MarketWatch.com - Pre-Market Indications

Monday, June 21, 2010

Indications: U.S. stock futures, yuan, Chinese airlines rally

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By Steve Goldstein , MarketWatch

LONDON (MarketWatch) -- U.S. stock futures, Chinese airlines and natural-resources companies led a global advance in equities and commodities markets Monday after China said it would lift the lid on its tightly controlled currency, spurring expectations for growth in the world's third largest economy.

S&P 500 futures climbed 16.8 points to 1,127 and Nasdaq 100 futures rose 27.50 points to 1,937. Futures on the Dow Jones Industrial Average rose 132 points.

Dissecting yuan move

China's central bank signaled it would let the value of the yuan rise on Saturday but on Monday decided to keep it at the same level. Confused? WSJ China News Editor Jason Dean and Dow Jones reporter Aaron Back offer an explanation.

The gains came as China announced it would allow its currency, the yuan, to move, albeit in a gradual manner. Unlike a revaluation in the 2005, however, China did not make any one-time adjustment to its currency.

"China's move toward currency flexibility will be taken as a vote of confidence in the global recovery and in the stability of international financial markets, which is a boost for market confidence," said Lena Komileva, head of G7 market economics at Tullett Prebon.

"A more flexible exchange rate will also reduce investor expectations of more aggressive Chinese monetary tightening, providing support for domestic assets."

The dollar fell to 6.7901 yuan from 6.8207 yuan, according to FactSet data.

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Several other assets climbed on the Beijing move. Asian equities were strong, with the Shanghai Composite up 2.9% and the Hang Seng rising 3%. Chinese airlines were particular beneficiaries, since planes and jet fuel are priced in dollars, lifting shares of companies including China Southern /quotes/comstock/13*!znh/quotes/nls/znh (ZNH 24.08, +1.45, +6.41%) .

In Europe, metals producers including Rio Tinto /quotes/comstock/13*!rtp/quotes/nls/rtp (RTP 51.85, +2.38, +4.81%) jumped sharply, lifting the Stoxx Europe 600 index 1.3% in mid-morning trade.

Metals futures also climbed, with copper futures up nearly 4%. Oil futures rose more than $1 a barrel.

Bonds fell, with yields on the 10-year Treasury falling 6 basis points to 3.28%. If Chinese exporters are hurt by the move, they will receive fewer U.S. dollars, meaning the Chinese government will have smaller reserves to buy U.S. government bonds.

The dollar index /quotes/comstock/11j!i:dxy0 (DXY 85.54, -0.16, -0.19%) slipped 0.4%.

Outside of the China move, BP /quotes/comstock/13*!bp/quotes/nls/bp (BP 30.55, -1.21, -3.81%) dropped in London and in preopen trade in New York as the oil giant said costs of cleaning up the oil spill had reached $2 billion, with reports saying it's looking to raise $50 billion through asset sales and new borrowing. The drop also comes after a report showing an internal, worst-case scenario that the well would leak 100,000 barrels a day if a part is removed.

Last week, the Dow Jones Industrial Average rose 239 points, or 2.35%, its second straight week with a gain of more than 2%.

Steve Goldstein is MarketWatch's London bureau chief.


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