Overnight Developments

• European stocks are lower with the European DJ Stoxx 50 down -0.03% and Dec S&Ps down -2.60 points. The euro retreated from a 1-week high against the dollar and Treasuries strengthened after German investor confidence tumbled. The Sep German ZEW economic sentiment survey fell for the fifth consecutive month and by a larger-than-expected -18.3 to a 19-month low of -4.3 as budget cuts across the Euro-Zone and slowing global growth clouded the outlook for Europe’s largest economy. Declines in utility stocks also pressured stock prices with E.ON sliding 3.0% after Germany’s biggest utility was downgraded to "hold" from "buy" at UniCredit SpA, which cited uncertainty on nuclear power plant extensions. Aug UK consumer prices unexpectedly rose +3.1% y/y, the same pace as July, and the sixth straight month prices have exceeded the government’s 3.0% limit as higher costs from airfare to food stoked price pressures.
• The Asian markets today closed mixed with Japan down -0.24%, Hong Kong +0.17%, China +0.09%, Taiwan +0.51%, Australia +0.25%, Singapore -0.59%, South Korea -0.15%, India +0.72%. Japanese stocks fell as the yen climbed to a fresh 15-year high against the dollar after Japanese Prime Minister Kan beat his rival Ozawa in a party vote today, reducing the likelihood the government will intervene in the foreign-exchange markets to weaken the yen. China’s yuan gained after the PBOC fixed the reference rate at 6.7378 per dollar, the highest since a peg against the dollar was scrapped in July 2005, on speculation the Chinese government will allow faster appreciation of the yuan to head off US trade sanctions. The action by the European Commission to raise its Euro-Zone GDP estimate yesterday for this year to 1.7% from 0.9% gave support to Asian equity markets on optimism that demand for Asian exports will remain strong. Asian bank stocks rallied for a second day after regulato rs agreed to give banks as long as 8 years to comply with new capital requirements and after Zhu Min, former deputy governor of the PBOC and current vice president of Bank of China Ltd. said that banks in Asia have high capital ratios and will be able to avoid the degree of fundraising needed elsewhere to meet the new international standards.

Overnight U.S. Stock News

• Dec S&Ps this morning are down -2.60 points. The stock market yesterday gapped higher and traded in positive territory the entire day and finished moderately higher (Dow +0.78%, S&P 500 +1.11%, Nasdaq Composite +1.93%). The Nasdaq rose to a 2-1/2 month high and the S&P 500 and the Dow both rallied to 1-month highs. Bullish factors included (1) carry-over support from stronger-than-expected Chinese economic data and comments from China’s Premier Wen Jiabao who said that China’s economy is in "good shape," which eases concern that the global economy will lapse back into recession, (2) a rally in bank stocks after the Basel Committee on Banking Supervision reached a compromise that doubles capital requirements for banks while giving them until 2019 to meet the buffer requirements to withstand future crisis, (3) carry-over strength from a rally in European equity markets after the European Commission raised its economic growth forecast for the Eur o-Zone this year to 1.7% instead of a previously projected 0.9%, (4) gains in raw-materials and energy producers as the slumping dollar pushed most commodities higher, with crude oil climbing to a 1-month high, (5) strength in chipmakers after research firm Gartner Inc. predicted that semiconductor equipment spending will double in 2010, (6) the smaller-than-expected US budget deficit in Aug as the economic recovery generated more tax revenue for the Treasury (-$90.5 billion versus expectations of -$100.0 billion), and (7) the prediction from CLSA Ltd. that US stock prices are "screamingly cheap" and will rally at least 30% in the next 12 months as the cheapest valuations in decades lure investors.
• Bearish factors included (1) the statement from IMF Managing Director Strauss-Kahn that the global economy may not generate much employment growth in coming years, and (2) the prediction from well-known bank analyst Richard Bove that legislators who don’t understand the banking industry and a sense of "mass hysteria" led to the passage of financial-reform law that will hurt US consumers.
• Campbell Soup (CPB) fell 2.3% in European trading after Goldman Sachs cut the stock to "sell" from "neutral" as they downgraded the packaged foods industry to "cautious" from "neutral," citing a mixed outlook for US sales, margin risks and valuations.

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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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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 mostly higher with the European Euro Stoxx 50 Index up +0.35% and Sep S&Ps up +7.30 points. Treasuries are weaker, the dollar is little changed and commodities are mixed. A rally in media stocks is boosting European equities, led by a 20% surge in BSkyB, the UK’s biggest pay-TV provider, after News Corp. raised its bid for the shares of the company that it doesn’t already own. European stocks are higher and the euro is little changed despite the plunge in German investor confidence in June. The June German ZEW economic sentiment dropped a larger-than-expected -17.1 to a 14-month low of 28.7 as concerns mount that the European sovereign debt crisis will undermine exports and crimp growth in Germany, Europe’s largest economy. Greek bond yields surged 82 bp today to 8.89% after Moody’s Investors Service yesterday cut the country’s government bond rating 4 levels to junk. The downgrade prompted Citigroup to remove Greek government debt from it s World Government Bond Index.
• The Asian markets today closed mostly higher with Japan up +0.08%, Hong Kong +0.05%, China closed for holiday, Taiwan +0.90%, Australia -0.01%, Singapore unchanged, South Korea -0.04%, India +0.43%. The yen was little changed after the BOJ kept its benchmark interest rate at 0.10% as expected following the conclusion of its 2-day policy meeting. The BOJ did say however, that it would offer as much as 3 trillion yen ($33 billion) for a new program aimed at expanding credit available to companies. Financial stocks prompted a mild rally in Japanese equities led by a 2.8% rise in Nomura, a 4.1% gain in Mizuho Securities and a 2.8% gain in Daiwa after Credit Suisse boosted its ratings on the stocks to "outperform" from "neutral," saying their valuations have fallen to "attractive" levels. The Australian dollar weakened after the release of the Reserve Bank of Australia’s (RBA) minutes of its Jun 1 meeting. The minutes said "the situatio n in Europe had deteriorated significantly over the previous month" and that previous rate increases had given them "flexibility," fueling speculation that it will keep interest rates unchanged until at least Q4.

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