Benzinga Market Primer, Wednesday July 11
U.S. equity futures rose Wednesday after falling the day before. Increased clarity over the Spanish bank recapitalization plan has buoyed investor sentiment. S&P 500 futures rose 5.5 points and NASDAQ futures rose 9 points.
Spain this morning has announced a new round of austerity measures aimed at reducing the government's budget deficit to the required 3 percent. Also, private foreign bondholders look to be protected, as part of the bailout is requiring Spanish banks to wipe out preferred shares and subordinated debt, securities that the Bank of Spain says are mostly held by Spanish citizens as investments. Thus, Spanish savers, not foreign bondholders, will be on the hook for losses.
In other news:
- The European Banking Authority says that European Union banks raised $116 billion in capital through June in 2012.
- JP Morgan Chase (NYSE: JPM) is expected to report that the CIO trading loss has swelled to over $5 billion, according to the Wall Street Journal. JP Morgan is also expected to clawback bonuses of responsible employees.
- Peregrine Financial Group has filed for bankruptcy following the CFTC charges of fraud, as over $200 million of customer funds went missing.
- Germany sold 10-year bunds at a low yield of 1.31 percent as compared to the previous auction at 1.52 percent.
- German inflation fell 0.1 percent in June to a 1.7 percent annualized rate, fueling speculation over further European Central Bank action.
- Bank of Italy Governor Visco said that Italian bond spreads are unwarranted and that they represent the remote probability of a Eurozone breakup.
Spanish 10-year bond yields have fallen for the second straight day to yield 6.677 percent. Spanish 2-year bond yields, a measure of the health of the short term borrowing capability of Spain, also fell to 4.573 percent. Italy 10-year yields fell in tandem with Spanish bonds to 5.85 percent.
Overnight, Asian shares were mixed following losses on Wall Street. The Nikkei closed slightly lower by 0.08 percent and the Australian ASX index fell a mere 0.04 percent. Chinese and Singapore stocks were strong, with domestic indexes rising 0.51 percent and 0.83 percent respectively. European shares were mixed as well, as Spanish stocks rallyied on the bailout clarity. The Spanish Ibex rose over 1 percent and the German DAX rose over 0.6 percent. The French CAC lagged other European indexes, falling 0.24 percent.
Commodities, specifically energy futures, reversed yesterday's losses, as WTI crude futures 1.3 percent to $85.00 per barrel. Brent crude rose in tandem, rising 1.04 percent to $98.99 per barrel and natural gas futures followed. Metals were mixed, as copper futures rose slightly with gold falling and silver rising 0.62 percent to $27.05 per ounce.
The dollar is weaker this morning as measured by the dollar index. The index has fallen 0.3 percent to 83.15 and notable weakness was seen against the Canadian dollar and the Swedish Krona. The EUR/USD is slightly stronger this morning on the Spanish news, rallying back to just below the 1.23 level. However, this level has acted as stern resistance for the last few trading days.
On the economic front, investors will get new data on international and wholesale trade on Wednesday. Also, data on oil inventories is set to be released by the EIA. The headline data point is the release of the Fed minutes from the June meeting. The minutes are set to be released at 2:00 pm, and many will be reading to discover the extent of the discussion of QE3 at the last meeting. If there is little talk of balance sheet expansion, the dollar could rally significantly.
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