Overnight Developments

• The European DJ Stoxx 50 this morning is up +1.24% and Sep S&Ps are up +3.50 points (+0.38%). The Asia-Pacific stock markets today closed mixed with Japan (-0.19%), China (+2.26%), Taiwan (+2.28%), Australia (-2.05%), Singapore (+0.83%), South Korea (+1.65%), India (+1.05%).
• European and US stocks are higher today after the Jun Euro-Zone PMI manufacturing index was unexpectedly revised up to a 9-month high and May German retail sales unexpectedly rose for the third straight month, adding to evidence that Europe is recovering from recession. Supporting a rally in the US equity market were comments made last night from San Francisco Fed President Yellen that the prospect that policy makers will leave the benchmark US interest rate near zero for the next several years is "not outside the realm of possibility." Commerzbank AG, Germany's second-biggest bank, surged 16% and Deutsche Postbank AG rose over 5% after Morgan Stanley said an agreement by German politicians on a "bad bank" plan may have a "significant impact" on Commerzbank and Deutsche Postbank as the "potential upside" is not reflected in their share prices.
• China's Shanghai Composite Index rose to a 1-year high after the country's manufacturing sector expanded for the fourth straight month in June. The Jun China purchasing managers' Index rose +0.1 to 53.2 as China'a 4 trillion yuan ($585 billion) stimulus plan and record bank lending revive the world's third-largest economy. Undercutting a rally in Japan's Nikkei Index was the weaker than expected Q2 Japan Tankan survey, a gauge of sentiment among the country's largest manufacturers, signaling Japan's economy may be slow to recover from recession. Q2 Japan Tankan large manufacturers index rose to -48 from a record low -58 in Q1, but was below market expectations of -43. Even with the improvement in Tankan sentiment, the first in more than two years, large manufacturers and service companies remain more pessimistic than they were at any time during the previous recession, which ended in 2002.

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• September S&Ps this morning are up +3.50 points. The US stock market yesterday finished lower although off of the worst levels of the day (Dow -0.97%, S&P 500 -0.85%, Nasdaq Composite -0.49%).
• Bearish factors for stock prices yesterday included (1) the unexpected decline in Jun US consumer confidence, raising concerns that consumer spending may stagnate and cause the recession to linger, (2) weakness in bank stocks after the report from the US Office of the Comptroller showed that delinquency rates on the least-risky US mortgages more than doubled in Q1 from a year earlier and that first-time US foreclosure filings surged +22% in Q1 from Q4, indicating the US housing crisis has yet to bottom, and (3) the sell-off in energy producers after crude oil plunged on concerns the global recession has yet to abate after growth in the UK contracted in Q1 at the largest pace since 1958, and GDP in Canada contracted for the ninth consecutive month in April.
• Bullish factors for stock prices yesterday included (1) the larger-than-expected increase in the Jun Chicago purchasing managers index, (2) the smaller-than-expected decline in home prices in the Apr S&P/CaseShiller composite-20 home price index, (3) comments from St. Louis Fed President Bullard that the Fed may keep the funds rate at zero "longer than usual rules suggest," and (4) the action by Deutsche Bank AG to hike its global growth forecast for next year to +2.5% from a March forecast of +2.0%, citing an improved outlook for investment and exports.
• Amag Pharmaceuticals (AMAG) climbed over 4% in after-hours trading yesterday after the company reported that US regulators approved its anemia drug ferumoxytol for adults with chronic kidney disease.
• Oshkosh Corp. (OSK) surged 27% in after-hours trading yesterday after the maker of military vehicles won a $1.06 billion US Defense Department contract to make all-terrain trucks that would protect troops in Afghanistan from roadside bombs.

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• September 10-year T-notes this morning are down -4.5 ticks. Sep T-note prices yesterday closed down -6 ticks. Bearish factors for T-note prices yesterday included (1) the better-than-expected April S&P/CaseShiller composite-20 home price index (-18.1% y/y versus expectations of -18.6% y/y), (2) the stronger-than-expected Jun Chicago purchasing managers index (+5.0 to 39.9 versus expectations of +4.1 to 39.0), and (3) the warning from St. Louis Fed President Bullard that without an exit strategy to unwind their unprecedented asset purchases, the Fed risks "expectations of high inflation." Bullish factors for T-note prices yesterday included (1) the unexpected decline in Jun US consumer confidence (-5.5 to 49.3 versus expectations of +0.4 to 55.3), (2) the Fed's purchase of $7 billion in Treasuries as part of its quantitative easing program, (3) the report from the US Office of the Comptroller that delinquency rates on the least-risky US mortgages more than doubled in Q1 from a year earlier and that first-time US foreclosure filings surged +22% in Q1 from Q4, and (4) increased demand for Treasuries from bond fund managers due to month-end and quarter-end bond portfolio rebalancing.
• The dollar index this morning is weaker with the dollar/yen +0.48 yen and the euro/dollar +0.23 cents. The dollar index yesterday slumped to a 2-week low before erasing its losses and closing higher on the day. Bullish factors for the dollar yesterday included (1) an increased safe-haven demand for dollars after the equity market tumbled when Jun US consuner confidence unexpectedly declined, and (2) increased foreign demand for dollars after the report from the IMF that showed the share of dollars in global foreign-exchange reserves increased to 65% in Q1 of this year from 64.1% in Q4 of 2008, the highest in 2 years. Bearish factors for the dollar yesterday included (1) Deutsche Bank's hike in its global economic growth forecast for next year to 2.5% from a March prediction of 2.0%, which may reduced safe-haven demand for dollars on speculation the recession is abating and as investors flee the dollar in search of higher-yielding assets, and (2) comments from St. Lou is Fed President Bullard that the Fed may keep the funds rate at zero "longer than usual rules suggest."
• August crude oil prices this morning are up +$1.50 a barrel and August gasoline is +3.41 cents a gallon. Aug crude oil prices yesterday erased an early rally and closed down -$1.60 per barrel. Aug gasoline closed down -3.34 cents a gallon. Aug crude oil rallied to an 8-1/4 month high before shedding its gains and closing lower. Bearish factors for crude oil prices yesterday included (1) the rally in the dollar index which recovered from a 2-week low, (2) the unexpected decline in Jun US consumer confidence, (3) the surge in delinquency rates on the least-risky US mortgages which more than doubled in Q1 from a year earlier, fueling concern the recession may last longer-than-expected and keep energy demand constrained, and (4) the larger than expected contraction in Q1 UK GDP which showed the UK economy shrank by the widest amount since 1958, indicating slack fuel demand in the UK. Bullish factors included (1) the prediction from Deutsch Bank that crude oil prices ma y reach $75 a barrel in the second half of this year, and (2) concerns that continued militant attacks on Nigerian oil installations will further disrupt crude supplies from Africa's largest crude oil producer. Expectations for today's weekly DOE inventory report are for a -2.0 million bbl drawdown in crude oil inventories, a +2.0 million bbl climb in gasoline stockpiles, a +1.5 million bbl increase in distillate inventories and a +0.1 point gain in the refinery capacity rate to 87.2%.

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