MarketWatch.com - Pre-Market Indications

Tuesday, October 12, 2010

Indications: U.S. futures drop; Fed minutes in focus

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By William L. Watts, MarketWatch

NEW YORK (MarketWatch) â€" U.S. stock futures fell Tuesday, playing off reports China is again making its banks raise their reserves to curb lending and before the Federal Reserve releases minutes from its last meeting.

/quotes/comstock/10w!i:dji/delayed DJIA 11,014, +4.12, +0.04%

China’s reported bid to slow lending to bypass speculative bubbles had the effect of driving equities down around the world.

Futures for the Dow Jones Industrial Average /quotes/comstock/21b!f:dj\z10 (DJZ10 10,945, -18.00, -0.16%)  fell 32 points to 10,931 in recent action, while S&P 500 futures /quotes/comstock/21m!f:sp\z10 (SPZ10 1,163, +0.70, +0.06%)  declined 4.1 points to 1,158.20. Futures on the Nasdaq 100 /quotes/comstock/21m!f:nd\z10 (NDZ10 2,029, +3.00, +0.15%)  declined 5 points to 2,020.5.

”I think a lot of people are looking toward the earnings front and the FOMC [Federal Open Market Committee] today, and that’s why they’re taking a bit of risk off the table just in case they disappoint on both sides,” said Joshua Raymond, market strategist at City Index.

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The Fed will release minutes of the September meeting of the rate-setting FOMC at 2 p.m. Eastern time. Intel Corp. /quotes/comstock/15*!intc/quotes/nls/intc (INTC 19.65, +0.09, +0.46%) , part of the Dow Jones Industrial Average, is set to release third-quarter financial results after the closing bell.

In M&A news, pharmaceutical giant and Dow component Pfizer Inc. /quotes/comstock/13*!pfe/quotes/nls/pfe (PFE 17.45, +0.07, +0.40%)  said it would pay $3.6 billion to purchase King Pharmaceuticals Inc. /quotes/comstock/13*!kg/quotes/nls/kg (KG 14.16, +4.01, +39.46%)  at a premium of about 40%.

Weaker commodity prices and a stronger dollar contributed to the negative tone for equities. The dollar index /quotes/comstock/11j!i:dxy0 (DXY 77.37, -0.08, -0.10%)  moved up to stand at 77.785.

Various technical indicators “suggest that the dollar index has room to bounce here, while gold, which has seen an enormously strong run of late, has room to turn down,” said Dan Greenhaus, chief economic strategist at Miller Tabak Co. in New York.

“Such developments would surely be taken negatively by equity markets in the United States where dollar weakness has been instrumental in the equity rally,” he said in a note to clients.

U.S. stocks ended with minimal gains Monday, while the bond market was closed for the Columbus Day holiday. The Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (DJIA 11,014, +4.12, +0.04%)  rose 3.86 points to end at 11,010.3, while the broader S&P 500 index /quotes/comstock/21z!i1:in\x (SPX 1,168, +2.36, +0.20%)  gained 0.17 point to finish at 1,165.32.

There are growing expectations that Fed policy makers could move as early as November to ramp up the quantitative-easing program. The FOMC’s next scheduled meeting is for Nov. 2-3.

“We do not believe the Fed would have fueled speculation of additional easing action unless they were strongly inclined to deliver," wrote economists at Royal Bank of Scotland in a research note.

“Though divisions among the committee over providing further monetary stimulus will be evident in the September policy discussion, we expect the FOMC minutes will, on balance, solidify expectations that QE II [quantitative easing] is on the way,” they said.

Chip maker Intel results could set the tone for the remainder of earnings season, Raymond said.

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