Friday presents only one economic report. The schedule for today is:-
• 10:30 … ECRI Leading Index
Also, there are no major quarterly earnings scheduled for release today.
Friday sees U.S. stocks set to open little changed as investors appear to take a wait-and-see attitude toward the markets during "quadruple witching," a day when four key types of stock contracts all expire simultaneously and can increase market volatility.
Photo: June 16, 2010 - traders work on the floor of the New York Stock Exchange. (AP Photo/Richard Drew)
Quadruple witching occurs four times a year and is the time when stock index futures, stock index options, individual stock futures and individual stock options all expire at the same time. Quadruple witching can cause market volatility in the last few hours of a trading session as traders close out positions, though much of the repositioning doesn't arrive until the Monday morning following expiration.
The modest moves in stock futures come a day after the market erased its losses to end higher. The Dow Jones industrial average ended with a gain of 25 points and has risen five of the past six days.
There is little economic and corporate news expected today, therefore making trading direction difficult which could help add choppiness to the session.
A Democratic bill to extend jobless benefits and raise taxes on investment fund managers failed a key vote in the U.S. Senate on Thursday, dealing a blow to U.S. President Barack Obama's push to boost the economy.
Next weekend's G-20 meeting in Toronto June 26-27 and proposals on financial tax and regulation being presented now will probably have a bearish effect on the future market direction. "The EU is standing with a united front against Brazil, China and Canada wanting a financial transaction tax and more regulation on the financial sector.
"There is no doubt that a financial transaction tax will be devastating for the European banking sector and for growth within Europe if this should be carried out without international consent on the issue," said Blaabjerg. "The U.S. position on this is very unclear."
The Energy Sector
BP oil spill: After rallying more than 5% before the bell Friday, shares of BP (BP) pared those gains once Moody's Investors Service downgraded the oil giant's corporate bonds by three notches. The debt is still investment grade, however.
Earlier this week, BP said it was canceling its quarterly dividend and establishing a $20 billion fund to cover damages related to the Gulf oil spill.
When BP's chief executive Tony Hayward testified on Capitol Hill Thursday, lawmakers accused him of not cooperating with an investigation into the Gulf of Mexico oil spill.
Notes of Importance
There are a few further points to the mornings trading which need to be considered:-
• The Dow Jones Industrial Average (DJIA) closed its third consecutive day above 10,400.
• The S&P 500 Index (SPX) logged its third close in a row above its 200-day moving average, continuing to build the case that Wall Street is finally emerging from a bull market correction.
• The S&P 500 has held above the average since Tuesday in a bullish signal, but could find resistance near the 1,121 level, a key technical level that marks the 50 percent retracement of its decline from the October 2007 historic highs to the lows of March 2009.
• Gold futures are heading lower, with the front-month contract off $1.60 at $1,247.10 in London. A pullback in gold may be expected today, as the malleable metal tagged a fresh all-time high of $1,248.70 on Thursday.
• The U.S. Dollar is trading flat in pre-market activity, perched at 85.69 at last check.
• Benchmark crude futures are retreating alongside equities this morning, with the lead contract down 1.41% at $76.94 per barrel.
• Bonds: Treasury prices inched up, as the 10-year note's yield fell to 3.19% from 3.20% the day before. Bond prices and yields move in opposite directions.
• Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,191,990 call contracts traded on Thursday, compared to 817,352 put contracts.
Bank Stress Tests
Europe drew attention after leaders said they would publish results of so-called bank stress tests, which are designed to evaluate the financial stability of banks. Investors have been concerned about European banks for months because of high debts in weak European Union countries like Greece.
European Council President Herman Van Rompuy said stress tests on European banks will be published in July.
The International Monetary Fund, the European Union and the European Central Bank said Greece was making the necessary cuts to reduce its deficit. The moves are required under an emergency loan package aimed at keeping the country from defaulting on its debt.
Spanish Prime Minister Jose Luis Rodriguez Zapatero meets with International Monetary Fund Managing Director Dominique Strauss-Kahn in Madrid on Friday. Market rumors have been swirling for days that Spain is the verge of receiving some sort of bailout help or a line of credit from the IMF and EU, and possibly the U.S. Treasury.
However, many fears have been calmed after Spain's successful bond auction on Thursday and officials were quoted in local newspapers as saying Spain won't need to tap the market for upcoming July maturities.
Sanofi-Aventis (SNY) shares dropped nearly 5% in pre open trade. A study in the journal Diabetes Care suggests Lantus raises the risk of cancer versus other insulins, analysts at Bernstein said. Sanofi said "the risk for cancer in subjects with diabetes has been the matter of extensive scientific debate for decades. Available evidence remains inconclusive."
That news put a recent winning streak for Europe stocks in jeopardy. Banks however were stronger on hopes for more certainty over loans and debt exposure.
European share markets were mixed in morning trading. Britain's FTSE 100 rose 0.3 percent, Germany's DAX index rose 0.1 percent, and France's CAC-40 lost 0.1 percent.
• In Europe at midday, London flat. Paris -0.3%. Frankfurt -0.2%.
The euro climbed to $1.2379.
Earlier in Asia, the major indexes ended mixed. Japan's Nikkei ended down a few points, but Hong Kong's Hang Seng finished with a gain of 0.7%.
Commodity producer’s fronted gains in Sydney, while Shanghai shares tumbled as investors took profits in a range of stocks that recently have outperformed the benchmark index.
• In Asia, Japan flat at 9995. Hong Kong +0.7% to 20287. China -1.8% to 2513. India -0.3% to 17571.
Dow Jones Industrial Average futures fell 4 points, or less than 0.1 percent, to 10,372. Standard & Poor's 500 Index futures fell 0.80, or 0.1 percent, to 1,110.90, while Nasdaq 100 Index futures rose 0.50, or less than 0.1 percent, to 1,910.00.
Futures: Dow -0.2%. S&P -0.2%. Nasdaq -0.1%. Crude -1.45% to $75.68. Gold -0.2% to $1246.30.
Some Interesting News
• Standard & Poor's Ratings Services cut BP plc's (BP) long-term credit rating to A from AA-, keeping the company on a negative outlook. "The downgrade reflects our opinion of the challenges and uncertainties that BP continues to face in the aftermath of the explosion on the Deepwater Horizon rig in the Gulf of Mexico on April 20, 2010, and the subsea Macondo well blowout," said Simon Redmond, an S&P credit analyst.
• Moody's Investors Service upgraded the corporate and probability of default ratings for Tenet Healthcare Corp. (THC) to B2 from B3. Moody's said that the company's ratings outlook is stable. "The upgrade of Tenet's ratings reflects continued improvement in operating results, which was further supported by the company's recent announcement raising 2010 adjusted EBITDA guidance," said Moody's in a statement.
• NY pension fund may sue BP. New York state's pension fund is considering whether to bring a lawsuit against BP (BP) for its mismanagement of the leaking Gulf of Mexico well. The pension fund, one of the largest in the country, owns 17.5M BP shares and wants to "make sure if there was negligence or recklessness that we are made whole appropriately." Separately, S&P downgraded BP yesterday to A from AA- on ongoing spill challenges, and indicated further downgrades are possible, while BP CEO Tony Hayward testified before angry lawmakers who accused him of stonewalling. Premarket: BP +4.1% (7:00 ET).
• Mortgage fraud crackdown. Federal officials announced the results yesterday of their long-promised crackdown on mortgage fraud. As part of "Operation Stolen Dreams," officials arrested 485 individuals associated with fraud losses of $2.3B, and have 3,000 pending fraud cases.
• China pre-empts currency critics. Ahead of next week's G-20 meeting, China has gone on the offensive, warning large economies not to use the summit as an opportunity to criticize China's currency policy. Chinese officials cautioned an outbreak of "finger-pointing" would be damaging to the world economy. The comments suggest it's unlikely Beijing will make a last-minute currency announcement ahead of the summit, despite a recent resurge in China's exports and rising frustration among U.S. lawmakers.
• EU to publish stress test results. Though analysts and investors broadly welcomed the EU's decision to publish the results of its bank stress tests, "the devil will be in the detail," with questions about whether the tests will be stringent enough and what kind of government help will be available if the tests reveal shortcomings. The decision followed Spain's unexpected pledge to publish results on individual banks, becoming the first European country to do so. Banks have called the move "very, very dangerous" unless government support measures are in place ahead of time.
• Danone's Russian merger. Danone (DANOY.PK) is merging its Russian dairy businesses with local company Unimilk, creating a venture with about €1.5B ($1.9B) of annual sales. The deal "represents a strategic move for Danone in a region which is offering a promise of growth in the years ahead," said Danone CEO Franck Riboud. Revenue for the combined venture is expected to grow 10% over the next three years and boost growth at a group level.
• Citigroup to raise $3B for funds. Citigroup (C) reportedly plans to raise more than $3B for its private equity and hedge funds, seemingly unperturbed by possible legislation that could ban banks from owning and investing in alternative funds. Citi may raise as much as $1.5B for private equity and $750M for hedge funds this year, and another $1B for hedge funds next year, signaling that Citi must be "comfortable enough that whatever happens, even in the extreme version, they’ll be able to move ahead with these businesses."
• Verizon signals possible dividend for Vodafone. Verizon (VZ) signaled it may start paying Vodafone (VOD) a dividend in 2012, marking the first time since dividend payments were suspended in 2005 that a specific restoration date has been aired. Some analysts believe the resumption of the dividend "would have a transformative effect on Vodafone, increasing free cash flow by over 30 per cent." Premarket: VOD +0.7% (7:00 ET).
• RBS speeds up asset sales. RBS (RBS) is accelerating its asset sales, with several minor Asia sales expected in the next few weeks. Along with this week's disposal of units in the Middle East and an imminent deal in Kazakhstan, the sales should bring RBS around £200M ($294M). The moves are part of RBS' strategy to withdraw from retail and commercial banking in those regions in order to focus on wholesale banking, and to shed non-core assets.
• Financial reform leaves Fed intact. After all the perceived threats to Federal Reserve independence, the final version of the financial reform bill appears likely to leave Fed powers largely intact: Lawmakers voted against a provision that would have made the president of the New York Fed a White House appointee; Fed interest rate decisions will likely be subject to limited audit scrutiny, as opposed to full and regular audits; and the Fed will likely have to disclose details of loans made to banks, but on a two-year lag. The Fed will also retain its authority to regulate small banks.
• SEC addresses erroneous trades. The SEC proposed new rules establishing a series of thresholds for breaking "clearly erroneous trades" in which prices diverge away from a "reference price," an event that occurred earlier this week when shares of Washington Post (WPO) surged 99% in less than a second on trades that were later canceled. The proposal aims to complement the circuit breakers that now temporarily halt trading of stocks that show large same-day percentage moves, and would be launched as part of a six-month pilot program.
• Motorola to pump cash into money-losing spinoff. Motorola (MOT) plans to funnel billions of dollars into its money-losing cellphone business when the unit is split off into a separate company next year. Details are still being finalized, but Motorola will likely buy back most of its debt, give the bulk of its remaining cash (around $3B-4B) to the new cellphone business, and relieve the new company of pension liabilities and other obligations, underscoring just how hard Motorola is pushing to make sure the spinoff is viable.
• Lockheed braces for 'new reality.' The defense industry faces "a new reality," said Lockheed Martin (LMT) CEO Bob Stevens, as the Department of Defense moves to cut costs and rein in spending. Lockheed is bracing for greater budget austerity at the Pentagon, and is cutting in half its participation in an important biennial trade fair. The company is also preparing for increased scrutiny of its F-35 Joint Strike Fighter program, which is the Pentagon's most expensive procurement program, and is preparing to cut the price of the new planes by at least 20%.
• Return of the buy-backs. U.S. companies are buying back their own shares at the highest rate in months as they look to utilize the record levels of cash on their balance sheets. Twenty-seven new buyback programs were announced last week, totalling $18.5B, the most since February. Some analysts see the timing of the announcements as a bullish sign, since "the spike is highly unusual for June, which is not an earnings announcement month."
• Spaghetti-uh-oh's. Campbell (CPB) is recalling 15M pounds of SpaghettiOs with meatballs due to possible underprocessing. The company said "there is no information indicating that any under-processed product has reached consumers," and that the recall was undertaken out of "an abundance of caution."
• Private equity group Kohlberg Kravis Roberts & Co [KKR] will buy Intelligence Ltd, a unit of cable broadcaster Usen Corp (4842.OJ), for 32.5 billion yen ($357 million) in its first significant deal in Japan.
Overall, the major indexes are higher for the week going into the final session. The Dow and S&P are up more than 2% so far, while the Nasdaq has gained nearly 3%.
Mark Luschini, a chief investment strategist with Janney Montgomery Scott, said he expects stocks to trend upward during the day, carrying over from this week's overall gains.
That said, Friday's trading session is also likely to be more volatile than usual due to quadruple witching, Luschini said. "Traders will be realigning their books and stepping into bullish or bearish opinions. In doing so, they bring a bit more choppiness to the session," Luschini said.
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