Overnight Developments

• European stocks this morning are trading with solid gains with the European Stoxx 50 up 1.04%. Sep S&Ps are up 6.20 points (+0.56%). European stocks have been boosted by the continued decline in bank risk and a sharp 9% rally in UBS due to a favorable earnings report. The Markit iTraxx Financial Index of credit default swaps for 25 banks and insurers fell for the 6th day by 6.5 bp to hit a 3-month low of 111 bp. Deutsche Bank rallied by 3.5% after also reporting stronger than expected earnings today. The European stock markets were also encouraged by the fact that Hungary was able to sell $228 million in 3-month T-bills despite the recent financial turmoil in Hungary and the forint rallied by 0.8%. In another favorable US earnings report, Du Pont reported Q2 EPS of $1.17 that was well above the analyst consensus of 94 cents and raised its full-year 2010 EPS guidance to $2.90-$3.05 from $2.50-$2.70.
• The Asian markets today closed mixed: Japan -0.07%, Hong Kong +0.64%, China -0.55%, Taiwan -0.51%, Australia +0.25%, Singapore +0.42%, South Korea +0.03%, Bombay +0.32%. India’s central bank today raised its reverse repo rate by 50 bp to 4.50% and its repo rate by 25 bp to 5.75% in order to address inflation concerns. The central bank raised its India GDP forecast to 8.5% from 8.0% and its wholesale price inflation forecast to 6.0% from 5.5% for the year through March.

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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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