- Pre-Market Indications

Tuesday, May 11, 2010

Indications: U.S. futures cool off on EU aid, China hike fears

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By Steve Goldstein, MarketWatch

LONDON (MarketWatch) -- U.S. stock futures cooled off Tuesday following the rally that ensued from the European Union's nearly $1 trillion rescue package, with questions about the effectiveness of that plan as well as accelerating Chinese prices contributing to a more somber tone.

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S&P 500 futures fell 10.9 points to 1,146.00 and Nasdaq 100 futures dropped 15.5 points to 1,924.00. Futures on the Dow Jones Industrial Average fell 80 points.

U.S. stocks rallied Monday in the best single-day showing for the S&P 500 since March 23, 2009, when the Treasury Department announced a plan to jointly invest in toxic assets. The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite each gained between 3.9% and 4.8%.

There are still questions attached to the European Union aid package announced over the weekend, notably on the funding for a euro-zone fund of 440 billion euros. The euro /quotes/comstock/21o!x:seurusd (CUR_EURUSD 1.2696, -0.0090, -0.7039%) has come in appreciably, from as high as $1.31 to the $1.27 range on Tuesday.

"We think the euro/dollar will likely continue to trade in a rather volatile matter until all the details are clear," said strategists for Credit Suisse Private Banking. Europe stocks also fell, with the Stoxx Europe 600 falling 1.6% in early afternoon trade.


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Highlights • Chinese data add to case for rate hike • Asian oil-sector stock retreat likely to continue • China analyst sees unfolding credit bust • Telefonica bids $7.3 billion for control of Vivo • EasyJet cuts guidance on volcanic-ash hit • U.K. coalition talks in turmoil as Brown quits • Enterprise Inns refinances debt • Deutsche Post's first-quarter profit soars 85%

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Credit-default swaps on Greece, Spain, Portugal and Ireland tightened for a second day. The market "is still digesting the impact of yesterday's bailout. It has bought time ... but there are still doubts on whether the peripheral countries can deliver on austerity," said Gavan Nolan, vice president of credit research at Markit.

In China, data showed the fastest pace of inflation in 18 months, at 2.8%, as well as an 87% drop in its trade surplus.

"Higher than expected inflation, stronger growth in house prices and excessive bank lending indicating the need for further policy tightening and increases pressure on the People's Bank of China to appreciate the yuan," said John Meyer, a mining sector analyst at Fairfax in London.

The Shanghai Composite finished 1.9% lower. Most metals futures fell, though gold futures rose $17.80 to $1,218.60 an ounce. Yields on 10-year U.S. Treasury bonds fell, losing 7 basis points to 3.48%, as traders moved to safer assets.

The highlights of the U.S. calendar are due after the close, with Walt Disney /quotes/comstock/13*!dis/quotes/nls/dis (DIS 35.29, +1.88, +5.63%) and Electronic Arts /quotes/comstock/15*!erts/quotes/nls/erts (ERTS 18.24, +0.61, +3.46%) results and Intel's /quotes/comstock/15*!intc/quotes/nls/intc (INTC 22.55, +1.24, +5.82%) analyst meeting scheduled for later.

A number of companies will be making presentations at broker conferences, including a Bank of America Merrill Lynch event on healthcare and a UBS one on financial services.

Telefonica /quotes/comstock/13*!tef/quotes/nls/tef (TEF 63.67, +6.53, +11.43%) dropped and Portugal Telecom /quotes/comstock/13*!pt/quotes/nls/pt (PT 9.59, +1.21, +14.44%) rallied in Europe on the Spanish firm's $7.3 billion bid for the latter's Brazil operations. See full story. /quotes/comstock/15*!pcln/quotes/nls/pcln (PCLN 249.75, +24.36, +10.81%) dropped sharply in premarket trade on the travel services Web site operator's below-Street earnings outlook.

The British pound /quotes/comstock/21o!x:sgbpusd (CUR_GBPUSD 1.4808, -0.0045, -0.3050%) extended a decline from when U.K. Prime Minister Gordon Brown said he would step aside in the autumn as his Labour Party entered formal negotiations with the Liberal Democrats.

Steve Goldstein is MarketWatch's London bureau chief.

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