Overnight Developments

• Global stocks are higher with the European Euro Stoxx 50 Index up +0.60% at a 3-week high and Sep S&Ps up +8.30 points at a 1-week high. Treasuries are weaker and the dollar index fell to a 1-week low, while commodities are stronger with copper at a 1-week high. European stocks rallied after April Euro-Zone industrial production rose a more-than-expected +0.8% m/m and its +9.5% y/y increase is the biggest year-over-year gain since the data series began in 1991. Mining companies gained after copper rose to a 1-week high and Salzgitter AG, Germany’s second-biggest steelmaker, advanced 3.2% after UBS AG raised its recommendation on the stock to "neutral" from "sell." The euro jumped to a 1-week high against the dollar after Greek Finance Minister Papaconstantinou told the Real News that the receipt of 110 billion euros ($134 billion) in emergency loans is enough to cover most of Greece’s borrowing needs in the coming years and that his nation isn’t considering restructuring its debt. Treasuries were pressured after equities rallied and after St. Louis Fed President Bullard, who was speaking at a press briefing in Tokyo, said that Europe’s sovereign-debt crisis shouldn’t postpone the Fed from raising interest rates.
• The Asian markets today closed higher with Japan up +1.80%, Hong Kong +0.90%, China closed for holiday, Taiwan +1.20%, Australia closed for holiday, Singapore +0.78%, South Korea +1.01%, India +1.60%. Japan’s large manufacturers said business conditions improved in Q2 from Q1 as the Q2 BSI large manufacturing rose to 10 from 4.3 in Q1, signaling that Japan’s export-led recovery is gaining traction. Japanese companies said they plan to increase spending on plants and equipment by 9.7% this fiscal year, compared with the -5.5% in cutbacks projected 3 months ago. The Q2 BSI data suggests that the Q2 Japan Tankan survey, due to be released July 1, may also be on the strong side. Japanese exporters gained as the yen slumped to a 1-week low against the dollar, easing concern that a stronger currency will erode exporters’ earnings. May India wholesale prices accelerated 10.16% y/y, more than market expectations of a 9.6% y/y gain, and increases pressure on India’s central bank to raise interest rates. The RBI has raised the benchmark reverse repurchase rate by 25 bp twice since Mar to the current 3.75% level and the central bank said it will tighten monetary policy at a "moderate" pace given the risks to economic expansion from Europe’s debt crisis. India and China, Asia’s fastest-growing major economies, are battling to contain inflation as the region shows little signs of being affected by Europe’s debt woes.

Overnight U.S. Stock News

• Sep S&Ps this morning are trading up +8.30 points. The US stock market opened lower last Friday but recovered its losses and zigzagged higher into the close to finish with modest gains (Dow Jones +0.38%, S&P 500 +0.44%, Nasdaq Composite +1.12%). Bullish factors included (1) the larger-than-expected increase in the Jun US University of Michigan consumer confidence which jumped to a 2-1/3 year high (+1.9 to 75.5 versus expectations of +0.9 to 74.5), (2) comments from Philadelphia Fed President Plosser who said that he doesn’t expect a "big impact from Europe’s fiscal crisis on the US economy," and (3) the report from the Fed that said net worth for US households and non-profit groups rose by $1.6 trillion in Q1, the fourth consecutive quarterly increase, to $54.6 trillion, which may keep consumer attitudes positive about the economy.
• Bearish factors included (1) weakness in consumer companies after the unexpected decline in May US retail sales which had its biggest decline in 8 months (-1.2% and -1.1% less autos versus expectations of +0.2% and +0.1% less autos), (2) the warning from billionaire investor George Soros who said the fiscal crisis that prompted European governments to curb their budget deficits may push the global economy back into recession, and (3) comments from Minneapolis Fed President Kocherlakota who said that he’s concerned about "weakness in the labor market."
• Alcoa (AA) rose 2% and Freeport-McMoRan Copper & Gold (FCX) gained 1.6% in premarket trading after copper prices climbed to a 1-week high.
• SanDisk (SNDK) advanced 1.6% in European trading after an article in Barron’s said the memory chip supplier may rise as much as 17% as flash memory sales for Apple’s iPad and other mobile devices expand.

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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 higher with the European Euro Stoxx 50 Index up +0.26% and June S&Ps up +0.30 of a point. The euro strengthened for a second day and most commodities rallied, as crude oil and copper climbed to 1-1/2 week highs. Daimler AG rose 2% and is leading automakers higher after the world’s second-largest luxury carmaker raised its profit forecast for its Mercedes-Benz division for the second time in 6 weeks as the global recovery spurs demand. Daimler now expects full-year earnings for its Mercedes-Benz unit to be at the “upper end” of the carmaker’s target of 2.5 billion euros ($3.1 billion) to 3 billion euro range, and its Q2 Ebit will exceed the Q1 total of 806 million euros. Daimler’s CEO said deliveries of Mercedes-Benz vehicles to China more than doubled in Q1 and China has now become Mercedes-Benz cars’ third-largest sales market. Travis Perkins jumped 8.1% after it made a 553 million-pound ($806 million) takeover offer for B SS Group in an attempt to create the UK’s largest plumbing and heating materials chain, and Opap SA rose 3.7% after Europe’s largest publicly traded gambling company reported Q1 net income of 192.2 million euros, beating analysts’ estimates of 182 million euros. Liquidity concerns eased slightly after the 3-month dollar Libor rate dropped to 0.536% from 0.538% and the dollar Libor-OIS spread, a gauge of banks’ reluctance to lend, narrowed to 30.4 bp from 30.8 bp.
• The Asian markets today closed mostly higher with Japan up +1.28%, Hong Kong +1.73%, China -0.34%, Taiwan +0.72%, Australia +1.79%, South Korea +1.08%, India +1.18%. Asian stocks received a boost after St. Louis Fed President Bullard said the debt crisis is likely to be contained in Europe as US and Asian growth protects them from contagion. Japanese exports gained as the yen weakened to a 1-week low against the dollar with Nintendo ending 2.8% higher and Sony closing with a 1.8% gain. The April Japan jobless rate unexpectedly rose +0.1 to 5.1%, April Japan overall household spending unexpectedly fell -0.7% y/y, and deflation deepened with the April Japan national CPI ex fresh food falling a more than expected -1.5% y/y, signaling domestic demand is restraining the nation’s recovery. In another sign of economic uncertainty, the April Japan job-to-applicant ratio unexpectedly fell -0.01 to 0.48, meaning there are 48 jobs for every 100 candidates, its first deteriorati on in 8 months.

Overnight U.S. Stock News

• June S&Ps this morning are trading little changed, up +0.30 of a point. The US stock market yesterday trended higher the entire session and finished sharply higher (Dow Jones +2.85%, S&P 500 +3.29%, Nasdaq Composite +3.73%). Bullish factors included (1) carry-over support from a sharp rally in European bourses after China affirmed its commitment to investing in Europe, which was a boost of confidence for the euro, (2) comments from St. Louis Fed President Bullard who said that Europe’s sovereign debt crisis is likely to be contained within the Euro-Zone as the recovery trajectory in the US and Asia protects them from contagion, (3) strength in energy and raw-materials producers after the weaker dollar prompted a rally in most commodities, and (4) a rally in technology stocks led by gains in Microsoft after the company was upgraded to “outperform” from “market perform” at FBR Capital Markets.
• Bearish factors included (1) the unexpected downward revision to US Q1 GDP to 3.0% from 3.2% (versus expectations of an increase to 3.4%), and (2) the slightly smaller-than-expected drop in weekly initial unemployment claims (-14,000 to 460,000 versus expectations of -16,000 to 455,000).
• Apple (AAPL) climbed 1.5% in European trading as its iPad tablet computer went on sale outside of the US.

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