economic rebound may slow further (+0.2% versus expectations of +0.3%), (3) the action by Morgan Stanley to cut its second-half GDP estimate for the US to between 2.0% and 2.5% from an earlier estimate of 3.0% to 3.5%, and (4) the action by Barclays Capital to reduce its year-end S&P 500 forecast to 1,120 from an earlier forecast of 1,220, saying "the market-implied probability of recession increases."
• Bullish factors included (1) carry-over strength from an early rally in European equities after Aug Euro-Zone economic confidence rose more-than-expected to its highest level in 2-1/2 years along with a rally in Asian shares after the BOJ expanded its bank-loan program, (2) the stronger-than-expected Jul US personal spending (+0.4% versus expectations of +0.3%), and (3) increased M&A activity after Sanofi-Aventis bid $18.5 billion for Genzyme, Intel agreed to buy Infineon Technologie’s wireless unit for $1.4 billion and 3M said it agreed to buy Cogent for $943 million.
• Ford Motor (F) slipped 2.1% in European trading on speculation that tomorrow’s US auto sales results will show that Aug sales this year were the slowest since 1982 as model-year closeout deals failed to entice customers.

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Overnight Developments

• European stocks are slightly higher with the European DJ Stoxx 50 up +0.09% and Sep S&Ps down -0.80 of a point. The dollar index is weaker and copper jumped to a 4-month high on speculation that central banks won’t allow the global economy to slide back into recession after the Bank of Japan (BOJ) expanded a bank-loan program and Fed Chairman Bernanke pledged last Friday to "do all that it can" to ensure a continuation of the economic recovery. European stocks also received a boost after Aug Euro-Zone economic confidence rose a more-than-expected +0.7 to 101.8, its highest level in 2-1/2 years, as a surge in exports help the Euro-Zone economy in Q2 to expand at its fastest pace in 4 years. An increase in M&A activity is another positive factor for stock prices today after Zodiac Aerospace jumped 13% after La Tribune reported that Safran SA is preparing another bid for Europe’s biggest maker of airplane seats, while Genzyme climbed 3.4% after Sano fi-Aventis SA offered to buy the world’s largest maker of medicines for genetic diseases for about $18.5 billion. On the negative side of M&A activity, Infineon Technologies AG, Europe’s second-largest semiconductor maker, slid 1.9% after Intel agreed to buy its wireless unit for about $1.4 billion, below the $1.9 billion Infineon was seeking.
• The Asian markets today closed higher with Japan up +1.76%, Hong Kong +0.68%, China +1.97%, Taiwan +0.24%, Australia +1.89%, Singapore +0.62%, South Korea +1.82%. India +0.19%. Japanese stocks rallied when the BOJ, at the conclusion of its emergency meeting in Tokyo, boosted its bank-loan program by 10 trillion yen ($118 billion) to 30 trillion yen as the yen’s surge to a 15-year high against the dollar threatens economic growth. The yen knee-jerked lower after the BOJ’s action, but soon strengthened on speculation the steps taken by the BOJ are insufficient to stem its strength. Even Prime Minister Kan’s announcement that the government will spend 920 billion yen ($10.8 billion) on economic stimulus and compile an extra budget if needed failed to stem the yen’s gains. Deutsche Bank AG recommends that investors sell Asian stocks before slowing earnings growth and a weakening global economy lead to further stock losses.

Overnight U.S. Stock News

• Sep S&Ps this morning are down -0.80. The stock market last Friday rebounded from an early drop to a 1-1/2 month low and finished sharply higher and on its high (Dow +1.65%, S&P 500 +1.66%, Nasdaq Composite +1.65%). Bullish factors included (1) the smaller-than-expected downward revision to Q2 US GDP (+1.6% annualized versus expectations of +1.4% annualized) as Q2 consumption was revised upward to +2.0% from +1.6%, and (2) comments from Fed Chairman Bernanke, which led a broad-based rally in raw materials and energy producers, when he said the Fed "will do all that it can" to ensure a continuation of the economic recovery and that the "preconditions" for growth in 2011 are "in place."
• Bearish factors included (1) the unexpected decline in the Aug US University of Michigan consumer confidence (-0.7 to 68.9 versus expectations of unchanged at 69.6), and (2) data from EPFR Global that said investors withdrew a net $7.1 billion from equity funds tracked worldwide in the week to Aug 25 and put $5.2 billion into bonds amid concern the economies in Europe and the US are losing momentum.
• Genzyme (GENZ) gained 3.8% in European trading after Sanofi-Aventis offered to buy the company for $18.5 billion in cash or $69 a share, taking its bid public after Genzyme refused to negotiate.

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Overnight Developments

• European stocks are little changed with the European DJ Stoxx 50 up +0.03% and Sep S&Ps are up +3.50 points. The market‘s attention is focused on speeches later today from Fed Chairman Bernanke and ECB President Trichet from the Fed’s annual symposium at Jackson Hole, Wyoming. Losses in European banks are undercutting European stock prices today with Banca Papolare di Milano down 5% after the Italian bank reported Q2 net income of 20.1 million euros, lower than analysts’ estimates of 41.6 million-euros, and Credit Suisse Group AG predicted that earnings estimates for 2010-12 will likely be revised down by 10 to 15% following the bank’s “very weak set of results.” Commerzbank AG slumped 2.6% after Handelsbatt said the bank plans to sell new shares as early as next month to pave the way for an exit by the German government. Limiting losses in European markets was the upward revision to Q2 UK GDP figures to +1.2% q/q and +1.7% y/y, higher than the initi al estimate of +1.1% q/q and +1.6% y/y, and shows the British economy expanding by its biggest amount since 2001.
• The Asian markets today closed mostly higher with Japan up +0.95%, Hong Kong -0.07%, China +0.30%, Taiwan +0.43%, Australia +0.32%, Singapore +0.44%, South Korea +0.06%, India -1.25%. Japanese stocks closed higher and the yen weakened against the dollar after Japanese Prime Minister Kan said the government is ready to take “bold” action in the currency market to stem the yen’s advance. Kan said he expects the BOJ to implement monetary policy “swiftly,” and that he plans on meeting with BOJ governor Shirakawa soon after he returns from the US. July Japan consumer prices excluding fresh food fell -1.1% y/y, their 17th consecutive monthly decline, while July Japan overall household spending rose +1.1% y/y, lower than expectations for a +1.5% y/y increase, and signals that Japan’s economic recovery may be faltering. On the bright side, Japan added 210,000 jobs in July from a month earlier, the most since Jan, while the unemployment dropped -0.1 to 5.2% , its first decline in 6 months as the job-to-applicant ratio rose to 0.53, meaning there are 53 job openings for every 100 job candidates, the most since March 2009.

Overnight U.S. Stock News

• Sep S&Ps this morning are up +3.50 points. The stock market yesterday fluctuated on both sides of unchanged until early afternoon when it ailed off into the close and finsihed just above its low (Dow -0.74%, S&P 500 -0.77%, Nasdaq Composite -1.07%). Bearish factors included (1) renewed concerns over Europe’s sovereign-debt crisis after El Economista reported that a Spanish court ruled Spain’s method of auditing sales tax was illegal and voided 5.1 billion euros ($6.48 billion) in value-added taxes collected in past years, which fuels concern about Spain’s fiscal stability, (2) concerns the US economic recovery is continuing to weaken after the Kansas City Fed said that manufacturing in its area slowed in Aug, with no companies reporting m/m increases, and (3) the prediction from Societe Generale that stocks are headed for their third bear market since 2000 as the global economy contracts and because “there is still too much hope” among investors t o suggest that stock prices will hit bottom any time soon.
• Bullish factors included (1) the larger-than-expected decline in weekly initial unemployment claims (-31,000 to 473,000 versus expectations of -10,000 to 490,000), (2) strength in raw materials and energy producers after a weak dollar prompted an advance in the prices of most commodities, and (3) the prediction from Kansas City Fed President Hoenig who said that he still expects the US economy to expand by about 3% this year, in line with his forecast from a month ago.
• J. Crew Group (JCG) fell 6.5% in pre-market trading after the clothing retailer cut its full-year earnings forecast to $2.35 a share at most, lower than a previous forecast of as much as $2.45.
• Omnivision Technologies (OVTI) dropped 4.1% in pre-market trading after the company reported Q1 sales of $193.1 million, below analysts’ extimates of $204.1 million.

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Overnight Developments

• European stocks are higher with the European DJ Stoxx 50 up +0.45% and Sep S&Ps up +1.00 point. Better-than-expected earnings results are leading European stocks higher as Credit Agricole, France’s largest bank by branches, jumped 3.8% after it reported Q2 net income of 279 million euros, beating analysts’ estimates of 318 million euros, while L’Oreal, the world’s biggest cosmetics maker, surged 6.6% after it reported first-half net income increased 21% from last year to 1.32 billion euros. Also boosting European stocks was the +0.1 point increase in the Sep German GfK consumer confidence survey to an 11-month high of 4.1 as stronger economic growth and declining unemployment in Germany boosted income expectations. Loan growth grew in Europe in July as the economic recovery gathered steam after the ECB reported a +0.9% y/y increase in loans to Euro-Zone households and companies in July, the fastest pace in 13 months, which suggests the economy may not lose as much momentum as some economists forecast.
• The Asian markets today closed mixed with Japan up +0.69%, Hong Kong -0.11%, China +0.25%, Taiwan -0.61%, Australia +0.83%, Singapore -0.02%, South Korea -0.27%, India +0.26%. Japanese exporters rallied and led Japanese stocks higher as the yen weakened against the dollar. The Asahi newspaper reported today that the Japanese government may ask the BOJ to ease monetary policy further as part of an economic stimulus package, while the Nikkei English news reported that Japanese Prime Minister Kan told business leaders he is in contact with the Finance Ministry and the central bank on the possibility of currency intervention. The yen has risen 15% this year and Suzuki Motor Corp. Chairman Suzuki said the strengthening currency poses an “extremely grave” situation and will have a “very big impact” on profit.

Overnight U.S. Stock News

• Sep S&Ps this morning are up +1.00 point. The stock market yesterday sold off early but recovered its losses the rest of the session and finished higher (Dow +0.20%, S&P 500 +0.33%, Nasdaq Composite +0.84%). The S&P 500, Dow and Nasdaq all fell to 1-1/2 month lows but erased their losses and finished higher. Bullish factors included (1) speculation that the recent plunge in equity prices overshot the potential damage from a slowdown in the economy, (2) strength in homebuilders, despite the plunge in Jul new home sales to a record low, after Toll Brothers rallied when it unexpectedly reported its first quarterly profit since 2007 as writedowns declined, and (3) a supportive interest rate picture that keeps stock valuations low and benefits consumers and businesses after the yield on the 10-year T-note fell to a 1-1/2 year low of 2.42%.
• Bearish factors included (1) carry-over weakness from a fall in European stocks after S&P cut Ireland’s long-term sovereign credit rating one step to AA-, its lowest since 1995, and raised its estimate for recapitalizing the Irish banking system to as much as 50 billion euros ($63 billion) from a previous estimate of 35 billion euros, which renews concern over the European sovereign-debt crisis, (2) the weaker-than-expected Jul durable goods orders (+0.3% versus expectations of +3.0%), and the unexpected decline in Jul durable goods orders ex transportation which had its biggest drop in 1-1/2 years (-3.8% versus expectations of +0.5%), (3) the unexpected plunge in Jul new home sales which fell to their lowest level since records began in 1963 (-12.4% to 276,000 versus expectations of unchanged at 330,000), and (4) the unexpected decline in the Jun FHFA house price index (-0.3% m/m versus expectations of +0.1% m/m).
• Schlumberger (SLB), the world’s biggest oilfied-services contractor, rose 1% in European trading after crude oil prices gained.

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Overnight Developments

• European stocks are weaker with the European DJ Stoxx 50 down -1.27% and Sep S&Ps down -7.40 points, both at their lowest levels in a month. This prompted a flight-to-safety into German bunds and Treasuries with the yield on the 10-year bund falling to a record low 2.232%. Risk aversion also prompted a surge in the yen to a 15-year high against the dollar, while most commodities slumped with crude oil at a 1-1/2 month low. European stocks retreated, led by weakness in construction and basic-resource companies, on concern that economic growth is slowing. CRH Plc, the world’s second-largest maker and distributor of building materials, tumbled 14% after the company forecast that earnings will fall 10% this year due to a slowdown in the US. HeidelbergCement AG, the world’s largest maker of aggregates used to produce concrete and asphalt, dropped 4.8% and Wolseley Plc, the world’s largest supplier of heating and plumbing products, tumbled 5.2%. EU Commissioner f or economic and monetary affairs, Olli Rehn, said that a slowdown in the US recovery and turmoil in the sovereign debt markets could cause concern in Europe, where growth is likely to decelerate in he second half. On the bright side, Jun Euro-Zone industrial new orders climbed a larger-than-expected +2.5% m/m as stronger global growth helped fuel Q2 Euro-Zone GDP to its fastest rate expansion in 4 years.
• The Asian markets today closed mostly lower with Japan down -1.33%, Hong Kong -1.10%, China +0.54%, Taiwan -0.44%, Australia -1.08%, Singapore -0.11%, South Korea -0.34%, India -0.53%. Japan’s Nikkei 224 Stock Index plunged to a 15-month low on concern the global recovery is faltering. The yen rose to an 8-year high against the euro and a 15-year high against the dollar, which undercut exporters as the strengthening yen threatens to erode Japan’s export earnings. Japan’s Prime Minister Naoto Kan tried to slow the yen’s advance when he said "steep currency moves are undesirable" as Japanese policymakers and government leaders are under pressure to protect Japan’s fragile economic recovery as the yen’s surge threatens to undermine export earnings and deepen deflation. According to the Sankei newspaper, Prime Minister Kan will meet today with business leaders to discuss the yen’s strength and its impact on the economy. Asian mining-companies and raw materials and energy producers closed lower on demand concerns as commodity prices declined, while Foster’s Group Ltd., Australia’s biggest beer and wine maker, slumped 4.3% after posting a second-half loss.

Overnight U.S. Stock News

• Sep S&Ps this morning are down -7.40 points. The stock market yesterday traded higher early but moved lower in the early afternoon and finished with modest losses (Dow -0.38%, S&P 500 -0.40%, Nasdaq Composite -0.92%). Bearish factors included (1) speculation that the US economic data to be released this week will point to a slowing economy, which questions the sustainability of the economic recovery and raises concern about the possibility of a double-dip recession, (2) the prediction from Moody’s Investors Service that European governments’ budget cuts in the aftermath of the debt crisis will weigh on economic growth and increase the risk of countries having their credit rating cut, (3) the larger-than-expected decline in the Aug Euro-Zone PMI composite index (-0.6 to 56.1 versus expectations of -0.4 to 56.3), which signals the pace of the recovery in Europe might have peaked, and (4) weak retail demand for stocks after the ICI reported that bond funds in the US attracted more money than equity funds in 30 straight months through June, the longest such stretch in 23 years.
• Bullish factors included (1) continued strong M&A activity as global takeovers announced so far this year have totaled $1.29 trillion, up +23% from the same time last year, (2) the unexpected increase in the Aug Euro-Zone consumer confidence index, which climbed to a 2-1/2 year high (+2 to -12 versus expectations of unchanged at -14), and (3) strength in utilities after Credit Suisse Group AG said the stocks are already discounting a potential future dividend-tax rate increase "in the low 30% range," which should limit sustained risk of lost value and leaves upside if Congress avoids the full planned increase.
• Pfizer (PFE) slid 1.3% in European trading after iys cancer treatment Sutent failed in a large-scale study to improve overall survival in patients with a form of lung cancer.

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