Overnight Developments

• European stocks are trading mildly lower with the European Stoxx 50 down -0.28%. Sep S&Ps are down 4.80 points (-0.44%). S&Ps are on edge ahead of this morning’s Q2 GDP report (expected +2.6%). There is also some caution ahead of Sunday’s expected release of China’s purchasing managers index due to talk of a sharply weaker figure. The market consensus is for a moderate 0.7 point decline to 51.4 from 52.1 in June. The Eurozone July CPI rose to a 20-month high of +1.7% y/y from +1.4% y/y in June, which was in line with market expectations. However, the core CPI rose to only +0.9% y/y from +0.8% y/y in June. Meanwhile, the Eurozone June unmeployment rate remained at 10%, the highest level in almost 12 years. The IMF said today that US banks may need as much as $76 billion more in capital. A senior executive from Moody’s said that Spain, already on review for a possible downgrade, will probably lose its Aaa rating. Spain has already lost its triple-A ra ting from S&P and Fitch. The Moody’s executive also said that the U.S. needs a "clear plan" for tackling its deficit.
• The Asian markets today closed lower across the board: Japan -1.64%, Hong Kong -0.30%, China -0.32%, Taiwan -0.49%, Australia -0.68%, Singapore -0.33%, South Korea -0.83%, Bombay -0.69%. Asian markets were undercut by the report that Japan’s June unemployment rate rose to a 7-month high of 5.3%, which was higher than the consensus of 5.2%. In addition, Japan’s factory output fell 1.5% m/m versus the consensus for a +0.2% rise.

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Overnight Developments

• European stocks are higher with the European Stoxx 50 up 0.55% after hitting a 3-month high. Sep S&Ps are up 5.70 points (+0.52%). European stocks received support from positive earnings reports from AstraZeneca and Volkswagen and from positive confidence and employment reports. The European Commission’s business and consumer confidence index rose to a 2-1/3 year high of 101.3 from 99 in June. Meanwhile, Germany unemployment fell by 20,000 to 3.21 million, which was the lowest level in 1-1/2 years and was the 13th consecutive monthly decline. The Germany unemployment rate fell to 7.6% from 7.7%. French Finance Minister Christine Lagarde today said she expects a "serious pickup" in global growth in 2011, "if only because global trade has significantly improved." UBS upgraded European stocks to "neutral" from "underweight," cut U.S. stocks to "neutral," and cut Japanese stocks to "underweight."
• The Asian markets today closed mixed: Japan -0.59%, Hong Kong +0.01%, China +0.50%, Taiwan +0.18%, Australia -0.13%, Singapore +0.41%, South Korea -0.17%, Bombay +0.19%. Asian stocks were undercut by Wednesday’s U.S. Beige Book report, which suggested lackluster U.S. demand for Asian exports. Panasonic fell 7.7% today after news that the company would offer stock to help it purchase full control of its Sanyo Electric and Panasonic Electric Works units.

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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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