Overnight Developments

• European stocks are slightly weaker with the European DJ Stoxx 50 down -0.36% and Sep S&Ps down -1.20 points. The dollar and Treasuries are little changed while copper rose to a 4-month high after the IMF raise its economic forecast for South Korea, the world’s fourth largest copper consumer. European and US stock prices are fluctuating on either side of unchanged ahead of the conclusion of today’s ECB’s monetary policy meeting in which policy makers are likely to extend emergency lending measures to banks into 2011. The French Q2 jobless rate unexpectedly slipped -0.2 to 9.7%, its first decline in 2 years as companies began hiring again. DSG International Plc rose 1.2% after the UK’s largest consumer-electronics retailer reported an increase in Q1 sales, boosted by the World Cup soccer tournament and the introduction of Apple’s iPad. On the negative side, Pernod Ricard SA slid 2.2% after it reported first-half profit of 951 million euros ($1.2 billion), bel ow analysts’ estimates of 987 million-euros, while Yara International ASA, the largest publicly traded maker of nitrogen fertilizer, dropped 3.2% after Morgan Stanley downgraded the shares to "equal weight" from "overweight."
• The Asian markets today closed higher with Japan up +1.52%, Hong Kong +1.19%, China +1.30%, Taiwan +0.69%, Australia +0.82%, singapore +0.13%, South Korea +0.54%, India +0.18%. Asian stocks rose after faster-than-estimated growth in US Aug manufacturing supported confidence in global economic growth. Japanese exporters rose as the yen weakened with Honda Motor up 1.9%, Nissan Motor up 3% and Sony up 2.2%. Chinese automakers advanced after China’s passenger-car sales grew 59% y/y in Aug, more than 3 times July’s pace, while Ping An Insurance, China’s second-largest insurer, gained 2.7% on plans to merge its bank unit with Shenzhen Development Bank after it said it will pay 29.1 billion yuan ($4.3 billion) for a stake that will give it control of Shenzhen. South Korean stocks rallied after the IMF raised its economic growth forecast for the country to 6.1% this year from 5.75% previously, and said the country still has room to raise its benchmark interest rate to a mor e neutral 4.0% from 2.25% currently. The Bank of Korea raised its benchmark rate 25 bp to 2.25% on July 9 as it joined Asian counterparts including India and Malaysia in removing monetary stimulus.

Overnight U.S. Stock News

• Sep S&Ps this morning are down -1.20 points. The stock market yesterday rallied sharply and closed on its high (Dow +2.54%, S&P 500 +2.95%, Nasdaq Composite +2.97%). The Nasdaq climbed to a 1-1/2 week high, while the S&P 500 and the Dow rallied to 1-week highs. Bullish factors included (1) carry-over strength from a rally in Asian and European stock markets which bolstered confidence in the global economic outlook after China’s manufacturing activity accelerated more than expected in August and Australia’s economy expanded in Q2 at its fastest pace in 3 years, (2) a rally in industrial stocks after the unexpected increase in the US Aug ISM manufacturing index (+0.8 to 56.3 versus expectations of -2.7 to 52.8), (3) strength in commodity and energy producers after a slide in the dollar and increased optimism that an expanding global economy will boost demand for raw materials lifted most commodity prices, and (4) gains in semiconductor makers after resea rch firm Gartner predicted chip sales will grow by +32% to $300 billion this year.
• Bearish factors included (1) the unexpected decline in jobs in the Aug ADP employment change (-10,000 versus expectations of +15,000), which fuels concern about Friday’s Aug nonfarm payroll report, (2) the larger-than-expected decline in July US construction spending which fell for the third straight month along with the downward revision to June construction spending (Jul -1.0% versus expectations of -0.5% and Jun revised down to -0.8% from +0.1%), and (3) comments from Dallas Fed President Fisher who said he is "reluctant" to expand the Fed’s balance sheet to stimulate the economy unless there are additional tax and regulatory policies in place to spur job growth.
• Collective Brands (PSS) sank 7.3% in pre-market trading after the company reported Q2 earnings of 32 cents a share, missing analysts’ estimates of 45 cents.
• Costco (COST) may be active to the upside today after the largest warehouse club chain in the US reported sales rose 9% to $5.9 billion in the four weeks that ended Aug 29 with comparable revenue increasing 7% during the period.

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Overnight Developments

• European stocks are weaker with the European Stoxx down -0.81% and Sep S&Ps down -2.90 points. The dollar and Treasuries are higher on increased safe-haven demand as stocks falter. European bank stocks are leading financial shares lower after Allied Irish Banks Plc, Ireland’s second-biggest bank, dropped 8.2% after its first-half loss widened as bad debts rose. Standard Chartered Plc fell 6.3% after Royal Bank of Scotland Group Plc cut its recommendation on the bank to "hold" from "buy," citing weakness in capital-market related sales and pre-impairment profit that missed forecasts. Next Plc slid 7.4% and led retailers lower after Britain’s second-largest clothing retailer said consumer spending will be "more restrained" in the second half. Limiting losses in European stocks was the 4.0% jump in Electricite de France SA after the French government said that electricity prices would rise 3.4% starting Aug 15. Demand for dollars continues to weaken after the 3-month dollar Libor rate fell for the 16th consecutive session to a 2-3/4 month low of 0.424%.
• The Asian markets today closed mixed with Japan down -2.11%, Hong Kong +0.43%, China +0.37%, Taiwan +0.19%, Australia -0.65%, Singapore -0.43%, South Korea -0.10%, India +0.57%. Asian stocks were undercut after weaker-than-expected US economic data on home sales and factory orders renewed concerns about the strength of the global economy. Japanese exporters were pressured as the yen rose to an 8-month high against the dollar, which threatens to hurt the value of overseas sales when converted to the local currency. Canon, the world’s biggest maker of digital cameras, fell 4.3%, and Sony, which gets 22% of its sales from the US, slipped 3%. Toyota Motor dropped 1.6% and Honda Motor fell 2.2% after the companies posted declines in US auto sales last month of 3.2% and 2.0% respectively. The yield on Japanese 10-year government bonds fell below 1.00% for the first time in 7 years on speculation the strengthening yen will increase deflationary pressures.

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Overnight Developments

• European stocks are weaker with the European Stoxx down -0.81% and Sep S&Ps down -2.90 points. The dollar and Treasuries are higher on increased safe-haven demand as stocks falter. European bank stocks are leading financial shares lower after Allied Irish Banks Plc, Ireland’s second-biggest bank, dropped 8.2% after its first-half loss widened as bad debts rose. Standard Chartered Plc fell 6.3% after Royal Bank of Scotland Group Plc cut its recommendation on the bank to "hold" from "buy," citing weakness in capital-market related sales and pre-impairment profit that missed forecasts. Next Plc slid 7.4% and led retailers lower after Britain’s second-largest clothing retailer said consumer spending will be "more restrained" in the second half. Limiting losses in European stocks was the 4.0% jump in Electricite de France SA after the French government said that electricity prices would rise 3.4% starting Aug 15. Demand for dollars continues to weaken after the 3-month dollar Libor rate fell for the 16th consecutive session to a 2-3/4 month low of 0.424%.
• The Asian markets today closed mixed with Japan down -2.11%, Hong Kong +0.43%, China +0.37%, Taiwan +0.19%, Australia -0.65%, Singapore -0.43%, South Korea -0.10%, India +0.57%. Asian stocks were undercut after weaker-than-expected US economic data on home sales and factory orders renewed concerns about the strength of the global economy. Japanese exporters were pressured as the yen rose to an 8-month high against the dollar, which threatens to hurt the value of overseas sales when converted to the local currency. Canon, the world’s biggest maker of digital cameras, fell 4.3%, and Sony, which gets 22% of its sales from the US, slipped 3%. Toyota Motor dropped 1.6% and Honda Motor fell 2.2% after the companies posted declines in US auto sales last month of 3.2% and 2.0% respectively. The yield on Japanese 10-year government bonds fell below 1.00% for the first time in 7 years on speculation the strengthening yen will increase deflationary pressures.

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Overnight Developments

• Global stocks are mostly lower with the European Euro Stoxx 50 Index down -0.70% and Sep S&Ps down -2.80 points. The dollar and Treasuries are stronger and most commodities are weaker as stocks give back some of Tuesday’s gains. The 10-year Spanish bond yield rose 6 bp after the Bank of Spain said the cost of recapitalizing and reorganizing savings banks would represent 1.5% of the economy. The yield premium investors demand to hold Spanish 10-year bonds instead of benchmark German debt widened 8 bp to 216 bp. Also adding to downside pressure in European stocks was the unexpected -0.5% m/m decline in May German factory orders, their first drop in the last 5 months, as demand for German goods weakened. CRH sank 10% and led construction and building companies lower after the world’s second-largest maker and distributor of building materials said first-half earnings before interest, taxes, depreciation and amortization probably fell about 20%, with sales slidin g 10%. Marks & Spencer slipped 3.8% even after the UK’s largest clothing retailer reported Q1 sales growth of 3.6%, beating analysts’ estimates, after it said a proposed increase in the UK value-added tax and other measures to curb the country’s deficit are likely to dampen consumer confidence.
• The Asian markets today closed mostly lower with Japan down -0.63%, Hong Kong -1.13%, China +0.69%, Taiwan -0.19%, Australia -0.50%, Singapore -0.24%, South Korea -0.76%, India -0.81%. Most Asian stocks retreated after yesterday’s weaker-than-expected Jun ISM non-manufacturing index increased concern that the global recovery will weaken. Japan’s Nikkei 225 Stock Index declined, led by losses in Honda Motor and Sony, while Hong Kong’s Hang Seng Index retreated after the head of the National Bureau of Statistics said in the bureau’s newspaper today that China’s economy faces increasing uncertainties and the economic situation is becoming more complex. The manager of China’s foreign exchange reserves said the US bond market is important and changes in holdings of Treausuries "shouldn’t be politicized." The State Administration of Foreign Exchange (SAFE) also said on its website that concern China might consider using the "nuclear" option of dumping i ts Treasury holdings is "completely unnecessary." Australia’s Jun building industry index fell -6.8 points to 46.4, its first contraction in 10 months, and a sign that interest rate increases by the RBA are eroding demand for new dwellings.

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