Overnight Developments

• European stocks are higher with the European DJ Stoxx 50 up +0.90% and Sep S&Ps up +5.50 points. An increase in M&A activity is boosting European and US stocks today with Old Mutual Plc up over 4% after it said it might sell 70% of its Nedbank Group Ltd. banking unit to HSBC Holdings. Metals producers are higher as well with gains of 2% for Rio Tinto Group and BHP Billiton Ltd. amid speculation that a proposed mining tax in Australia might be scrapped or diluted after Australia’s general election failed to deliver a majority government for the first time in 70 years. A negative factor for European stock prices is the larger-than-expected -0.6 point decline in the Aug Euro-Zone PMI composite to 56.1, which signals the pace of the recovery might have peaked.
• The Asian markets today closed mostly lower with Japan down -0.68%, Hong Kong -0.44%, China -0.07%, Taiwan +0.61%, Australia -0.04%, Singapore -0.36%, South Korea -0.42%, India +0.04%. The yen climbed to near a 1-3/4 month high against the euro and pressured Japanese stocks along with last Friday’s comments from ECB Council member Weber who said that the ECB should continue with its emergency funding measures until at least year-end, which fueled speculation about the sustainability of Europe’s economic recovery and its demand for Asian exports. Japanese Prime Minister Kan and BOJ Governor Shirakawa spoke today about the economy and the strength of the yen and the yen rallied after Chief Cabinet Secretary Dengoku said that there was "absolutely no" discussion of intervention in the currency markets to slow the yen’s rise against the dollar. On the positive side, Japan’s 3 major shipping companies closed higher after the Nikkei English news reported that the companies are considering increasing their earnings outlook for 2010 as they were able to increase shipping rates on some routes.

Overnight U.S. Stock News

• Sep S&Ps this morning are up +5.50 points. The stock market last Friday traded in negative territory into early afternoon but then recovered into the close to finish mixed (Dow -0.56%, S&P 500 -0.37%, Nasdaq Composite +0.04%). The S&P 500 and the Dow posted 1-month lows. Bearish factors included (1) carry-over weakness from the slide in European stocks after the French government cut its GDP estimate for next year to 2.0% from 2.5% along with comments from ECB Council member Weber who said the ECB should keep its emergency funding measures in place through year-end along, which fueled speculation the global recovery may be faltering, (2) JPMorgan Chase’s cut in its US Q4 GDP forecast to 2.0% from 3.0%, (3) JPMorgan Chase’s cut in its GDP for China to +9.8% from 10% for 2010 and to 8.6% from 8.8% for 2011, citing a near-term "loss of momentum" in the US and global recoveries, and (4) the prediction from Strategic Research Partners that current combined profit estimates for 2011 S&P 500 companies’ of $96 a share is too optimistic and that profits will be only $87 a share as revenue growth trails forecasts in a slow recovery.
• Bullish factors included (1) comments from ECB Council member Honohan who said he sees a "stronger tone" to the European economy, which may help sustain the global economic recovery, (2) the prediction from HSBC Global Asset Management that global stocks stand a "decent chance" of a rally in Q4 as investors are "overly pessimistic" about the outlook for economic growth, and (3) the drop in the 10-year T-note yield to a 1-1/3 year low of 2.53%.
• Newmont Mining (NEM) rose 1% in European trading on speculation that BHP Billiton’s hostile takeover offer for Potash of Saskatchewan will increase other companies’ takeover attempts in the basic-resources industry.
• Cumberland Pharmaceuticals (CPIX) fell 2.4% in pre-marlet trading after the drugmaker said the FDA extended its review of its application for the use of the drug Acetadote in patients with acute liver failure.

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Overnight Developments

• European stocks are stronger with the European DJ Stoxx 50 up +0.37% and Sep S&Ps are up +7.00 points. The dollar index and Treasuries are weaker while most commodities are higher, even after German investor confidence dropped to a 16-month low. The Aug German ZEW economic sentiment survey fell a more-than-expected -7.2 to 14.0, its fourth straight decline and its lowest level in 16 months, which suggests a weaker growth outlook going forward. In the UK, July consumer prices rose +3.1% y/y, which is above the government’s 3.0% limit and forced BOE Governor King to write his third public letter this year to explain how he will bring prices under control. European stocks received a boost after Carlsberg, the biggest brewer in Russia, climbed 2.1% after it reported Q2 profit of 2.63 billion kroner, beating analysts’ estimates of 2.05 billion-kroner and after the company raised its full-year profit forecast due to the effect of a stronger ruble and an improvement in the Russian market. Weinerberger surged 7.2% after the world’s largest brickmaker reported Q2 net income of 20.6 million euros ($26 million), compared with a 151.5 million euro loss the year before after the company cut costs and the building material market began to recover.
• The Asian markets today closed mixed with Japan down -0.38%, Hong Kong +0.12%, China +0.69%, Taiwan -0.13%, Australia +0.87%, Singapore -0.35%, South Korea +0.64%, India -0.01%. Japanese bank stocks fell and helped to lead the overall market lower after Deutsche Bank downgraded the industry to "marketweight" from "overweight," citing "a lack of confidence that the strong Q1 performance will continue in subsequent quarters." A report from the Nikkei newspaper said that the Japanese government might extend the eco-point incentive program for purchases of energy-saving devices in an attempt to extend the economic recovery after Monday’s release of Japan Q2 GDP data showed the Japanese economy barely grew last quarter. The central banks of Australia and South Korea said the world economic outlook has become clouded, which may slow their pace of future interest rate increases. The minutes of the Aug 3 RBA policy meeting released today said th ere is "more uncertainty over the global outlook than there had been earlier in the year," while BOK Governor Kim Choong Soo said in a speech today that markets "may prove turbulent in the future."

Overnight U.S. Stock News

• Sep S&Ps this morning are up +7.00 points. The stock market yesterday erased early losses and finished the day mixed (Dow -0.01%, S&P 500 +0.01%, Nasdaq Composite +0.39%). The S&P 500, the Dow and the Nasdaq all fell to 3-week lows but recovered to finish mixed to higher. Bullish factors included (1) strength in raw materials and commodity producers after the dollar fell and boosted most commodities along Goldman Sachs’s reiteration of its "overweight" rating on commodities, and (2) the plunge in the yield on the 10-year T-note to a 17-month low of 2.57%, which should benefit consumers and businesses.
• Bearish factors included (1) carry-over weakness from a fall in Japanese and European stocks on concern the global economic recovery is faltering after Q2 Japan GDP came in weaker-than-expected (+0.4% annualized versus expectations of +2.3% annualized), (2) the weaker-than-expected Aug Empire manufacturing index (+2.0 to 7.1 versus expectations of +3.2 to 8.3), (3) a slump in homebuilders after the unexpected decline in the Aug NAHB housing market index to a 17-month low (-1 to 13 versus expectations of +1 to 15), and (4) the decline in most education stocks after data from the US Department of Education signaled that for-profit college aid may be imperiled because loan payback rates are insufficient.
• Potash Corp. of Saskatchewan (POT) surged 13% in pre-market trading after the world’s largest fertilizer producer rejected an unsolicited takeover proposal from BHP Billiton worth $130 a share in cash.

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