Benzinga Market Primer, Friday, December 21: Quadruple Witching and End of the World Edition
Futures Sharply Lower on Failed Fiscal Cliff Deal
U.S. equity futures traded sharply lower overnight as House leader Boehner failed to gain enough votes to pass his Plan B to avoid the Fiscal Cliff. It is now unlikely that an agreement will be reached before Christmas, meaning leaders will have nearly one week to solve the crisis before going over the Cliff.
In other news around the markets:
- The U.K. economy had its third quarter GDP growth figures revised lower in the latest estimate, with the government reporting that the economy grew 0.9 percent in the third quarter, less than the previous estimate of 1.0 percent growth for the quarter.
- Japan's Ishiba, a leader of the newly elected LDP party, has stated that the party should target USD/JPY between 85 and 90 in the short-term to help kick-start growth.
- Jens Weidmann, ECB Governing Council Member and Bundesbank President, spoke overnight stating that he sees no risks of inflation in the eurozone but that the Bank must act if inflation pressures do rise. Also, he said that the OMT Conditionality is not credible and that the OMT is the first step on a slippery slope.
- S&P 500 futures fell 23.25 points to 1,417.25.
- The EUR/USD was was lower at 1.3219.
- Spanish 10-year government bond yields rose to 5.273 percent.
- Italian 10-year government bond yields rose to 4.491 percent.
- Gold rose 0.3 percent to $1,651.00 per ounce.
Asian shares were strongly lower overnight following the failed Plan B in the U.S. House overnight. The Japanese Nikkei Index fell 0.99 percent and the Shanghai Composite Index fell 0.69 percent while the Hang Seng Index fell 0.68 percent. In addition, the Korean Kospi fell 0.95 percent and Australian shares dropped 0.6 percent.
European shares were lower overnight, tracking Asian markets lower. The Spanish Ibex Index fell 0.49 percent and the Italian MIB Index fell 0.8 percent on Fiscal Cliff fears. Meanwhile, the German DAX dropped 0.9 percent and the French CAC slid 0.74 percent while U.K. shares fell 0.94 percent.
Commodities were mixed overnight with weakness in energy futures offset by gains in precious metals on hopes of more easing following a smaller chance of resolving the Fiscal Cliff. WTI Crude futures fell 1.41 percent to $88.86 per barrel and Brent Crude futures dropped 0.83 percent to $109.28 per barrel. Copper futures bucked the risk-off trend and actually rose overnight, gaining 0.08 percent to $353.90 per barrel. Gold was higher and silver futures rose 0.98 percent to $29.98 per ounce.
Currency markets were in clear risk-off mode overnight as the dollar and the yen reigned. The EUR/USD was lower at 1.3219 and the dollar fell against the yen to 84.11. Overall, the Dollar Index rose 0.08 percent on strength against the euro, the pound, the Swiss franc, the Canadian dollar and the Swedish krone. Also, the Aussie dollar was broadly weak, marking another sign of risk-off and other growth currencies tracked lower overnight.
Stocks moving in the pre-market included:
- Arcelor Mittal (NYSE: MT) shares fell 3.2 percent pre-market as the company reported that it will take a large, $4.3 billion write-down of assets.
- AIG (NYSE: AIG) shares fell 2.65 percent pre-market as the breakdown in Fiscal Cliff negotiations means that the U.S. faces another downgrade, which could trigger credit default swaps of which AIG is most likely a seller.
- J.P. Morgan Chase (NYSE: JPM) led big banks lower overnight, dropping 1.41 percent pre-market on the breakdown in Fiscal Cliff talks.
- Peabody Energy (NYSE: BTU) shares fell 2.36 percent pre-market on weakened demand for coal exports abroad.
Notable companies expected to report earnings Friday include:
- Walgreen Company (NYSE: WAG) is expected to report first quarter EPS of $0.70 vs. $0.63 a year ago.
On the economics calendar Friday, it is a Quadruple Witching day, meaning stock index futures, stock index options, single stock options, and single stock futures all expire. Also, durable goods orders, personal income, and the Chicago Fed National Activity Index are due out. Later, consumer sentiment and Kansas City Fed manufacturing Index are expected.
Good luck and good trading.
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