Overnight Developments

• European stocks are higher with the European Stoxx up +0.41% and Sep S&Ps up +1.60 points. The BOE as expected left its benchmark interest rate unchanged at 0.5% and kept its asset purchase plan unchanged at 200 billion pounds. The markets will now await the outcome of the ECB’s policy meeting later this morning and comments from ECB President Trichet. The euro is stronger and near a 3-month high after comments from the IMF that Greece has shown “great progress” in implementing austerity measures and should qualify for the next installment of emergency loans in a 110 billion-euro rescue package. European stocks also received a boost after June German factory orders climbed a more-than-expected +3.2% m/m as the global recovery strengthened and spurred demand for German goods. Aviva Plc soared 6.7% and led insurance companies higher after the UK’s second-biggest insurer reported first-half profit of 1.27 billion pounds ($2 billion), beating analysts’ estimate of 1.17 billion pounds. Aviva also increased its dividend as it raised its half-year payout to 9.5 pence a share from 9 pence a year earlier. Undercutting European stock gains was the 3.6% drop in Unilever after the world’s second-largest maker of consumer goods said Q2 sales rose 3.6% from a year earlier, below analysts’ estimates of 4.0%.
• The Asian markets today closed mixed with Japan up +1.73%, Hong Kong +0.01%, China -0.89%, Taiwan -0.45%, Australia +0.54%, Singapore +0.16%, South Korea -0.32%, India -0.24%. Toyota closed nearly 2% higher and led a rally in Japanese automakers after it raised its full-year profit forecast to 340 billion yen ($3.94 billion) for the year ending in March, compared with an earlier estimate of 310 billion yen, as sales in Asia grow and demand in the US recovers following Toyota’s recall of 8 million vehicles. Japanese exporters also gained after the yen weakened against the dollar, which boosts the value of repatriated overseas revenue. Property stocks and bank shares led declines in Chinese stocks today on concern that China’s proposed new stress tests of its banks signals the government may be growing more concerned about the health of the real estate market.

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Overnight Developments

• Global stocks are mixed with the European Euro Stoxx 50 Index up +0.73% and Sep S&Ps up +2.90 points. The dollar is little changed and Treasuries and stock indexes are higher after the Group of 20 leaders meeting over the weekend in Toronto said they would focus on nurturing economic growth and cutting deficits. Group leaders also agreed to pursue higher capital requirements for banks once their economic recoveries gain momentum. The G-20 leaders endorsed targets to cut their deficits at least by half by 2013 and stabilize their debt-to-output ratios by 2016. Stock gains in Europe were led higher by strength in automakers when PSA Peugeot Citroen climbed 2.7% after La Lettre de L’Expansion reported that France’s biggest carmaker lifted its sales target for the DS3 model to 70,000 from 45,000 and Porsche SE rose 2.3% after Bankhaus Metzler upgraded the carmaker to "buy" from "sell."
• The Asian markets today closed mixed with Japan down -0.45%, Hong Kong +0.17%, China -0.71%, Taiwan +0.35%, Australia -0.65%, Singapore +0.64%, South Korea -0.04%, India +1.14%. Asian stocks were undercut after the weekend meeting of Group of 20 leaders failed to reassure investors about the strength of the global economic recovery. Speaking at the G-20 Summit in Toronto, a Chinese Ministry of Commerce director general said that his country’s pledge for a more flexible yuan will slow its exports this year and add to difficulties that include the European debt crisis and rising costs. China, the world’s largest exporter, is aiming to raise domestic consumption and reduce its reliance on exports for economic growth. Chinese coal companies closed lower after China’s National Development and Reform Commission ordered China’s coal companies to keep prices agreed to in annual supply contracts stable as the government seeks ways to manage inflation. Japanese stocks closed lower after Japan’s May retail sales climbed a slower-than-expected 2.8% y/y, the slowest pace since Jan, and a sign that government incentives to purchase cars and household appliances are fading. Japan’s May retail sales slumped a seasonally adjusted -2.0% m/m, the biggest drop in 5 years as automobile sales in May fell -5.9% m/m and household machinery, which includes appliances such as flat-screen TVs, tumbled -7.9% m/m in May.

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Overnight Developments

• Global stocks are mixed with the European Euro Stoxx 50 Index up +0.76% at a 1-month high and Sep S&Ps up +4.70 points at a 4-week high. European and US stocks rallied while the dollar index slipped to a 3-week low after a successful Spanish bond sale eased concern that Spain’s government will struggle to finance its widening deficit. Spain sold 3.5 billion euros ($4.3 billion) of 10-year and 30-year bonds at yields lower than the prevailing market rates with a strong bid-to-cover ratio of 2.45, assuaging concern that it would face difficulty meeting bond repayments. The yield premium demanded by investors to hold Spanish debt rather than equivalent German bunds narrowed to 209.5 bp after the sale, as it retreated from a record wide 221 bp yesterday, the highest since the introduction of the euro. Limiting stock gains was the 1% drop in Nokia Oyj, extending yesterday’s 9% sell off, after Goldman Sachs slashed their share price estimates and profit forecasts f or the world’s largest maker of mobile phones which started the slide yesterday after it lowered its revenue and margin forecasts.
• The Asian markets today closed mixed with Japan down -0.67%, Hong Kong +0.38%, China -0.58%, Taiwan +0.83%, Australia -0.70%, Singapore -0.11%, South Korea +0.05%, India +0.88%. James Hardie Industries SE, the biggest seller of home siding in the US, lost 3.8% in Sydney after US building permits unexpectedly fell to a 1-year low and most Japanese exporters closed lower as the yen gained against the dollar, which threatens to cut the value of overseas income when repatriated. On the positive side, Nintendo, the world’s number one maker of portable video-game players, rose 5.2%, adding on to yesterday’s 5.2% gain, after UBS boosted its rating on the stock to "buy" from "neutral" as the company introduced a new handheld video-game player this week.

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Overnight Developments

• Global stocks are mostly higher with the European Euro Stoxx 50 Index up +1.78% and June S&Ps up +3.80 points. The dollar is little changed, Treasuries are weaker and most commodities are higher on increased economic optimism. European stocks received a boost after the May Euro-Zone PMI composite was unexpectedly revised up to 56.4 from the originally reported 56.2. Automakers gained, led by a 5.5% jump in Peugeot, after Deutsche Bank AG raised its recommendation on Europe’s second-largest carmaker to "buy" from "hold," and Daimler AG rose 2.5% after its Mercedes Benz division reported a 23% gain in US sales in May. Air France-KLM Group jumped 4.8% after Europe’s biggest airline said passenger traffic rose 4.3% in May. Limiting stock gains was the unexpected decline in Apr Euro-Zone retail sales which fell -1.2% m/m, the biggest drop in 1-1/2 years and weaker than market expectations for a +0.1% m/m increase. European banks are parking c ash with the ECB amid concern that a 750 billion-euro European rescue package may not be enough to stop the crisis from spreading and spilling into the banking industry. Overnight deposits with the ECB rose to a record 320.4 billion euros ($394 billion) and deposits have exceeded 300 billion euros for the past five days as the sovereign debt crisis makes banks wary of lending to each other.
• The Asian markets today closed mostly higher with Japan up +3.24%, Hong Kong +1.62%, China -0.78%, Taiwan +2.29%, Australia +2.40%, Singapore +2.42%, South Korea +2.14%,India +1.68%. Japanese businesses cut spending for the 12th consecutive quarter after Q1 capital spending excluding software fell -12.9% y/y. The much larger than expected decrease in capital spending will lead the government to downgrade Japan’s Q1 GDP figures later this month. Japanese exporters closed higher as the yen slumped to a 2-week low against the dollar and Asian carmakers gained on increased US sales. Nissan Motor closed 4.8% higher after reporting a +24% y/y increase in US car sales in May, Toyota rose 3.6% after posting a 5.7% sales gain and Kia Motors advanced 3.2% after its US sales rose 21% last month. The South Korean won rose sharply after JPMorgan Chase raised the nation’s equities to "overweight" and said the won is one of the "most undervalued" emerging-marke t currencies.

Overnight U.S. Stock News

• June S&Ps this morning are trading up +3.80 points. The US stock market yesterday opened higher and maintained a positive tone throughout the day as it trended higher into the close and finished on its high (Dow Jones +2.25%, S&P 500 +2.58%, Nasdaq Composite +2.64%). Bullish factors included (1) a rally in homebuilders after the stronger-than-expected Apr US pending home sales (+6.0% m/m and +24,6% y/y versus expectations of +5.0% m/m and +21.0% y/y), (2) a rally in energy producers and oil service providers after crude oil rose, (3) strength in airline stocks after Continental airlines beat monthly estimates for monthly unit revenue, which signals a stronger return of business travelers who pay higher fares, and (4) the prediction from MFS Investment Management that "the US is in the middle of a V-shaped economic recovery and that the European bank crisis does not have the scale and scope of Lehman and AIG and it doesn’t have the ingredients to bring down the banking system."
• Bearish factors included (1) the slump in the MBA’s home purchase index to its lowest level since Apr 1997, which indicates future US housing sales may be weak as the expiration of government tax incentives to purchase homes by the end of April has led to a reduction in home sales since then, and (2) carry-over weakness from a slump in European stocks on concern the region’s sovereign debt contagion is spreading after the yield premium between Spanish 10-year government bonds and 10-year German bunds widened to a 13-year high of 177 bp.
• Alcoa (AA) rose 1.6% in European trading after the company was upgraded to "outperform" from "neutral" at Macquarie Group Ltd.
• Las Vegas Sands (LVS) climbed 2.6% in pre-market trading after Morgan Stanley raised its recommendation on the casino company to "overweight" from equal weight."

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