Overnight Developments

• Global stocks are mixed with the European Euro Stoxx 50 Index up +0.33 % and Sep S&Ps up +3.70 points. US and European shares are fluctuating between small gains and losses as disappointing earnings from Google offset gains in BP Plc and Goldman Sachs. BP is 4% higher after the company said late yesterday that oil has stopped flowing into the Gulf of Mexico from its damaged Macando well and Goldman Sachs is 5% higher in European trading after the firm agreed to pay $550 million to settle with US regulators that it misled investors in collateralized debt obligations linked to subprime mortgages. Google is trading down 3.7% after it reported Q2 profit of $6.45 a share, weaker than analysts’ estimates of $6.52 as expenses surged 22% to $4.46 billion during the quarter, higher than an 18% increase in Q1. Weakness in German utility companies is also undercutting European share prices after the Handelsblatt newspaper reported that Germany’s planned tax on utilities that run nuclear power plants would levy a tax of 220 euros ($284) per gram of plutonium or uranium when a reactor is refueled. The euro rallied to a 2-month high against the dollar after May Euro-Zone exports rose 1.6% from April, indicating a revival in global demand will help boost Q2 Euro-Zone growth and that the weaker euro is helping export competitiveness.
• The Asian markets today closed mixed with Japan down -2.86%, Hong Kong -0.03%, China +0.29%, Taiwan -0.52%, Australia -0.45%, Singapore +0.48%, South Korea -0.90%, India +0.26%. Japanese stocks weakened after the May Japan tertiary index, which shows demand for services and captures 63% of the economy, fell -0.9% from April and adds to signs that Japan’s economy has started to cool as the effects of government incentives for cars and home appliances fades. Asian technology stocks fell after Google missed earnings estimates and Japanese exporters and automakers closed lower after the yen rallied to a 2-week high against the dollar. Asian material and energy stocks also declined as signs of a slowing economy dimmed the outlook for global commodity prices.

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Overnight Developments

• Global stocks are mixed with the European Euro Stoxx 50 Index down -0.04% and Sep S&Ps down -3.50 points. The dollar and Treasuries are stronger and most commodities are weaker. European stocks fluctuated between slight gains and losses ahead of Q2 earnings season, which officially begins when Alcoa reports its earnings results after the close of today’s trading. European bank stocks are weak, led by a 3.2% decline in Allied Irish Banks Plc, as European finance ministers meeting in Brussels today are under pressure to disclose more about the stress tests being conducted on banks to see whether they could withstand losses if the region’s debt crisis worsens. Limiting losses is the 6.7% jump in BP Plc after the Sunday Times reported that Exxon Mobile may bid for the company along with reports that BP is selling assets in Alaska, while Volkswagen AG climbed 1.9% after the biggest foreign carmaker in China boosted sales +46% y/y in the first half of this year in the world’s largest vehicle market after introducing new models to attract customers.
• The Asian markets today closed mixed with Japan down -0.37%, Hong Kong +0.44%, China +1.10%, Taiwan -0.10%, Australia +0.31%, Singapore +0.28%, South Korea +0.63%, India +0.58%. Japanese banks closed lower and led losses in stock prices after the Democratic Part of Japan won only 44 seats in the upper house, 12 short of majority, making it unlikely Prime Minister Kan will be able to reduce the world’s largest public debt. The yen weakened to a 2-week low against the dollar after Standard & Poor’s said Kan’s defeat is "potentially negative" for Japan’s debt rating because of legislative gridlock. The yen’s weakness provided a boost to Japan’s exporters, helping to limit declines. China’s Shanghai Stock Index closed higher, led by gains in property developers, on speculation the government will relax curbs on mortgage lending amid a slowdown in property prices. China’s June property prices declined -0.1% m/m, snapping 15 straight months of increases, whi le Chinese new lending in June was 603 billion yuan ($89 billion), the least in 3 months. Morgan Stanley predicts that the Chinese government may loosen this year’s 7.5 trillion yuan new-lending quota for banks in Q4, when a slowdown in inflation will be "well established." Rounding out the bullish factors for Chinese stocks was the more-than-forecast 44% y/y increase in June China exports to $137 billion, which signals that global demand has withstood Europe’s sovereign-debt crisis so far.

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Overnight Developments

• Global stocks are sharply higher with the European Euro Stoxx 50 Index up +1.34% at a 1-1/4 month high and Sep S&Ps up +17.10 points at a 1-month high. The dollar index plunged to a 1-1/4 month low, Treasuries sank and commodities surged with gold jumping to an all-time high after China signaled it will relax the yuan’s fixed rate to the dollar, a sign that the global economy may strengthen. European mining stocks and basic resource producers rallied on speculation a stronger yuan will boost Chinese demand for metals and other commodities. European carmakers all gained with Daimler AG and Bayerische Motoren Werke AG both up over 3%, while Porsche SE advanced 4.1% after Commerzbank raised its recommendation on the carmaker to "hold" from "reduce." Banco Santander SA climbed nearly 2% after the Times reported that Spain’s largest bank is considering selling parts of its UK operations that may be worth as much as 25 billion pounds. BP Plc li mited gains in European stocks after it slid nearly 5% after the Sunday Times reported that the company is seeking to raise $50 billion to cover the cost of the oil spill in the Gulf of Mexico. BP may raise the first $10 billion from a bond sale this week, acquire a $20 billion loan and get the remaining $20 billion from asset sales over the next 2 years, the newspaper reported, and that BP wants to move quickly to raise cash because of concern its ratings may be downgraded, which would boost its borrowing costs.
• The Asian markets today closed higher with Japan up +2.43%, Hong Kong +3.08%, China +3.13%, Taiwan +1.90%, Australia +1.33%, Singapore +1.84%, South Korea +1.75%, India +1.74%. Asian stock markets rallied sharply on speculation that China’s relaxing of its currency peg to the dollar will bolster global economic growth. China’s currency posted its biggest gain in 20 months as the yuan surged to 6.798 per dollar after being held at about 6.83 to the dollar since mid-2008. In a statement on its website, the PBOC said the decision to increase "exchange-rate flexibility" was made after the economy improved, but did not indicate a timeframe for the change. The PBOC said it would maintain the yuan’s 0.5% daily trading band and said greater yuan flexibility would help cut the trade surplus and reduce reliance on exports as a driver of growth. In a tactical move ahead of this weekend’s Jun 26-27 G-20 summit in Toronto, China is trying to shift the focus of the G-20 meeting away from the value of its currency to items on its own agenda. Vice Foreign Minister Tiankai said that China wanted to discuss new quotas for the IMF that would boost the power of developing countries, promote the overhaul of global financial regulations, speak out against trade protectionism and pay more attention to economic development in poorer countries.

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Overnight Developments

• Global stocks are mixed with the European Euro Stoxx 50 Index down -0.06% and Sep S&Ps down -0.70 of a point. The European Union yesterday said it would publish the results of stress tests on the region’s banks after Spain became the first European government to pledge to release results on individual banks. The EU decision comes more than a year after the US released the results of stress tests it carried out on 19 financial institutions. Banco Santander SA climbed 2.6% after Spain’s El Economista reported that it scored the highest rating in the stress tests, and Banco Bilbao Vizcaya Argentaria rose 4.2% after Spain’s second-biggest bank scored the second-highest rating among Europe’s largest banks in stress tests carried out by the Committee of European Banking Supervisors. BP Plc, which has lost 43% of its value since its drilling rig exploded in the Gulf of Mexico, rose nearly 4% after Societe Generale raised its recommendation on the company to "bu y" from "hold," citing improved visibility following BP’s meeting with the US government. Drug makers led stocks lower in Europe with Roche Holding AG sliding 2,6% after patients showed hypersensitivity to an experimental diabetes treatment and Sanofi-Aventis SA plunged 5% on renewed concern that one of its drugs may be linked to increased cancer risks.
• The Asian markets today closed mixed with Japan down -0.04%, Hong Kong +0.74%, China -1.70%, Taiwan -0.30%, Australia +0.54%, Singapore -0.37%, South Korea +0.14%, India -0.26%. BOJ Governor Shirakawa told policy makers today that China’s strengthening recovery is raising concern that its economy is in a bubble. The PBOC has refrained from raising interest rates this year, instead trying to slow lending by increasing banks’ reserve requirements on 3 occasions. According to minutes of the BOJ’s May 20-21 board meeting released today, some members said financial conditions may "tighten" if "European financial markets became more unstable and this resulted in an appreciation of the yen and weaker stock prices." Asian automakers led stock prices lower on demand concerns after weaker-than-expected economic data from the US yesterday. Toyota fell 2.3%, Nissan slid 2.6%, Honda lost 1.5% and Hyundai closed down 1%. Consumer lenders weakened in Japan aft er Nomura Holdings predicted that Japan’s top consumer-finance providers will face losses of 503 billion yen ($5.5 billion) over the next 2 years as a law that takes effect today caps interest rates at 20% and prohibits lending to borrowers with consumer debt equal to a third or more of their annual income.

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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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