MarketWatch.com - Pre-Market Indications

Monday, September 13, 2010

Indications: Futures point to rally on Basel rules, China data

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By Polya Lesova, MarketWatch

FRANKFURT (MarketWatch) -- U.S. stock futures pointed to an opening rally on Wall Street, as strong economic data from China and new global rules on capital requirements for banks fuelled demand for equities, commodities and risky currencies.

The dollar, the Japanese yen and government bonds all posted declines on reduced demand for safe-haven investments.

Futures on the Dow Jones Industrial Average surged 97 points to 10,556 and S&P 500 futures rose 10.90 points to 1,115.80. Nasdaq 100 futures gained 18 points to 1,907.70.

"We've had some really good news out of China for a start," said Mike Lenhoff, chief strategist at Brewin Dolphin in London.

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"It almost looks as if the loss of recovery momentum in China is running its course. That's a very powerful boost to sentiment and the markets are responding."

"I think also what really has helped sentiment has been Basel III and this fairly lengthy phase-in period for the capital requirements which will not burden the banks," Lenhoff said.

Over the weekend, China reported a string of economic data, including a stronger-than-expected 13.9% increase in August industrial production. Retail sales also rose sharply, while the August inflation rate of 3.5% was in line with market expectations.

Policy makers in Beijing have taken measures in recent months to slow down what they see as an unsustainably fast growth pace. The latest data signaled that the Chinese economy is now growing at a more moderate, but still robust pace, easing fears of a severe policy-driven downturn.

Asian stocks ended higher overnight and European stocks also rose in late morning trading. The Stoxx Europe 600 index /quotes/comstock/22c!sxxp (ST:SXXP 267.46, +2.76, +1.04%) gained 0.8%.

Meanwhile, the yield /quotes/comstock/31*!ust10y (UST10Y 2.83, +0.03, +1.18%) on 10-year U.S. Treasury notes rose 4 basis points to 2.838%.

The blue-chip Dow index /quotes/comstock/10w!i:dji/delayed (DJIA 10,463, +47.53, +0.46%) rose 0.5% on Friday, finishing higher for a second consecutive week. The index is up 0.3% so far this year.

The U.S. economic calendar is thin on Monday, with August federal budget data scheduled for release this afternoon.

M&A news was on the agenda for Monday. Hertz Global Holdings Inc. raised its offer for peer Dollar Thrifty Automotive Group Inc. to $50 of cash and stock a share, the companies said late.

Hertz also said it would sell Advantage Rent-a-Car to ease antitrust concerns. The higher price raises stakes in the current battle between Hertz and Avis to buy Dollar Thrifty. See Hertz lifts bid for Dollar Thrifty

Genzyme /quotes/comstock/15*!genz/quotes/nls/genz (GENZ 70.79, +0.16, +0.23%) shares could be active after reports late Friday that the company is looking to cut 1,000 jobs, or 8% of its global workforce.

New bank rules in focus

In Basel, Switzerland, global regulators agreed on Sunday new rules aimed at strengthening the existing capital requirements for banks.

The minimum common equity requirement will be raised from 2% to 4.5%. Banks will also be required to hold a capital conservation buffer of 2.5% to withstand future periods of stress bringing the total common equity requirements to 7%.

Regulators settled on a long timeline for implementing the new rules, with some of the requirements becoming fully effective only in 2019.

Banking shares rose across Europe following the new rules. Germany's Commerzbank AG /quotes/comstock/11e!fcbk (DE:CBK 6.41, +0.12, +1.87%) gained 2.3%, France's BNP Paribas /quotes/comstock/24s!e:bnp (FR:BNP 56.11, +1.27, +2.32%) rose 1.7% and the U.K.'s Barclays PLC /quotes/comstock/23s!a:barc (UK:BARC 323.95, +4.85, +1.52%) advanced 1.3%.

While the new bank rules and Chinese data are the main factors boosting sentiment, "the latest round of earnings results was very, very good," Lenhoff said. "We're seeing a lot of corporate activity, a lot of mergers and acquisitions, and I think that is an expression of confidence in the global economy."

In the currency markets, the euro /quotes/comstock/21o!x:seurusd (EURUSD 1.2795, +0.0090, +0.7084%) rallied 1% to $1.2810.

The dollar index /quotes/comstock/11j!i:dxy0 (DXY 82.25, -0.45, -0.54%) , which tracks the performance of the greenback against a basket of other major currencies, dropped 0.6% to 82.183.

Crude-oil futures rose 90 cents to $77.35 a barrel in electronic trading on Globex.

Polya Lesova is MarketWatch's London bureau chief.

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