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 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 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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Overnight Developments

• European stocks are weaker with the European Stoxx down -0.45% and Sep S&Ps down -2.20 points. The euro weakened and German bunds rallied after the yield premium investors demand to hold Greek 10-year bonds instead of benchmark German bunds of similar maturity widened to over 800 bp for the first time since Jun 28. European stocks weakened and failed to hold an early rally amid renewed concern that the region’s sovereign debt crisis will curb economic growth in the second half of 2010. Bank stocks led the downturn with HSBC, Europe’s largest bank, down 1.6%, and Santander, the biggest Spanish bank, down 1.9%. Retail stocks also moved lower led by a 8% slump in Delhaize Group after the owner of Food Lion supermarkets cut its full-year profit forecast after a decline in US same-store sales accelerated. European stocks had rallied earlier after strong GDP reports within the region. Q2 German GDP expanded by a more-than-expected +2.2% q/q, the fastest pace sinc e the country’s reunification two decades ago. Combined with a larger-than-expected +0.6% q/q gain in Q2 French GDP helped Q2 Euro-Zone GDP to increase +1.0% q/q, its fastest pace of expansion in 4 years.
• The Asian markets today closed mostly higher with Japan up +0.44%, Hong Kong -0.16%, China +1.39%, Taiwan +0.79%, Australia +1.33%, Singapore +0.44%, South Korea +1.36%, India +0.52%. Strong earnings reports throughout Asia helped most Asian stock markets to close higher today. Wintek surged 6.9% after the maker of parts for Apple’s iPad reported Q2 net income of $9.81 million, its first profit after 9 quarters of losses, while Genting Singapore soared 14% after the casino operator reported Q2 profit of $291 million compared with a loss a year earlier, which prompted Credit Suisse Group AG, Citigroup and Morgan Stanley to raise their recommendations on the stock. Korean Air jumped 2.8% after the country’s largest carrier reported record operating profit as cargo sales climbed 86% to 1 trillion won. Minutes of the BOJ policy meeting from Jul 14-15 released today showed that some policy makers indicated they were worried about the yen’s advance, a sign they see the cur rency’s threat to exporters as a bigger economic risk than fallout from Europe’s sovereign-debt crisis. Concern about the rising yen may indicate the BOJ is prepared to curb currency gains, either through additional easing measures or currency intervention, to protect Japan’s recovery.

Overnight U.S. Stock News

• Sep S&Ps this morning are down -2.20 points. The stock market yesterday opened on its low and recovered most of its losses into late morning but then faded the rest of the day and finished moderately lower (Dow -0.57%, S&P 500 -0.54%, Nasdaq Composite -0.83%). All of the indexes fell to 3-week lows. Bearish factors included (1) carry-over weakness from a drop in European stocks on signs that the European economy is weakening after Jun Euro-Zone industrial production unexpectedly declined, (2) the unexpected increase in weekly initial unemployment claims which rose to a 5-1/2 month high and adds to evidence that the US economic recovery may falter (+2,000 to 484,000 versus expectations of -14,000 to 465,000), and (3) weakness in technology stocks after Cisco Systems plunged when it forecast weaker-than-expected Q3 sales and after BMO Capital Markets reduced its ratings on semiconductor companies to "underperform" from "market perform," c iting rising inventory and weakening demand.
• Bullish factors included (1) a rally in fertilizer companies after the USDA estimated that global wheat production will fall to a 3-year low, and (2) the prediction from PIMCO that the Fed’s recent decision to reinvest principal payments on mortgage holdings into Treasuries should eventually boost demand for riskier assets, including stocks.
• Intel (INTC) slipped 1.2% in European trading after a report surfaced that Nvidia has a team of engineers developing chips that could be used by computer makers instead of Intel, according to people who declined to be identified because the project hasn’t been made public.

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Overnight Developments

• Global stocks are mixed with the European Euro Stoxx 50 Index up +0.76% at a 1-month high and Sep S&Ps up +4.70 points at a 4-week high. European and US stocks rallied while the dollar index slipped to a 3-week low after a successful Spanish bond sale eased concern that Spain’s government will struggle to finance its widening deficit. Spain sold 3.5 billion euros ($4.3 billion) of 10-year and 30-year bonds at yields lower than the prevailing market rates with a strong bid-to-cover ratio of 2.45, assuaging concern that it would face difficulty meeting bond repayments. The yield premium demanded by investors to hold Spanish debt rather than equivalent German bunds narrowed to 209.5 bp after the sale, as it retreated from a record wide 221 bp yesterday, the highest since the introduction of the euro. Limiting stock gains was the 1% drop in Nokia Oyj, extending yesterday’s 9% sell off, after Goldman Sachs slashed their share price estimates and profit forecasts f or the world’s largest maker of mobile phones which started the slide yesterday after it lowered its revenue and margin forecasts.
• The Asian markets today closed mixed with Japan down -0.67%, Hong Kong +0.38%, China -0.58%, Taiwan +0.83%, Australia -0.70%, Singapore -0.11%, South Korea +0.05%, India +0.88%. James Hardie Industries SE, the biggest seller of home siding in the US, lost 3.8% in Sydney after US building permits unexpectedly fell to a 1-year low and most Japanese exporters closed lower as the yen gained against the dollar, which threatens to cut the value of overseas income when repatriated. On the positive side, Nintendo, the world’s number one maker of portable video-game players, rose 5.2%, adding on to yesterday’s 5.2% gain, after UBS boosted its rating on the stock to "buy" from "neutral" as the company introduced a new handheld video-game player this week.

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Overnight Developments

• Global stocks are mixed with the European Euro Stoxx 50 Index up +0.14% and Sep S&Ps down -4.70 points. The euro weakened and the yield premium that investors demand to hold Spanish 10-year government bonds over German bunds widened to a record 219 bp, the most since the euro’s debut in 1999, after the Spanish newspaper El Economista reported that the IMF, the EU and the US Treasury are putting together a credit line of as much as 250 billion euros ($307 billion) for Spain. The EU and the Spanish government denied the report. European stocks shrugged off the Spanish report and rallied with Celesio jumping 6.1% as Europe’s largest publicly traded drug wholesaler said it’s forming a joint venture with Phoenix Group in the Netherlands to distribute pharmaceuticals. Irish Life surged 9.5% after Deutsche Bank initiated coverage of the bank with a "buy" recommendation, while automobile stocks fell and limited gains in the overall market with Daimler AG fa lling 2.4% and Michelin & Cie. dropping 1.4%.
• The Asian markets today closed higher with Japan up +1.81%, Hong Kong, China and Taiwan all closed for holiday, Australia +1.20%, Singapore +1.02%, South Korea +0.90%, India +0.29%. Asian stock markets closed higher, led by gains in technology shares, after Taiwan Semiconductor Manufacturing Co.’s projection for global demand boosted US chip sales. Raw materials and commodity producers also gained on speculation for increased demand and after the price of copper climbed to a 1-1/2 week high. Japan’s Nintendo closed 4.7% higher after the company introduced its 3DS handheld device that displays games in 3 dimensions without requiring glasses at the annual E3 game conference in Los Angeles. Nomura Holdings predicts that the "bubble" in China’s property market is going to burst very quickly, with prices set to fall as much as 20% in the next 12 to 18 months. China’s real-estate prices jumped 12.4% across 70 cities in May, adding to the 12.8% surge in April tha t was the most since the data series began in 2005. In its annual report released on its website yesterday, the China Banking Regulatory Commission warned of growing credit risks in the country’s real-estate industry and that the risks associated with home mortgages are growing and a "chain effect" may reappear in real-estate development loans.

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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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