Overnight Developments

• European stocks are higher with the European DJ Stoxx 50 up +0.45% and Sep S&Ps up +1.00 point. Better-than-expected earnings results are leading European stocks higher as Credit Agricole, France’s largest bank by branches, jumped 3.8% after it reported Q2 net income of 279 million euros, beating analysts’ estimates of 318 million euros, while L’Oreal, the world’s biggest cosmetics maker, surged 6.6% after it reported first-half net income increased 21% from last year to 1.32 billion euros. Also boosting European stocks was the +0.1 point increase in the Sep German GfK consumer confidence survey to an 11-month high of 4.1 as stronger economic growth and declining unemployment in Germany boosted income expectations. Loan growth grew in Europe in July as the economic recovery gathered steam after the ECB reported a +0.9% y/y increase in loans to Euro-Zone households and companies in July, the fastest pace in 13 months, which suggests the economy may not lose as much momentum as some economists forecast.
• The Asian markets today closed mixed with Japan up +0.69%, Hong Kong -0.11%, China +0.25%, Taiwan -0.61%, Australia +0.83%, Singapore -0.02%, South Korea -0.27%, India +0.26%. Japanese exporters rallied and led Japanese stocks higher as the yen weakened against the dollar. The Asahi newspaper reported today that the Japanese government may ask the BOJ to ease monetary policy further as part of an economic stimulus package, while the Nikkei English news reported that Japanese Prime Minister Kan told business leaders he is in contact with the Finance Ministry and the central bank on the possibility of currency intervention. The yen has risen 15% this year and Suzuki Motor Corp. Chairman Suzuki said the strengthening currency poses an “extremely grave” situation and will have a “very big impact” on profit.

Overnight U.S. Stock News

• Sep S&Ps this morning are up +1.00 point. The stock market yesterday sold off early but recovered its losses the rest of the session and finished higher (Dow +0.20%, S&P 500 +0.33%, Nasdaq Composite +0.84%). The S&P 500, Dow and Nasdaq all fell to 1-1/2 month lows but erased their losses and finished higher. Bullish factors included (1) speculation that the recent plunge in equity prices overshot the potential damage from a slowdown in the economy, (2) strength in homebuilders, despite the plunge in Jul new home sales to a record low, after Toll Brothers rallied when it unexpectedly reported its first quarterly profit since 2007 as writedowns declined, and (3) a supportive interest rate picture that keeps stock valuations low and benefits consumers and businesses after the yield on the 10-year T-note fell to a 1-1/2 year low of 2.42%.
• Bearish factors included (1) carry-over weakness from a fall in European stocks after S&P cut Ireland’s long-term sovereign credit rating one step to AA-, its lowest since 1995, and raised its estimate for recapitalizing the Irish banking system to as much as 50 billion euros ($63 billion) from a previous estimate of 35 billion euros, which renews concern over the European sovereign-debt crisis, (2) the weaker-than-expected Jul durable goods orders (+0.3% versus expectations of +3.0%), and the unexpected decline in Jul durable goods orders ex transportation which had its biggest drop in 1-1/2 years (-3.8% versus expectations of +0.5%), (3) the unexpected plunge in Jul new home sales which fell to their lowest level since records began in 1963 (-12.4% to 276,000 versus expectations of unchanged at 330,000), and (4) the unexpected decline in the Jun FHFA house price index (-0.3% m/m versus expectations of +0.1% m/m).
• Schlumberger (SLB), the world’s biggest oilfied-services contractor, rose 1% in European trading after crude oil prices gained.

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Overnight Developments

• Global stocks are lower with the European Euro Stoxx 50 Index down -0.67% and Sep S&Ps down 6.60 points (-0.61%). The markets remain concerned about the European economy with Greek credit default swaps today rising 27 bp to a record high of 959 bp, indicating that the markets are increasingly concerned about a Greek debt default. Meanwhile, the Greek 10-year bond spread against Germany rose by 10 bp to a 1-1/2 month high of 782 bp. Global stocks are also lower on yesterday’s news that US May new home sales plunged by 33%. On the brighter side, April Eurozone industrial orders today rose by +0.9% m/m, adding to March’s +5.1% surge and marking the third consecutive monthly increase. The report boosted hopes for a continuance in the surge in European exports tied to the recent depreciation of the euro.
• The Asian markets today closed mostly lower: Japan +0.05%, Hong Kong -0.59%, China -0.04%, Taiwan +0.10%, Australia -0.14%, Singapore -0.82%, South Korea +0.82%, and Bombay -0.14%. Taiwan’s central bank today unexpectedly raised its key policy rate to 1.375% from 1.25%, as opposed to the unanimous market consensus that the bank would leave rates unchanged. Taiwan’s Q1 GDP soared by 13.3% and the government last month hiked its 2010 GDP forecast to +6.14% from +4.72% and its 2010 inflation forecast to +1.4% from +1.27%. Adding to the news of tighter policy in Asia, South Korea’s Finance Ministry today said that South Korea will “normalize” its accommodative policies and take pre-emptive action against inflation due to stronger-than-expected economic growth. The Finance Ministry raised its forecast for South Korean 2010 GDP to +5.8% from +5.0%.

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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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