Overnight Developments

• Global stocks are mixed with the European Euro Stoxx 50 Index up +1.47% and Sep S&Ps up +5.80 points. Better than expected earnings from Alcoa boosted US and European stocks to 2-week highs despite weakness in the euro after the action by Moody’s Investors Service to cut Portugal’s credit rating two notches to A1 because of a growing debt burden and "weak" economic growth prospects. The euro remained under pressure after the July German ZEW economic sentiment fell a more than expected -7.5 to a 15-month low of 21.2 as Europe’s debt crisis threatens to cripple economic growth and banks undergo stress tests to prove their durability. Helping to keep European stocks in positive territory was the action by Greece to sell 1.625 billion euros ($2.1 billion) of 26-week T-bills at 4.65%, below the 5.00% rate charged by the European Union for its bailout package, easing concern about its budget deficit and reviving confidence in the Greek government’s austeri ty measures. BMW jumped 6.6% and led automakers higher after it forecast 2010 sales volume will rise by about 10% to more than 1,4 million units, with a full-year profit margin of more than 5% expected for the automobilies segment.
• The Asian markets today closed mostly lower with Japan down -0.11%, Hong Kong -0.18%, China -1.56%, Taiwan -0.55%, Australia -0.67%, Singapore +0.12%, South Korea +0.12%, India +0.27%. Chinese stocks fell and led other Asian stock markets lower after the government quashed speculation that it will ease real estate curbs that drove property prices lower for the first time in 16 months. Chinese banks and property developers led declines after the government said it will "strictly" enforce housing policies to prevent speculative real estate investment. Also pressuring Asian stocks was the 3.6% fall in Infosys after India’s second-largest software services provider reported Q2 net income of 14.9 billion rupees ($318.5 million), below analysts’ estimates of 15.6 billion rupees.

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Overnight Developments

• Global stocks are mostly higher with the European Euro Stoxx 50 Index up +0.45% and Sep S&Ps up +1.20 points. The dollar index is little changed, Treasuries are weaker and most commodities are higher. Rio Tinto rose 3.5% and led mining companies higher as copper rallied after LME copper inventories declined to a 7-1/4 month low. Antofagasta gained 3.4% after Citigroup raised its recommendation for the copper producer to "buy" from "hold." Also helping European stocks was the larger-than-expected +1.7% m/m increase in May French industrial production which was boosted by improving global trade and a pickup in output at car plants, while ECB President Trichet said that while the fiscal crisis isn’t over, the economic signs are "encouraging."
• The Asian markets today closed higher with Japan up +0.52%, Hong Kong +1.64%, China +2.76%, Taiwan +0.50%, Australia +0.91%, Singapore +0.69%, South Korea +1.66%, India +1.03%. Asian stocks were helped higher by Citigroup’s prediction that emerging-market stocks will rally as much as 25% by the end of the year as the global economy avoids a "double dip" recession and attractive valuations lure investors. The South Korean won strengthened over 1% against the dollar after the Bank of Korea unexpectedly raised its 7-day repurchase rate to 2.25% from a record low 2.00%, citing a pre-emptive strike against inflation. South Korea joins India, Malaysia and Taiwan in lifting interest rates in recent weeks, signaling that Asia’s expansion will remain resilient to Europe’s debt crisis.

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Overnight Developments

• Global stocks are mostly lower with the European Euro Stoxx 50 Index down -0.70% and Sep S&Ps down -2.80 points. The dollar and Treasuries are stronger and most commodities are weaker as stocks give back some of Tuesday’s gains. The 10-year Spanish bond yield rose 6 bp after the Bank of Spain said the cost of recapitalizing and reorganizing savings banks would represent 1.5% of the economy. The yield premium investors demand to hold Spanish 10-year bonds instead of benchmark German debt widened 8 bp to 216 bp. Also adding to downside pressure in European stocks was the unexpected -0.5% m/m decline in May German factory orders, their first drop in the last 5 months, as demand for German goods weakened. CRH sank 10% and led construction and building companies lower after the world’s second-largest maker and distributor of building materials said first-half earnings before interest, taxes, depreciation and amortization probably fell about 20%, with sales slidin g 10%. Marks & Spencer slipped 3.8% even after the UK’s largest clothing retailer reported Q1 sales growth of 3.6%, beating analysts’ estimates, after it said a proposed increase in the UK value-added tax and other measures to curb the country’s deficit are likely to dampen consumer confidence.
• The Asian markets today closed mostly lower with Japan down -0.63%, Hong Kong -1.13%, China +0.69%, Taiwan -0.19%, Australia -0.50%, Singapore -0.24%, South Korea -0.76%, India -0.81%. Most Asian stocks retreated after yesterday’s weaker-than-expected Jun ISM non-manufacturing index increased concern that the global recovery will weaken. Japan’s Nikkei 225 Stock Index declined, led by losses in Honda Motor and Sony, while Hong Kong’s Hang Seng Index retreated after the head of the National Bureau of Statistics said in the bureau’s newspaper today that China’s economy faces increasing uncertainties and the economic situation is becoming more complex. The manager of China’s foreign exchange reserves said the US bond market is important and changes in holdings of Treausuries "shouldn’t be politicized." The State Administration of Foreign Exchange (SAFE) also said on its website that concern China might consider using the "nuclear" option of dumping i ts Treasury holdings is "completely unnecessary." Australia’s Jun building industry index fell -6.8 points to 46.4, its first contraction in 10 months, and a sign that interest rate increases by the RBA are eroding demand for new dwellings.

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Overnight Developments

• Global stocks are mixed with the European Euro Stoxx 50 Index up +0.73% and Sep S&Ps up +2.90 points. The dollar is little changed and Treasuries and stock indexes are higher after the Group of 20 leaders meeting over the weekend in Toronto said they would focus on nurturing economic growth and cutting deficits. Group leaders also agreed to pursue higher capital requirements for banks once their economic recoveries gain momentum. The G-20 leaders endorsed targets to cut their deficits at least by half by 2013 and stabilize their debt-to-output ratios by 2016. Stock gains in Europe were led higher by strength in automakers when PSA Peugeot Citroen climbed 2.7% after La Lettre de L’Expansion reported that France’s biggest carmaker lifted its sales target for the DS3 model to 70,000 from 45,000 and Porsche SE rose 2.3% after Bankhaus Metzler upgraded the carmaker to "buy" from "sell."
• The Asian markets today closed mixed with Japan down -0.45%, Hong Kong +0.17%, China -0.71%, Taiwan +0.35%, Australia -0.65%, Singapore +0.64%, South Korea -0.04%, India +1.14%. Asian stocks were undercut after the weekend meeting of Group of 20 leaders failed to reassure investors about the strength of the global economic recovery. Speaking at the G-20 Summit in Toronto, a Chinese Ministry of Commerce director general said that his country’s pledge for a more flexible yuan will slow its exports this year and add to difficulties that include the European debt crisis and rising costs. China, the world’s largest exporter, is aiming to raise domestic consumption and reduce its reliance on exports for economic growth. Chinese coal companies closed lower after China’s National Development and Reform Commission ordered China’s coal companies to keep prices agreed to in annual supply contracts stable as the government seeks ways to manage inflation. Japanese stocks closed lower after Japan’s May retail sales climbed a slower-than-expected 2.8% y/y, the slowest pace since Jan, and a sign that government incentives to purchase cars and household appliances are fading. Japan’s May retail sales slumped a seasonally adjusted -2.0% m/m, the biggest drop in 5 years as automobile sales in May fell -5.9% m/m and household machinery, which includes appliances such as flat-screen TVs, tumbled -7.9% m/m in May.

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Overnight Developments

• Global stocks are mostly lower with the European Euro Stoxx 50 Index down -0.41% although Sep S&Ps are slightly higher by +0.50 points. The markets are worried that the weekend G20 meeting in Toronto will expose the rift on austerity versus stimulus that currently exists within the G20 and that G20 leaders will be unable to project a unified message. European stocks are being hurt by the fact that Greek 5-year credit default swap prices today reached a new record high of 1115 bp as the market increasingly worries about a possible Greek debt default. European officials today in Brussels are discussing the details of exactly when to disclose the results of the stress tests on 25 top cross-border European banks and on whether to go further and conduct stress tests on domestic national banks to determine the exact state of the European banking system. The EU last week said it would disclose the results of the stress tests some time in July. US Congressional nego tiators working through the night approved a compromise on US financial regulation, one provision of which will require US banks to move their swaps trading desks into subsidiaries. Both the House and Senate now need to approve the deal, which they propose to have on President Obama’s desk for signature by July 4.
• A storm is gathering in the Caribbean that could turn into a tropical storm or even a hurricane by the end of this weekend or by early next week and that has a chance of moving northward towards oil rigs in the Gulf of Mexico. BP’s stock is down 7% this morning on the possibility the storm will disrupt the effort to halt and clean up the BP oil spill.
• The Asian markets today closed mostly lower on concerns about stronger Asian currencies and higher interest rates following this week’s surprise Taiwan rate hike: Japan -.92%, Hong Kong -0.21%, China -0.77%, Taiwan -1.52%, Australia -1.49%, Singapore +0.14%, South Korea -0.80%, and Bombay -0.88%.

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Overnight Developments

• Global stocks are mixed with the European Euro Stoxx 50 Index down -0.31% and Sep S&Ps up +5.50 points. Signs that that the economic recovery may falter are undercutting European stock prices on concern that slower growth will hurt the outlook for earnings. The Jun Euro-Zone PMI composite, a gauge of growth in European manufacturing and service industries, fell to 56.0 from 56.4 in May, close to market expectations. The spread between the yield on Greek government bonds over comparable German bunds widened to 751 bp, a 1-1/2 month high, while a draft document from the European Commission proposes that European governments will consider imposing a charge on bond sales by countries that violate debt rules. Basic resource and mining companies fell on demand concerns with BHP Billiton down 1.4%, Rio Tinto falling 1.5% and Xstrata Plc retreating 1.8%. Holcim dropped 1.3% after Morgan Stanley downgraded the second-largest cement maker to "underweight" fr om "equal weight." According to the chief investment officer at Citigroup’s Private Bank, global equities are set to fall as the withdrawal of stimulus measures around the world causes a slowdown in earnings growth, while UBS AG and Goldman Sachs Group strategists predict the euro’s 14% slide against the dollar will boost earnings at European companies at least 25% this year and they recommend buying European stocks because the global economic rebound will overcome concerns that governments will default in Europe.
• The Asian markets today closed mostly lower with Japan down -1.87%, Hong Kong +0.18%, China -0.91%, Taiwan -0.40%, Australia -1.58%, Singapore -0.04%, South Korea -0.38%, India +0.04%. Asian stocks declined after the unexpected drop in May US existing home sales raised concern about the sustainability of the US economic recovery and demand for Asian goods. Asian commodity producers and exporters closed lower while Chinese property developers slumped after Shanghai housing sales in the first 5 months of this year fell -32.5% y/y, which indicates government measures to cool the real estate market are working. Toyota fell 1.7% and Honda lost 1.5% after both companies halted production at factories in southern China after two suppliers’ plants were closed by strikes, extending disputes to at least eight in the past month. Strikes have spread since Honda agreed last month to raise wages at a parts supplier by 24% to end a work stoppage as unrest at foreign-owned factories in China reflects a shrinking supply of low-cost labor in the nation.

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Overnight Developments

• Global stocks are mixed with the European Euro Stoxx 50 Index down -1.14% and June S&Ps up +4.30 points. The dollar is little changed while the price of gold climbed to a record after Fitch Ratings said Britain’s deficit challenge is "formidable," adding to concerns that the European sovereign-debt crisis is spreading. Fitch said the UK is lagging behind other European nations in publishing deficit-reduction plans as investor concerns over government debt loads increase and that British Prime Minister Cameron needs to accelerate budget-deficit cuts to protect the nation’s top credit rating. Most German utility companies weakened, led by 3% declines in E.ON AG and RWE AG, after the German government signaled it will raise new taxes on the nuclear power industry to increase government revenue. The yield on German 10-year bunds declined to a record low of 2.50% on increased safe-haven demand due to sagging equity markets and funding concerns, with the yield spread between Spanish 10-year government bonds and German bunds widening to 213 bp, a level not seen since before the introduction of the euro in 1999. On the positive side, April German industrial production rose a more-than-expected +0.9% m/m as a weaker euro boosted export demand and local companies stepped up spending.
• The Asian markets today closed mostly higher with Japan up +0.18%, Hong Kong +0.56%, China +0.13%, Taiwan -0.08%, Australia +1.28%, Singapore -0.19%, South Korea +0.79%, India -0.98%. Asian stocks rose for the first time in 3 days after comments from Fed Chairman Bernanke last night that the US recovery is moving at a "moderate" pace. Asian exporters that have exposure to the US gained after the Fed Chairman’s comments eased concern that the US economy may slow. Asian raw material and commodity producers gained amid speculation global growth will revive metals demand while gold producers strengthened after the price of gold climbed to a record. Zhang Liqun, a researcher at China’s State Council Development and Research Center said that Chinese economic growth may slip to between 10% and 11% this quarter as industrial production and investment expand at a slower pace, and that "the 11.9% growth rate in Q1 won’t be sustained and the outlook for investmen t and export growth is uncertain." China is maintaining stimulus measures as Europe’s efforts to rein in its fiscal deficits slow the economy and threatens demand for its exports.

Overnight U.S. Stock News

• June S&Ps this morning are trading up +4.30 points. The US stock market yesterday fluctuated on either side of unchanged into early afternoon when it plunged into the close and finished on its low (Dow Jones -1.16%, S&P 500 -1.35%, Nasdaq Composite -2.04%). The Dow Jones, S&P 500 and the Nasdaq all dropped to 1-1/2 week lows. Bearish factors included (1) carry-over weakness from a slump in European equity markets after a weekend meeting of the Group of 20 finance chiefs failed to agree on steps to ensure the economic recovery will strengthen and the post meeting statement in which the G-20 finance ministers said that the global economic rebound faces "significant challenges," (2) weakness in financial stocks after the Financial Crisis Inquiry Commission subpoenaed Goldman Sachs for not complying with requests for documents in the financial-crisis probe, (3) weakness in raw materials and commodity producers after copper prices plunged to an 8- month low on concern that slowing global economic growth will curb demand for industrial metals and other commodities, (4) the action by Daiwa Capital Markets to cut its GDP growth estimate for the US for the second half of this year to annualized growth of between 2.25% to 2.5%, down from a previous forecast of 3.0%, as the sovereign-debt crisis in Europe, fading government support and persistently high joblessness will weigh on expansion in the second half of the year, and (5) comments from Fed Vice Chairman appointee Yellen who said that while there appear to be improvements in the global economy, "significant headwinds to stability remain."
• Bullish factors included (1) the unexpected increase in Apr German factory orders, which eased concern that the European debt crisis was derailing the economic recovery, (2) the action by a Hungarian government official to tone down comments about his country potentially defaulting on its debt, (3) the prediction from Blackstone Group LP that with the options market showing confidence in stocks falling to a record low, it signals that now is the time to buy equities, and (4) the unexpected increase in Apr consumer credit which rose for the first time in 3 months (+$1.0 billion versus expectations of -$1.0 billion).

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Overnight Developments

• Global stocks are mostly higher with the European Euro Stoxx 50 Index up +0.26% and June S&Ps up +0.30 of a point. The euro strengthened for a second day and most commodities rallied, as crude oil and copper climbed to 1-1/2 week highs. Daimler AG rose 2% and is leading automakers higher after the world’s second-largest luxury carmaker raised its profit forecast for its Mercedes-Benz division for the second time in 6 weeks as the global recovery spurs demand. Daimler now expects full-year earnings for its Mercedes-Benz unit to be at the “upper end” of the carmaker’s target of 2.5 billion euros ($3.1 billion) to 3 billion euro range, and its Q2 Ebit will exceed the Q1 total of 806 million euros. Daimler’s CEO said deliveries of Mercedes-Benz vehicles to China more than doubled in Q1 and China has now become Mercedes-Benz cars’ third-largest sales market. Travis Perkins jumped 8.1% after it made a 553 million-pound ($806 million) takeover offer for B SS Group in an attempt to create the UK’s largest plumbing and heating materials chain, and Opap SA rose 3.7% after Europe’s largest publicly traded gambling company reported Q1 net income of 192.2 million euros, beating analysts’ estimates of 182 million euros. Liquidity concerns eased slightly after the 3-month dollar Libor rate dropped to 0.536% from 0.538% and the dollar Libor-OIS spread, a gauge of banks’ reluctance to lend, narrowed to 30.4 bp from 30.8 bp.
• The Asian markets today closed mostly higher with Japan up +1.28%, Hong Kong +1.73%, China -0.34%, Taiwan +0.72%, Australia +1.79%, South Korea +1.08%, India +1.18%. Asian stocks received a boost after St. Louis Fed President Bullard said the debt crisis is likely to be contained in Europe as US and Asian growth protects them from contagion. Japanese exports gained as the yen weakened to a 1-week low against the dollar with Nintendo ending 2.8% higher and Sony closing with a 1.8% gain. The April Japan jobless rate unexpectedly rose +0.1 to 5.1%, April Japan overall household spending unexpectedly fell -0.7% y/y, and deflation deepened with the April Japan national CPI ex fresh food falling a more than expected -1.5% y/y, signaling domestic demand is restraining the nation’s recovery. In another sign of economic uncertainty, the April Japan job-to-applicant ratio unexpectedly fell -0.01 to 0.48, meaning there are 48 jobs for every 100 candidates, its first deteriorati on in 8 months.

Overnight U.S. Stock News

• June S&Ps this morning are trading little changed, up +0.30 of a point. The US stock market yesterday trended higher the entire session and finished sharply higher (Dow Jones +2.85%, S&P 500 +3.29%, Nasdaq Composite +3.73%). Bullish factors included (1) carry-over support from a sharp rally in European bourses after China affirmed its commitment to investing in Europe, which was a boost of confidence for the euro, (2) comments from St. Louis Fed President Bullard who said that Europe’s sovereign debt crisis is likely to be contained within the Euro-Zone as the recovery trajectory in the US and Asia protects them from contagion, (3) strength in energy and raw-materials producers after the weaker dollar prompted a rally in most commodities, and (4) a rally in technology stocks led by gains in Microsoft after the company was upgraded to “outperform” from “market perform” at FBR Capital Markets.
• Bearish factors included (1) the unexpected downward revision to US Q1 GDP to 3.0% from 3.2% (versus expectations of an increase to 3.4%), and (2) the slightly smaller-than-expected drop in weekly initial unemployment claims (-14,000 to 460,000 versus expectations of -16,000 to 455,000).
• Apple (AAPL) climbed 1.5% in European trading as its iPad tablet computer went on sale outside of the US.

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