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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Overnight Developments

• Global stocks are mostly lower with the European Euro Stoxx 50 Index down -0.55% and June S&Ps down -7.40 points. The euro sank to a 4-year low and is undercutting European stock prices after Hungarian Prime Minster Orban said Hungary’s economy is in a "very grave situation" because the previous government manipulated figures and lied about the state of the economy and that talk of a default is "not an exaggeration." The dollar and Treasuries rallied on the Hungary news, which undercut commodity prices. Limiting losses in stocks today is speculation that the US payrolls report, released later this morning, will show a fifth month of gains and add to evidence that the economy is gaining momentum. Q1 Euro-Zone GDP was revised up to +0.6% y/y from +0.5% y/y, the first annual gain since Q3 of 2008, led by a +6.0% y/y jump in exports and a +2.0% y/y increase in government spending. European technology stocks rallied, led by a 2.9% advance in S TMicroelectronics; after UBS raised its recommendation on Europe’s largest chipmaker to "neutral" from "sell," saying the chipmaker was a "strong beneficiary" from recent currency moves. Infineon Technologies AG gained 2.7% and ASML Holding NV rose 3.1% after the Dramexchange Index, which tracks prices of the most widely used computer memory chips, rose 1.2% and indicates an increase in demand.
• The Asian markets today closed mostly lower with Japan down -0.13%, Hong Kong -0.03%, China +0.30%, Taiwan -0.21%, Australia -0.82%, Singapore +0.47%, South Korea +0.21%, India +0.56%. South Korean stocks closed higher after the country’s Q1 GDP was revised up to a gain of +2.1% q/q from April’s initial estimate of +1.8% q/q, as exports surged and domestic demand strengthened. The South Korean Finance Ministry said in its monthly economic report today that the government will keep its expansionary economic-policy stance "for the time being" to support the recovery, citing risks from Europe and North Korea tensions. Japanese stocks were little changed as the Democratic Party of Japan is scheduled to vote on a new prime minister today to replace Yukio Hatoyama who resigned earlier this week. Asian mining companies closed lower and limited gains in other sectors after the CEO of Freeport-McMoRan said that China is a "risk to the world’s market place in t he near term" as it takes measures to cool its economy.

Overnight U.S. Stock News

• June S&Ps this morning are trading down -7.40 points on concern that Hungary may default on its sovereign debt. The US stock market yesterday finished with modest gains (Dow Jones +0.06%, S&P 500 +0.41%, Nasdaq Composite +0.96%). All of the stock indexes climbed to 2-week highs. Bullish factors included (1) optimism the economy is strengthening after Apr factory orders gained for the eighth consecutive month (+1.2% m/m) and the May ISM non-manufacturing index expanded for the fifth straight month (unchanged at 55.4), (2) strength in retailers after May ICSC chain store sales rose +2.6% y/y, their sixth straight monthly increase, and (3) Goldman Sachs’ hike in its May US payroll forecast to increase +600,000 from +500,000.
• Bearish factors included (1) concerns that the European debt crisis will worsen after the euro weakened on liquidity concerns as overnight deposits with the ECB rose to a record 320.4 billion euros ($394 billion), the fifth consecutive day deposits with the ECB have exceeded 300 billion euros as the sovereign debt crisis makes banks wary of lending to each other, (2) the weaker-than-expected May ADP employment change (+55,000 versus expectations of +70,000), and (3) weakness in mining companies and raw material producers after the CEO’s of Codelco and Freeport-McMoRan, the two largest copper producers, said that China’s plans to slow its economy threatens to reduce demand for metals and other commodities.
• Comtech (CMTL) gained 5.5% in pre-market trading after the provider of mobile-data communications equipment reported Q3 revenue of $216.3 million, well ahead of analysts’ estimates of $190.3 million.

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