Overnight Developments

• European stocks are higher with the European DJ Stoxx 50 up +0.86% and Dec S&Ps are up +9.40 points, both at 1-month highs. The dollar and Treasuries are weaker while most commodities rallied with crude oil at a 1-month high as a larger-than-expected increase in Aug China industrial production lifted mining stocks and raw material producers and boosted optimism in the global recovery. The European Commission raised its economic growth forecast for the Euro-Zone this year to 1.7% instead of a previously projected 0.9%, and said the economy may slow to a more "moderate" expansion in the second half. Bank stocks and the euro currency strengthened after the Basel Committee on Banking Supervision reached a compromise that more than doubles capital requirements for the world’s banks and gives them as long as 8 years to comply with the higher capital requirements intended to prevent future crisis. Credit Agricole jumped 6.7%, Societe Generale climbed 4.6% and Commerzbank advanced 2.0%. Deutsche Postbank AG slipped 6.8% after Deutsche Bank AG said it plans to raise at least 9.8 billion euros in its biggest-ever share sale to take over Postbank and meet stricter capital rules. Deutsche Bank expects to offer between 24 euros and 25 euros a share in cash to Postbank shareholders to increase its 29.95% stake in the lender.
• The Asian markets today closed higher with Japan up +0.89%, Hong Kong +1.89%, China +1.01%, Taiwan +2.55%, Australia +1.20%, Singapore +1.47%, South Korea +1.03%, India +2.17%. Strong economic data from China lifted Asian stocks and eased concern about a slowdown in the economic recovery. China’s Aug industrial production increased 13.9% y/y, more than market expectations of 13.0% y/y and Aug China retail sales rose +18.4% y/y. The PBOC reported Aug new loans of 545.2 billion yuan ($80 billion) and a 19.2% y/y increase in M2, the broadest measure of money supply. Both numbers were stronger than expected with the increase in M2 growth the first in 9 months. Aug China consumer prices rose 3.5% y/y, their biggest increase in 22 months due to a rise in food costs.

Today’s U.S. Earnings Reports

Earnings reports (confirmed releases, sorted by mkt cap) FUL-HB Fuller (BEST earnings consensus $0.45), LRN-K12 Inc. (-0.07), PCYC-Pharmacyclics (-0.07), PMFG-PMFG Inc. (0.10), MTRX-Matrix Service (0.10), VALV-Shengkai Innovations (0.16), GCOM-Globecomm Systems (0.17).

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Overnight Developments

• Global stocks are weaker with the European Euro Stoxx 50 Index down -1.87% and Sep S&Ps down -12.40 points. Commodities sank and the dollar and Treasuries gained on concern that growth in China, the main engine of the world’s economic recovery, is slowing. The Conference Board’s Apr leading economic index for China was revised down to show a 0.3% gain, far less than the 1.7% increase reported Jun 15. Mining companies took a hit on demand concerns with Rio Tinto down 4.7% and BHP Billiton losing 3.1%. A 2% drop in Vodaphone added to the negative price action in European stocks after Credit Suisse cut its recommendation on the world’s largest mobile-phone company to "neutral" from "outperform." On the positive side, the Jun Euro-Zone economic confidence unexpectedly rose +0.3 to 98.7 as the drop in the euro bolstered the prospects for exports and optimism in Europe’s recovery. Three people familiar with the results said that Deutsche Bank AG, Commerzbank AG and Bayerische Landesbank passed a stress test that evaluated how about 25 European lenders would handle an economic downturn. The results are based on data from April that were passed on to the Committee of European Banking Supervisors. The European Union pledged on Jun 17 to disclose the results of the tests by the end of July.
• The Asian markets today closed lower with Japan down -1.27%, Hong Kong -2.31%, China -4.59%, Taiwan -1.03%, Australia -0.88%, Singapore -1.38%, South Korea -1.33%, India -1.35%. China’s Shanghai Stock Index plunged to a 14-month low after the Conference Board revised down its April gauge for China’s economic outlook to its smallest gain in 5 months, signaling a weaker expansion. Citigroup said in a report that China’s exports face "strong headwinds" in the second half of the year from policy tightening measures and the European debt crisis, reducing prospects of a rebound in the stock market. Concerns over the prospect for growth sent commodities tumbling which undercut most Asian commodity producers, while Chinese banks fell after Moody’s Investors Service said that China’s banks will face a rise in bad loans caused by the real estate industry and local-government financing vehicles. Stocks in Japan also closed lower on concern that its economic recovery i s stalling. The May Japan jobless rate unexpectedly rose +0.1 to 5.2% for its third straight monthly increase while the job-to-applicant ratio for May rose to 0.50, its highest level in more than a year, meaning there are 50 positions for every 100 candidates. May Japan household spending unexpectedly declined -0.7% y/y and May Japan industrial production also unexpectedly fell -0.1% m/m for its first decline since Feb. Japanese exporters were also undercut after the yen climbed to a 1-1/2 month high against the dollar.

Overnight U.S. Stock News

• Sep S&Ps this morning are trading down -12.40 points. The US stock market yesterday lacked direction the entire day and finished a volatile session slightly lower (Dow Jones -0.05%, S&P 500 -0.20%, Nasdaq Composite -0.13%). Bearish factors included (1) weakness in energy producers after crude oil tumbled, (2) the warning from the Bank for International Settlements (BIS) that European banks may struggle to refinance their debt if investor sentiment remains negative, which could start another banking crisis, and (3) the prediction from Columbia University finance professor Calomiris that the recently passed US financial services overhaul legislation will result in a "hidden tax" to consumers as banks levy an estimated $19 billion in additional fees to pay for the cost of the overhaul.
• Bullish factors included (1) comments from G-20 leaders after this past weekend’s summit in Toronto that they will focus on spurring economic growth and reducing deficits, (2) optimism that the US recovery is strengthening after the slightly larger-than-expected increase in May personal spending (+0.2% versus expectations of +0.1%), (3) the rally in phone service and wireless infrastructure companies after President Obama proposed doubling the airwaves available for smartphones, laptop connections to the Internet and new wireless devices, (4) the recommendation by Nomura Securities to buy stocks because equities "will be supported by valuations, monetary policy and earnings upgrades," and (5) the drop in the yield on the 10-year T-note to a 14-month low of 3.03%.
• Alcoa (AA) fell 1.7% in European trading on concern that metals demand from China may weaken.

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Overnight Developments

• Global stocks are higher with the European Euro Stoxx 50 Index up +1.01% and Sep S&Ps up +1.30 points. The dollar is little changed, Treasuries are stronger and commodities are mixed. European bank stocks gained, led by a 8% surge in Banco Santander SA, after Spain’s biggest lender said its outlook is “brilliant” and that is can benefit from rivals’ “weakness” in mature markets. Novartis gained 3.4% after winning a US regulatory advisory panel’s backing to introduce the first pill to treat multiple sclerosis with its drug Gilenia. Continental AG rose 3.8% after Europe’s second-biggest tire maker was raised to “buy” from “hold” at Deutsche Bank AG, while BP gained 8.7% as it snapped 4 days of declines that saw its stock tumble to a 13 year low, after the WSJ reported the company is considering cutting or deferring its Q2 dividend payment. Also boosting European stocks today was the action by the Bundesbank to raise its g rowth forecasts for Germany, as it now predicts GDP growth of 1.9% this year and 1.4% in 2011, higher than a Dec prediction of 1.6% growth in 2010 and 1.2% for 2011 as the economy profits from a pick-up in global demand. 
• The Asian markets today closed higher with Japan up +1.70%, Hong Kong +1.22%, China +0.32%, Taiwan +1.64%, Australia +1.58%, Singapore +0.60%, South Korea +1.62%, India +0.84%. Asian stock markets rallied after several economic reports from China showed its economy continues to strengthen. May China retail sales surged +18.7% y/y and May industrial production climbed 16.5% y/y as the Chinese economy proves resilient so far to the European debt crisis. Computer-related companies closed higher after Acer, the world’s largest vendor of laptop computers, rallied over 3% higher when it reported a 45% jump in May sales and Taiwan Semiconductor Manufacturing, the biggest maker of custom chips, said that it’s optimistic about the chip industry and the global economy for the second half of 2010. This adds to bullishness in the technology sector after the Semiconductor Industry Association said that global sales of microchips will rise 28% to $290.5 billion this year, boosted by demand in China and India, compared with a Nov forecast of 10% growth.

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Overnight Developments

• Global stocks are mostly higher with the European Euro Stoxx 50 Index up +1.78% and June S&Ps up +3.80 points. The dollar is little changed, Treasuries are weaker and most commodities are higher on increased economic optimism. European stocks received a boost after the May Euro-Zone PMI composite was unexpectedly revised up to 56.4 from the originally reported 56.2. Automakers gained, led by a 5.5% jump in Peugeot, after Deutsche Bank AG raised its recommendation on Europe’s second-largest carmaker to "buy" from "hold," and Daimler AG rose 2.5% after its Mercedes Benz division reported a 23% gain in US sales in May. Air France-KLM Group jumped 4.8% after Europe’s biggest airline said passenger traffic rose 4.3% in May. Limiting stock gains was the unexpected decline in Apr Euro-Zone retail sales which fell -1.2% m/m, the biggest drop in 1-1/2 years and weaker than market expectations for a +0.1% m/m increase. European banks are parking c ash with the ECB amid concern that a 750 billion-euro European rescue package may not be enough to stop the crisis from spreading and spilling into the banking industry. Overnight deposits with the ECB rose to a record 320.4 billion euros ($394 billion) and deposits have exceeded 300 billion euros for the past five days as the sovereign debt crisis makes banks wary of lending to each other.
• The Asian markets today closed mostly higher with Japan up +3.24%, Hong Kong +1.62%, China -0.78%, Taiwan +2.29%, Australia +2.40%, Singapore +2.42%, South Korea +2.14%,India +1.68%. Japanese businesses cut spending for the 12th consecutive quarter after Q1 capital spending excluding software fell -12.9% y/y. The much larger than expected decrease in capital spending will lead the government to downgrade Japan’s Q1 GDP figures later this month. Japanese exporters closed higher as the yen slumped to a 2-week low against the dollar and Asian carmakers gained on increased US sales. Nissan Motor closed 4.8% higher after reporting a +24% y/y increase in US car sales in May, Toyota rose 3.6% after posting a 5.7% sales gain and Kia Motors advanced 3.2% after its US sales rose 21% last month. The South Korean won rose sharply after JPMorgan Chase raised the nation’s equities to "overweight" and said the won is one of the "most undervalued" emerging-marke t currencies.

Overnight U.S. Stock News

• June S&Ps this morning are trading up +3.80 points. The US stock market yesterday opened higher and maintained a positive tone throughout the day as it trended higher into the close and finished on its high (Dow Jones +2.25%, S&P 500 +2.58%, Nasdaq Composite +2.64%). Bullish factors included (1) a rally in homebuilders after the stronger-than-expected Apr US pending home sales (+6.0% m/m and +24,6% y/y versus expectations of +5.0% m/m and +21.0% y/y), (2) a rally in energy producers and oil service providers after crude oil rose, (3) strength in airline stocks after Continental airlines beat monthly estimates for monthly unit revenue, which signals a stronger return of business travelers who pay higher fares, and (4) the prediction from MFS Investment Management that "the US is in the middle of a V-shaped economic recovery and that the European bank crisis does not have the scale and scope of Lehman and AIG and it doesn’t have the ingredients to bring down the banking system."
• Bearish factors included (1) the slump in the MBA’s home purchase index to its lowest level since Apr 1997, which indicates future US housing sales may be weak as the expiration of government tax incentives to purchase homes by the end of April has led to a reduction in home sales since then, and (2) carry-over weakness from a slump in European stocks on concern the region’s sovereign debt contagion is spreading after the yield premium between Spanish 10-year government bonds and 10-year German bunds widened to a 13-year high of 177 bp.
• Alcoa (AA) rose 1.6% in European trading after the company was upgraded to "outperform" from "neutral" at Macquarie Group Ltd.
• Las Vegas Sands (LVS) climbed 2.6% in pre-market trading after Morgan Stanley raised its recommendation on the casino company to "overweight" from equal weight."

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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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