Overnight Developments

• Global stocks are mixed with the European Euro Stoxx 50 Index down -0.89% and June S&Ps up +6.40 points. European stocks retreated and were led lower by losses in energy producers and oil service companies as the US opens up criminal and civil investigations into BP Plc’s Gulf of Mexico oil spill. Prudential Plc, the UK’s biggest insurer, fell nearly 3% after its $35.5 billion takeover attempt of American International Group’s Asian unit collapsed, while Aegis Group Plc slipped 3.1% after the world’s largest independent buyer of advertising space was downgraded to “sell” from “hold” at Deutsche Bank AG. Also undercutting European stock prices was the larger-than-expected +0.9% m/m increase in April Euro-Zone PPI, the biggest monthly gain in 1-3/4 years, as a weaker euro made imports more expensive and energy costs rose.
• The Asian markets today closed mostly lower with Japan down -1.12%, Hong Kong -0.13%, China +0.49%, Taiwan -1.28%, Australia -0.73%, Singapore +0.45%, India +1.02%. Most Asian stock markets fell and the yen droppped to a 2-week low against the dollar after Japanese Prime Minister Hatoyama said he will resign, less than 2 months before elections, which raises uncertainty after the future direction of the Japanese economy. The next prime minister will inherit an economy that’s dependent on exports and remains within the throes of deflation that the BOJ has failed to stop. With consumer spending slowing in Q1, the reliance on trade leaves Japan vulnerable to any slump in overseas demand stemming from Europe’s debt crisis. Australia’s Q1 GDP rose +0.5% q/q, its fifth straight quarterly increase, as government stimulus spending helped counter consumer demand that weakened. Policy makers expect Australia’s economic growth to almost double in he next 2 years, as China’s de mand for resources spurs a mining investment boom.

Overnight U.S. Stock News

• June S&Ps this morning are trading up +6.40 points. The US stock market yesterday shook off early weakness and rallied into early afternoon, but then plummeted into the close and finished on its low (Dow Jones -1.11%, S&P 500 -1.72%, Nasdaq Composite -1.54%). Bearish factors included (1) concerns that the global economy may begin to slow after China’s May purchasing managers index slowed more than forecast (-1.8 to 53.9 versus expectations of -1.2 to 54.5) (2) weakness in bank stocks after the ECB said in its bi-annual Financial Stability Report that Euro-Zone banks may see another 90 billion euros in net writedowns this year on loans and securities and will need to make provisions for losses of about 105 billion euros next year, (3) the plunge in the euro to a 4-year low against the dollar after the April Euro-Zone unemployment rate unexpectedly rose +0.1 to a 12-year high of 10.1%, and (4) geopolitical concerns after AFP reported that Lebanon fired on Isr aeli warplanes that were flying over its airspace.
• Bullish factors included (1) optimism the US economy may be able to overcome the negative effects of the European debt crisis after the May ISM manufacturing index fell less than expected (-0.7 to 59.7 versus expectations of -1.0 to 59.4), (2) the unexpected increase in April construction spending which had its largest monthly increase since June 1998 (+2.7% m/m versus expectations of unchanged), and (3) the prediction from the chief equity strategist at JPMorgan Chase who said that the 5-week decline in the S&P 500 Stock Index is consistent with a temporary pullback within a bull market.
• JPMorgan Chase (JPM) climbed 1.6% in pre-market trading after UBS upgraded the stock to “buy” from “neutral.”
• Joy Global (JOYG) rose 2.7% in pre-market trading after Goldman Sachs raised its recommendation on the stock to “buy” from “neutral.”

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