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 mixed with the European Euro Stoxx 50 Index up +0.56% and June S&Ps up +3.20 points. The dollar and Treasuries are weaker after comments last night from Kansas City Fed President Hoenig who said that the US economy is in a sustained recovery, and he repeated his call to raise the Fed funds rate to 1.00% by the end of Sep. Hoenig warned that "monetary policy can cause asset-price bubbles and that we need to take out the excess stimulus." He also said that the US has a "very serious fiscal situation" and that "we need to pass a law that is very firm that says you cannot spend more unless you cut something else." European technology stocks are leading a slight rally in equities today led by a 2.3% gain in STMicroelectronics which rallied after it was rated a "buy" in new coverage at Jeffries Group. IMF Deputy Managing Director Shinohara said most advanced economies are experiencing a "subdued" recovery and risks to the global economic outlook have "risen significantly" and policy makers have limited room to provide support to growth. European banks still remain wary of counterparty risk as they refuse to lend and rather deposit their excess funds with the ECB. Banks lodged 364.6 billion euros ($436 billion) in the ECB’s overnight deposit facility yesterday, the most since the euro’s inception in 1999, with deposits close to or above 300 billion euros for the past 9 sessions.
• The Asian markets today closed mixed with Japan down -1.04%, Hong Kong +0.69%, China +3.07%, Taiwan -1.12%, Australia +0.09%, Singapore -0.03%, South Korea -0.38%, India +0.25%. China’s Shanghai Stock Index closed higher after Reuters reported a surge in the nation’s exports and higher-than-expected new loans in May, signaling Europe’s debt crisis hasn’t derailed the economy. Chinese banks and property developers gained as new loans in May totaled 630 billion yuan ($92.3 billion), exceeding market expectations by 5%, while exporters rallied after May China exports surged +50% y/y. Tempering the rally in Chinese stocks was the +3.1% y/y increase in May consumer prices, which is above the PBOC’s targeted full-year ceiling of 3.0%, and adds to risks of overheating the economy. Japanese stocks closed lower led by losses in exporters, as the yen neared an 8-year high against the euro, raising concern a stronger yen will hurt the value of repatriated overseas earnings.

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