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 mostly higher with the European Euro Stoxx 50 Index up +0.57% and June S&Ps up +12.20 points. The dollar and Treasuries are weaker and commodity prices rose after economic reports from Asia show accelerating growth. China’s exports in May jumped by the most in 6 years, while Q1 Japan GDP was unexpectedly revised higher. Daimler AG climbed 4% after forecasting Mercedes-Benz sales will advance at twice the rate of the overall market on demand from China, while Lafarge SA, the world’s biggest cement maker, gained 4.3% after Citigroup recommended buying the shares. Overnight deposits at the ECB rose to a record 369 billion euros ($444 billion) today, the most since the start of the euro currency in 1999, as an increase in counterparty risks prompts European banks to deposit their excess funds with the ECB’s overnight deposit facility rather than lend. As expected, the Bank of England maintained its benchmark interest rate at 0.50% and held its asset purchase target at 200 billion pounds.
• The Asian markets today closed mostly higher with Japan up +1.10%, Hong Kong +0.06%, China -1.15%, Taiwan +1.56%, Australia +1.14%, Singapore +1.23%, South Korea +0.22%, India +1.59%. Japanese stocks closed higher after Japan’s Q1 GDP was unexpectedly revised up to a 5.0% annualized rate from 4.9%, driven by exports and an upward revision to consumer spending (+0.4% q/q from the previously reported +0.3% q/q). In a separate report, May Japan CGPI rose +0.4% y/y, the first increase in producer prices in 17 months, which may ease deflation concerns as an increase in raw-material costs fueled price gains. Aussie stocks closed higher after Australia’s jobless rate declined -0.2 to a 16-month low of 5.2% in May when employers added 26,900 to payrolls, more than market expectations of 20,000. China’s May exports rose +48.5% y/y, the biggest gain in more than six years, which indicates the European debt crisis has yet to slow the world’s fastest-growing major economy. Desp ite the strong export figure, China’s Shanghai Stock Index closed lower after China’s property prices jumped +12.4% y/y in May, the second-fastest pace on record, which raises concern the government will step up tightening measures to cool the property market.

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