MarketWatch.com - Pre-Market Indications

Thursday, May 20, 2010

Indications: U.S. stock futures fall further after jobless data

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By Barbara Kollmeyer & Kate Gibson, MarketWatch

NEW YORK (MarketWatch) -- U.S. stock market futures on Thursday set the stage for sharp Wall Street losses after the government reported a spike in those applying for jobless benefits and as worries about Europe again put the pressure on jittery traders.

Futures for the stock indexes had already turned lower before the Labor Department reported the number of those filing initial unemployment claims shot up by 25,000 last week to 471,000, with the data serving to deepen the slide.

The Dow Jones Industrial Average sank 147 points, or 1.4%, to 10,258, while futures for the Nasdaq 100 fell 33.50 points, or 1.8%, to 1,834.75. Futures for the S&P 500 fell 19.80 points, or 1.8%, to 1,090.10.

The market's fall accelerated after European Union officials voiced support for Germany's short-selling ban, according to Peter Boockvar, equity strategist at Miller Tabak.

"While they did say the ultimate decision rests with the individual governments, the endorsement was alarming to the markets. European markets immediately sold off and US futures followed," Boockvar wrote in a note.

Christian Tegllund Blaabjerg, chief equity strategist at Saxo Bank, cited technical factors for the sharp losses in futures that began a couple hours ahead of the Wall Street open. Europe stocks also quickly lost ground Thursday and the euro /quotes/comstock/21o!x:seurusd (CUR_EURUSD 1.2368, -0.0058, -0.4668%) weakened.

"The S&P 500 is churning around the 200-day moving average of 1,100," he said. "If we close below it two, three days in a row, we'll see 1,044 as the next stopping point."

Talk of an aggressive trade in the German bond futures market also pressed futures to the downside, said some observers. It's all tied up in worries arising from the euro zone, compounded this week by a German ban on short-selling that unnerved global stocks on Wednesday as it raised questions about unity in Europe.

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"Quite frankly, it's difficult to see why equities should go lower on a short sale on bonds and financial stocks in Germany," said Blaabjerg. He predicts that other governments in Europe, though, will fall in line with Germany, something that would trigger further stock selling.

On Friday, markets will be awaiting a crucial vote in German parliament over its contribution to the rescue package proposed by the European Union and the International Monetary Fund.

U.S. stocks ended moderately lower Wednesday as investors wrestled with worries over the euro zone's debt woes and the potential impact on U.S. companies, but got a boost later on as minutes of the Federal Reserve Open Market Committee late last month showed most Federal Reserve officials against a plan to begin sales of mortgage-backed securities relatively soon.

The Dow Jones Industrial Average closed down 66.58 points, or 0.6%, at 10,444.37, off its session low as financials rose. The Nasdaq Composite Index slipped 0.8% and the S&P 500 lost 0.5%.

Economic data still to come Thursday includes the Philly Fed index for May and leading indicators for April, both at 10 a.m.

"The market has thus far weathered weaker than expected N.Y. Empire manufacturing PMI, record mortgage defaults and collapsing producer (labor costs) and consumer prices out of the U.S. without any apparent concern about the prospects for growth," said Lena Komileva, head of G7 market economics at Tullett Prebon.

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Markets also will be eyeing news that the Senate narrowly ending debate on a sweeping bill to reform U.S. financial regulations that would have set the stage for enactment of the legislation by the end of the week.

Applied Materials /quotes/comstock/15*!amat/quotes/nls/amat (AMAT 12.59, -0.43, -3.30%) could see active trade after the chip-equipment manufacturer returned to profit in the second quarter on a revenue surge.

Several retailers also reported, including Dollar Tree /quotes/comstock/15*!dltr/quotes/nls/dltr (DLTR 61.32, +1.65, +2.77%) and Williams-Sonoma /quotes/comstock/13*!wsm/quotes/nls/wsm (WSM 29.81, +1.37, +4.82%) .

Dell Inc. /quotes/comstock/15*!dell/quotes/nls/dell (DELL 14.43, -0.55, -3.67%) will report results after the close of markets Thursday.

Also Thursday, several Asian stocks hit their lowest levels in months, with sentiment weak over Europe issues and Korean stocks falling 1.8% after investigators concluded a North Korean torpedo sunk a South Korean warship -- a reminder of political risks in the area.

Japan's Nikkei 225 fell 1.5%. Data showed gross domestic product rose 4.9% in the first quarter on an annualized basis, powered by strong exports and recovering domestic demand, but still pressured by deflation and falling short of economists' estimates.

Also of note, Dubai World and a committee representing its bank lenders agreed in principle on a plan, first announced two months ago, to restructure about $23.5 billion of liabilities -- a deal which would reduce the conglomerate's debt by nearly 40%.

Barbara Kollmeyer is an editor for MarketWatch in Madrid. Kate Gibson is a reporter for MarketWatch, based in New York.


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