- Pre-Market Indications

Wednesday, May 19, 2010

Indications: U.S. stock futures lower after tame inflation data

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By Steve Goldstein & Kate Gibson, MarketWatch

NEW YORK (MarketWatch) -- U.S. stock futures dropped Wednesday, the first day of a hastily drawn-up German short-sale ban, which served to reinforce rather than dispel worries over the health of European governments and the lenders that possess their debt.

Already at their Wednesday lows, stock index futures were little swayed by a report from the Labor Department that consumer prices declined 0.1% in April, matching the consensus estimate and indicating that inflation at the retail level remains well contained.

S&P 500 futures fell 7.1 points to 1,111.6 and Nasdaq 100 futures fell 10.5 points to 1,877.5. Futures on the Dow Jones Industrial Average lost 49 points to 10,441.

U.S. stocks had slumped on Tuesday after news of the German short-sale ban, which bans naked short sales of 10 financials and euro-zone government bonds. The Dow industrials, the S&P 500 Index and the Nasdaq Composite all lost between 1.1% and 1.6%.

The German ban started Wednesday morning. Credit-default swaps of euro-zone nations tightened as speculators substituted the euro for their bets against Europe's fiscal health.

"Europe's troubles remain front and center, and the euro will remain the most watched of the major currencies," said analysts at Action Economics.

The euro /quotes/comstock/21o!x:seurusd (CUR_EURUSD 1.2314, +0.0131, +1.0753%) fell to a four-year low and recently was trading at $1.2246, and inflows into the dollar hit commodities, as platinum futures slumped fully $73 an ounce. Gold futures fell a more modest $6.20 an ounce, reflecting its safe-haven appeal.

Stocks in Europe dropped sharply, particularly financials like Barclays /quotes/comstock/13*!bcs/quotes/nls/bcs (BCS 16.74, -0.45, -2.62%) that aren't subject to the ban, while losses for German financials including Deutsche Bank /quotes/comstock/13*!db/quotes/nls/db (DB 59.50, +0.36, +0.61%) were limited to 2%. Asian equities also lost ground overnight.

Speaking after the ban was enacted, German Chancellor Angela Merkel on Wednesday said "a failure of the euro means a failure of Europe."

The German move was sharply criticized by market participants, notably the uncoordinated and sudden implementation. Christine Lagarde, France's finance minister, said her country had no plans to follow suit.

"We expect a period of ongoing retrenchment and perhaps consolidation while markets look to re-price risk and arrive at valuations that better reflect near-term risks to economic and earnings growth coming from China tightening, European austerity programs, a weak euro and banking reform stateside," said John Stoltzfus, a strategist at Ticonderoga Securities.

Meanwhile, minutes from the last Federal Reserve meeting on the U.S. economy and monetary policy are due at 2 p.m. Eastern.

Hewlett-Packard /quotes/comstock/13*!hpq/quotes/nls/hpq (HPQ 47.23, +0.44, +0.94%) rose 2.8% in pre-market trading, gaining after the computer giant reported 28% quarterly profit growth late Tuesday.

H-P "posted strong first-quarter earnings as pent-up demand for its technologies fueled revenue and earnings growth," said Michael Holt, analyst at Morningstar. "The results reaffirm our belief that HP is positioned for success across the hardware, printing, and service sectors."

Also on the earnings front, shares of Deere & Co. /quotes/comstock/13*!de/quotes/nls/de (DE 56.81, -0.35, -0.61%) gained nearly 3% after upping its annual earnings outlook.

And discounter Target /quotes/comstock/13*!tgt/quotes/nls/tgt (TGT 53.74, -0.48, -0.88%) said it was "very pleased" after reporting forecast-beating first-quarter earnings.

Steve Goldstein is MarketWatch's London bureau chief. Kate Gibson is a reporter for MarketWatch, based in New York.

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