Overnight Developments

• European stocks this morning are trading with solid gains with the European Stoxx 50 up 1.04%. Sep S&Ps are up 6.20 points (+0.56%). European stocks have been boosted by the continued decline in bank risk and a sharp 9% rally in UBS due to a favorable earnings report. The Markit iTraxx Financial Index of credit default swaps for 25 banks and insurers fell for the 6th day by 6.5 bp to hit a 3-month low of 111 bp. Deutsche Bank rallied by 3.5% after also reporting stronger than expected earnings today. The European stock markets were also encouraged by the fact that Hungary was able to sell $228 million in 3-month T-bills despite the recent financial turmoil in Hungary and the forint rallied by 0.8%. In another favorable US earnings report, Du Pont reported Q2 EPS of $1.17 that was well above the analyst consensus of 94 cents and raised its full-year 2010 EPS guidance to $2.90-$3.05 from $2.50-$2.70.
• The Asian markets today closed mixed: Japan -0.07%, Hong Kong +0.64%, China -0.55%, Taiwan -0.51%, Australia +0.25%, Singapore +0.42%, South Korea +0.03%, Bombay +0.32%. India’s central bank today raised its reverse repo rate by 50 bp to 4.50% and its repo rate by 25 bp to 5.75% in order to address inflation concerns. The central bank raised its India GDP forecast to 8.5% from 8.0% and its wholesale price inflation forecast to 6.0% from 5.5% for the year through March.

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Overnight Developments

• Global stocks are mixed with the European Euro Stoxx 50 Index up +0.45% and Sep S&Ps up +5.70 points. The euro and Treasuries are little changed despite the action by Moody’s Investors Service to downgrade Ireland’s credit rating one notch to Aa2 from Aa1, citing the government’s "gradual but significant loss of financial strength." European stocks and the euro also saw little reaction after the cost to insure debt payments from Hungary surged and the forint tumbled 2.6% against the euro when deficit-reduction talks with the IMF broke down. Credit-default swaps on Hungarian government debt jumped 45.5 bp to a 5-week high of 362 bp after the IMF and European Union declined to endorse Prime Minister Orban’s plans to control the budget deficit as part of a 20 billion-euro ($25.8 billion) emergency bailout because "a range of issues remain open." The EU said that Hungary’s government must make "tough decisions, notably on spending," to comply with deficit requirements. M&A activity boosted European stock prices after International power and GDF Suez climbed after GDF Suez, operator of Europe’s largest natural-gas network, said it’s in preliminary talks to combine some of its assets with International Power, creating an enlarged company majority-owned by GDF. Tomkins rallied 34% after Onex Corp., Canada’s biggest publicly traded buyout firm, and the Canada Pension Plan Investment Board signaled they might bid 2.9 billion pounds ($4.4 billion) for Tomkins.
• The Asian markets today closed mostly lower with Japan closed for holiday, Hong Kong down -0.79%, China +2.54%, Taiwan -0.19%, Australia -1.46%, Singapore -0.42%, South Korea -0.45%, India -0.15%. Asian stocks were undercut as concern deepened that the global economic recovery is faltering which may hurt exports and curb demand for Asian goods after US July University of Michigan consumer confidence tumbled to an 11-month low. The China Securities Journal said a report from the State Information Center said that China’s export growth might slow over the rest of the year to less than half the pace of the first six months. The report states that China’s exports between July-through-December may rise only +16.3% from a year earlier, slowing from the +35% y/y increase in the first half as the removal of tax rebates, weaker demand because of Europe’s debt crisis, and comparisons with higher base levels leads to smaller increases. Still, the report predicts that China’s ex ports for the full year of 2010 will climb 24.5% compared with a -16% decline in 2009.

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Overnight Developments

• Global stocks are lower with the European Euro Stoxx 50 Index down -1.04% and Sep S&Ps down -1.00 point. A bigger than expected slowdown in Chinese manufacturing along with Spain’s deteriorating creditworthiness fanned concern that the global economic recovery is faltering and kept stock prices on the defensive. Weaker-than-expected demand at a Spanish auction of 3.5 billion euros ($4.3 billion) of 5-year notes heightened sovereign-debt worries, with credit-default swaps tied to Spain’s debt climbing 10 bp to 273.6. Spanish bank stocks sold-off and led European bank stocks lower and mining stocks tumbled as well after metal prices slumped. The euro gained as the ECB said it will lend 111.2 billion euros ($136.5 billion) to banks in 6-day loans to help them cope with the expiry of its 12-month loans in which banks needed to repay 442 billion euros worth of debt by today.
• The Asian markets today closed lower with Japan down -2.04%, Homg Kong closed for holiday, China -1.44%, Taiwan -1.03%, Australia -1.49%, Singapore -0.53%, South Korea -1.00%, India -1.08%. China’s Shanghai Stock Index tumbled to a 14-1/2 month low after China’s manufacturing expanded at a slower pace for a second month in June, adding to signs that its economy is moderating. The Jun China purchasing mangers’ index fell -1.8 to 52.1, a bigger drop than the -0.7 drop the market was expecting. Japan’s Nikkei 225 Stock Index fell to a 7-month low despite the Q2 Japan Tankan large manufacturers index climbing to a 2-year high. Most Asian exporters closed lower on concern European demand for their goods may wane after Moody’s Investors Service warned that it may cut Spain’s top credit rating, while concerns that a global economic slowdown is deepening sent shipping companies lower after the Baltic Dry Index, which measures the cost of transporting commodities, sank 1.7% a nd extended its 24-day slump to a whopping 43%.

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Overnight Developments

• Global stocks are lower with the European Euro Stoxx 50 Index down -0.67% and Sep S&Ps down 6.60 points (-0.61%). The markets remain concerned about the European economy with Greek credit default swaps today rising 27 bp to a record high of 959 bp, indicating that the markets are increasingly concerned about a Greek debt default. Meanwhile, the Greek 10-year bond spread against Germany rose by 10 bp to a 1-1/2 month high of 782 bp. Global stocks are also lower on yesterday’s news that US May new home sales plunged by 33%. On the brighter side, April Eurozone industrial orders today rose by +0.9% m/m, adding to March’s +5.1% surge and marking the third consecutive monthly increase. The report boosted hopes for a continuance in the surge in European exports tied to the recent depreciation of the euro.
• The Asian markets today closed mostly lower: Japan +0.05%, Hong Kong -0.59%, China -0.04%, Taiwan +0.10%, Australia -0.14%, Singapore -0.82%, South Korea +0.82%, and Bombay -0.14%. Taiwan’s central bank today unexpectedly raised its key policy rate to 1.375% from 1.25%, as opposed to the unanimous market consensus that the bank would leave rates unchanged. Taiwan’s Q1 GDP soared by 13.3% and the government last month hiked its 2010 GDP forecast to +6.14% from +4.72% and its 2010 inflation forecast to +1.4% from +1.27%. Adding to the news of tighter policy in Asia, South Korea’s Finance Ministry today said that South Korea will “normalize” its accommodative policies and take pre-emptive action against inflation due to stronger-than-expected economic growth. The Finance Ministry raised its forecast for South Korean 2010 GDP to +5.8% from +5.0%.

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