The major U.S. index futures are pointing to a higher opening on Monday, with sentiment upbeat on Spain's decision to avail bailout financing for its banking system. Since the markets had traded up on Friday in anticipation of the development, buoyancy is expected to be much more muted. Risk currencies and commodities have come off their highs. At the same time, traders may also remain apprehensive about the week's key economic data and also the upcoming June 17th Greek elections.
After taking a slippery stance, Spain finally sought a bailout for its banking system, agreeing to the terms of the bailout package. Spanish banks can now access loans from the EFSF or ESM and has recourse to loans up to 100 billion euros. Though no fiscal riders are attached to the loans, the nation may be required to go about with a fundamental restructuring of its banking system.
U.S. stocks advanced in the week ended June 8th, as traders picked up beaten down stocks on hopes that some help is in the offing. Earlier last week, Australia slashed its benchmark interest rates and later the European Central Bank, though not announcing an easing, signaled that it may relax monetary policy anytime soon. Later in the week, the Chinese central bank lowered rates, which sent mixed messages. Then there were expectations concerning Federal Reserve Chairman Ben Bernanke signaling another round of stimulus.
Last Monday, the major U.S. averages went about in a lackluster manner and closed on a mixed note, as concerns about domestic economic condition and the European debt crisis kept sentiment subdued.
Supported by a slight uptick in service sector activity and the decision by the Reserve Bank of Australia to reduce its official cash rate, stocks rose moderately on Tuesday. The European Central Bank's message that it stands ready to act soothed market concerns on Wednesday, sending stocks sharply higher. The upside was also aided by comments by Fed officials that cemented hopes of policy action by the domestic central bank.
However, the averages closed mixed on Thursday after a testimony by Bernanke did not offer any definitive clue about stimulus and the jobless claims data disappointed investors. After some nervousness in early trading on Friday, the major averages advanced solidly on speculation that Spain is close to receiving a bailout to reinvigorate its ailing banking system.
For the week, the Dow Industrials added 3.60 percent and the S&P 500 Index closed up 3.73 percent, while the Nasdaq Composite Index climbed 4.04 percent.
Among the sector indexes, the Philadelphia Semiconductor Index rallied 5.54 percent, while the S&P Retail Index and the KBW Bank Index added more than 4 percent each. The Dow Jones Utility Average, the Dow Jones U.S. Basic Materials Average and the NYSE Arca Securities Broker/Dealer Index all gained over 3 percent.
Currency, Commodity Markets
Crude oil futures are rallying $0.99 to $85.09 a barrel after settling up $1.16 or 1.39 percent at $84.39 a barrel in the week ended June 8th.
After over 8 percent loss in the week ended June 1st, crude oil opened last week firmer, advancing moderately last Monday. The commodity added to its gains on Tuesday amid hopes that eurozone governments and central banks will offer some sort of life buoy to the struggling countries.
Oil advanced yet again on Wednesday, riding on stimulus hopes, but slipped on Thursday as Bernanke dashed stimulus hopes. The commodity fell again on Friday, although finishing the week higher.
Gold futures, which climbed $30.70 or 1.89 percent to $1,591.40 an ounce in the previous week, are currently rising $2.70 to $1,594.10 an ounce. The increase in risk appetite set in motion by stimulus hopes tempered sentiment towards the precious metal, sending it lower for the week.
Risk currencies stemmed their slide in the week ended June 8th, with increasing hopes of central bank and governmental actions to take the debt bull by its horn imparting some vibrancy to the battered currencies. The euro snapped a 6-week decline and advanced about 0.66 percent against the dollar in the week and settled at $1.2517. Meanwhile, the greenback firmed up 1.88 percent against the yen during the week to 79.48 yen.
The U.S. dollar is currently trading at 79.49 yen and is valued at $1.2560 versus the euro.
Most Asian markets closed higher, as Spain's decision to seek a bailout perked up risk appetite and led investments into risky assets. The Indian market bucked the uptrend and ended with a moderate loss, while the Australian market remained closed on account of a public holiday.
Japan's Nikkei 255 recovered much of Friday's losses, as traders digested the not-so-disappointing Chinese data and the news out of Spain. The Nikkei average closed up 165.64 points or 1.96 percent at 8,625. Export stocks rode on the retreat by the yen.
Hong Kong's Hang Seng Index rallied 451.29 points or 2.44 percent before closing at 18,954. After trading with appreciable gains for much of the session, India's Sensex plunged sharply in late trading after a S&P report warned that the nation could lose its investment grade rating, given slowing GDP growth and political roadblocks to economic policymaking.
China reported that its trade surplus rose to $18.7 billion in May from $18.4 billion in April, as exports rose 15.3 percent year-over-year, while imports climbed 12.7 percent. The export and import growth were much more than forecast.
Inflation reports released by the Chinese National Statistical Bureau validated a central bank action last week, when rates were reduced to reinvigorate sagging growth. The consumer price index for China rose by 3 percent year-over-year in May compared to a 3.4 rate in the previous month. Economists had expected inflation to cool off to a 3.2 percent.
European stocks are also rallying, with the French CAC 40 Index and the German DAX Index rising 1.19 percent and 1.63 percent, respectively. The U.K.'s FTSE 100 Index is up a more modest 0.54 percent.
In corporate news, U.K.'s Tesco reported a drop in its U.K. same store sales for the first quarter after VAT and petrol were excluded.
U.S. Economic Reports
With markets rebounding on stimulus hopes, traders are likely to closely watch the unfolding week's calendar to assess the strength of the domestic recovery. The Commerce Department's retail sales report for May, the New York Federal Reserve's manufacturing survey for June, the Federal Reserve's industrial production report for May, the weekly jobless claims report and the Reuters and the University of Michigan's consumer sentiment index for June are among the key economic reports of the week.
Also featuring in the calendar are the Labor Department's import and export price indexes for May, the producer and consumer price inflation reports for May and the Commerce Department's business inventories report for April. The Treasury Budget for May and the results of the Treasury auctions of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.
The healthy run of retail sales growth should stall in May, given the fact that auto and gasoline sales fell sharply in the month. Nevertheless, excluding autos and gasoline, sales growth may have remained healthy, thanks to solid chain store sales results.
The pullback in gasoline prices may have also hit the consumer price index, which is expected to show a decline in May. The decline in gasoline prices is quite unusual for this time due to the fact that the summer driving season commences around this time. The decline in headline inflation should bring the annual inflation rate to 1.8 percent in May from 2.3 percent in April.
Slowing manufacturing output is expected to have impacted industrial production growth in May. The slowdown comes in the wake of some economic data pointing at a loss of momentum of the domestic economy.
Stocks in Focus
Micronetics (NOIZ) announced a deal to be acquired by Mercury Computer Systems (MRCY) for $75.4 million.
Johnson & Johnson (JNJ) said it expects t0o incur a special charge of $600 million in the second quarter to increase its accrual for the potential settlement of previously disclosed civil litigation matter related to RISPERDAL, INVEGA, NATRECOR and Omnicare.
J&J Snack Foods (JJSF) said it has acquired the assets of Kim & Scott's Gourmet Pretzels.
by RTT Staff Writer
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