• Global stocks are mixed with Asian stocks today closing mildly higher but with European and US stocks slightly lower. The European DJ Stoxx 50 this morning is down -0.21% and Sep S&Ps are down 2.00 points. European stocks received underlying support today from the report early last Friday afternoon that that only 7 of 91 European banks failed the stress tests. The Markit iTraxx Financial Index of credit default swaps on 25 European banks and insurers today fell 3.25 bp to a 2-1/2 month low 129.25 bp, the fifth consecutive daily decline, indicating that the European debt crisis continues to ebb. However, the theme of slower global growth was highlight today after Stephen Roach, non-executive chairman of Morgan Stanley Asia, forecast growth economic growth in the next 3-5 years at 3.25-3.50%, well below the 4.7% average in the 5 years before the 2008 recession. Morgan Stanley said slower growth will be caused by consumer retrenchent and weaker bank lending and employment in the US and Europe, and by ebbing Chinese growth as Chinese reorients its economy away from manufacturing and exports.

• The Asian markets today closed mostly higher: Japan +0.77%, Hong Kong +0.12%, China +0.64%, Taiwan +0.34%, Australia +0.62%, Singapore -0.22%, South Korea +0.60%, Bombay -0.61%. Japanese June exports rose by +27.7% y/y, which was stronger than the market consensus of +23.5% y/y. Japanese exports have grown for 7 consecutive months, but the June rise was the weakest this year, indicating that export demand may be waning. Moody's today raised India's local currency credit rating by one notch to Ba1, the highest non-investment rating. Moody's left unchanged India's Baa3 foreign currency rating. Moody's said the upgrade was tied to an improved Indian government fiscal and debt position after the government raised fuel prices and the government took in $14.5 billion from the sale of high-speed wireless permits. South Korea's Q2 GDP report grew sharply by +1.5% q/q (+6% annualized), which was stronger than the market consensus of +2.3% q/q.

• Sep S&Ps this morning are trading -2.00 points as the market continues to fret about slower economic growth. The US stock market last Friday gyrated on both sides of unchanged until an afternoon rally left it closing on its high (Dow Jones +0.99%, S&P 500 +0.82%, Nasdaq Composite +1.05%). The S&P 500 Index, the Dow and the Nasdaq all posted 1-month highs. Bullish factors included (1) carry-over strength from a rally in European stock markets after Q2 UK GDP expanded by the most in 4 years and the July German IFO business climate unexpectedly jumped to a 3-year high, which indicates a strengthening European economy, (2) the results of the stress tests done on European banks where only 7 of the 91 banks tested failed the tests, (3) a rally in for-profit schools after the Obama administration released a proposal that would tighten the industry's access to federal student aid but would affect fewer programs than investors anticipated, and (4) an increase in M&A activity which boosted the health-care sector after it was reported that Genzyme had been approached with a takeover offer from Sanofi-Aventis SA.

• Bearish factors included (1) concerns about Chinese loan losses after a report saying that Chinese banks may struggle to recoup about 23% of the $1.1 trillion they've lent to finance local government infrastructure projects, (2) doubts about the credibility of the European bank stress tests after a draft document said that the 91 European banks being stress-tested were only examined on European sovereign debt losses for the bonds they trade, rather than those they hold to maturity, and (3) concern about Europe's sovereign-debt crisis after Moody's Investors Service said it would review Hungary's debt rating for possible downgrade.

• September 10-year T-notes this morning are trading unchanged today going into a heavy auction week. T-note prices last Friday fluctuated on either side of unchanged into early afternoon when they moved lower into the close and settled down -16 ticks. Bearish factors included (1) reduced safe-haven demand for Treasuries after the stock market rallied when the Committee of European Banking Supervisors said only 7 of the 91 European banks failed their stress tests, and (2) carry-over weakness from a decline in European bond markets after Q2 UK GDP expanded by the most in 4 years and the July German IFO business climate index unexpectedly jumped to a 3-year high. Bullish factors included (1) doubts about the credibility of the European bank stress tests after a draft document said that the 91 European banks being stress-tested were only examined on European sovereign debt losses for the bonds they trade, rather than those they hold to maturity, and (2) an increase in the safe-haven demand for Treasuries after Moody's Investors Service said it would review Hungary's debt rating for possible downgrade.

• The dollar index this morning is slightly lower by -0.06 points with the dollar/yen down 0.44 yen and the euro/dollar up 0.19 cents. The dollar index last Friday ssettled slighly lower. Bearish factors included (1) strength in the euro after the Committee of European Banking Supervisors said only 7 of the 91 European banks failed their stress tests although there were questions about whether the stress tests were strict enough, (2) the action by BNP Paribas to cut its Q3 dollar forecast against the euro to $1.20 from an earlier forecast of $1.16, and to cut its Q1 2011 dollar forecast to $1.12 per euro from $1.00 on prospects that the Fed will increase stimulus and Europe's bank stress tests will prove successful, and (3) the unexpected surge in the July German IFO business climate to a 3-year high, which is euro positive. Bullish factors included (1) the prediction from Bank of Tokyo-Mitsubishi that any "euphoria" for the euro over the results of the European bank stress tests will be short lived as the finer details of the tests are unlikely to be positive, and (2) an increase in the safe-haven demand for the dollar on geo-political concerns after North Korea warned of a "physical response" to US naval drills with South Korea that began this past weekend off the Korean peninsula.

• September crude oil prices this morning are down 67 cents a barrel and September gasoline is down 2.52 cents per gallon. Tropical Depression Bonnie hit Louisiana on Sunday with only 30 mph winds and caused little damage, allowing crews to return to some evacuated oil rigs in the Gulf of Mexico. Sep crude oil prices last Friday rallied to a 3-1/2 week high early in the day but shed its gains and closed down -$0.32 per barrel. Sep gasoline climbed to a 1-month high but erased its gains and closed lower by -2.17 cents per gallon. Bearish factors included (1) speculation that Tropical Storm Bonnie won't be strong enough to damage oil production platforms in the Gulf of Mexico, and (2) early strength in the dollar which reduces investment demand for commodities. Bullish factors included (1) the rally in the stock market, which improves confidence in the economic outlook and energy demand, and (2) the stronger-than-expected Q2 UK GDP and July German IFO business climate, which indicates a strengthening economy in Europe that is positive for energy demand and consumption.

Earnings reports (confirmed releases, sorted by mkt cap) ACL-Alcon (BEST earnings consensus $2.03), EPD-Enterprise Products Partners (0.44), LO-Lorillard (1.61), FLR-Fluor (0.71), FTI-FMC Technologies (0.71), RRC-Range Resources (0.10), BWP-Boardwalk Pipeline Partners LP (0.36), PCL-Plum Creek Timber (0.15), ROP-Roper Industries (0.74), LM-Legg Mason (0.32), SLG-SL Green Realty (0.14), ACGL-Arch Capital Group Ltd (2.26), WRB-WR Berkley (0.62), ALB-Albemarle (0.76), MAS-Masco (0.13).

Global Financial Calendar

Morning Quote Board