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 +0.92% and Sep S&Ps down -1.30 points. European stocks gained and the euro strengthened to a 1-3/4 month high on speculation stress tests on European banks will show narrower losses than estimated. European bank stocks led financial shares higher after Credit Suisse Group AG raised their recommendation for lenders to "benchmark," saying European sovereign-debt risk is overstated, the financial industry is undervalued and the European Union stress tests "may be a positive catalyst." Stocks and most commodities also received a boost after the IMF raised its estimate for global economic growth. The IMF now estimates the world economy will expand 4.6% this year; the biggest increase since 2007, from an April forecast of 4.2% after a stronger-than-expected first half. The IMF warned however, "recent turbulence in financial markets, reflecting a drop in confidence about fisca l sustainability, policy responses, and future growth prospects, has cast a cloud over the outlook." As expected, the BOE kept its benchmark interest rate unchanged at 0.50% and kept its asset purchase target unchanged at 200 billion pounds.
• The Asian markets today closed mostly higher with Japan up +2.76%, Hong Kong +0.97%, China -0.18%, Taiwan +0.99%, Australia +2.40%, Singapore +1.26%, South Korea +1.53%, India +1.03%. Japanese exporters rallied as the yen fell against the dollar and after the ICSC said that US retail sales in June grew at the fastest pace in 4 years, easing concern that growth in the world’s biggest economy is faltering. NEC Corp., Japan’s largest personal computer maker, led gains in Asian technology stocks after it jumped 2.6% when it said it aims to double its share of the world’s supercomputer market in the next 4 years. Australian job growth in Jun rose a more-than-expected 45,900, boosting stocks and the Australian dollar, and heightening odds that the RBA will have to resume raising interest rates. Australia’s jobless rate held steady in June at 5.1%, marking the first time it’s below Japan’s jobless rate since at least 1978. China’s Shanghai Stock Index closed lower, led by industrial companies and energy producers, as concern the government will step up tightening measures overshadowed rising earnings. Energy producers were undercut after the government said it would extend a resource tax to the entire nation, while industrial companies weakened after UBS AG said that China will "intensify" enforcement on land policies.

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