Pre-Market Brief:
Market tone: Stocks called higher in line with futures; euro higher against the dollar following Italian bond-auction; Treasurys lower; Nymex crude higher at $98.91; gold up at $1,712.80.
Overnight action: Italy sees borrowing costs surge; Facebook targets huge IPO next year; Euro-zone gloom lingers.
Watch for: Case-shiller house-price index, consumer confidence; earnings from Tiffany.
The Breakfast Briefing
This may come as a shock, but the market cannot go in one direction forever.
That was the simple principle at work in the market yesterday, as stocks ended a seven-day selloff with authority.
The Dow jumped 291.23 to 11523.01, its best day since October 27.
The S&P gained 2.9% to 1192.55, breaking a seven-day losing streak. The Nasdaq jumped 3.5% to 2527.34, also its first gain in eight days.
The rally was led by energy and materials, each up 3.6%, and tech, up 3.5%.
The Dow transports also jumped 3.5%, while the Russell 2000 surged 4.8%.
There was nothing in the way of bad news to stop the market from fulfilling its need for a relief rally. There was a steady flow of positive noise out of Europe, some of it even vaguely plausible.
Meanwhile, Black Friday was a raging success, depending on who was counting and on how comfortable you are with people going deeper into hock to get that cheap flat-screen TV at Wal-Mart.
But there were other warning signs that the rally may have been more about the technical need to stop the selling for a little while than anything else.
The VIX tumbled nearly 7% but remained above 32, a level indicating anxiety. Similarly, the 10-year Treasury note’s yield jumped to 2.05% very early and then steadily drifted lower all day, finishing around 1.96%, lower than it was on Friday.
European bond yields bled in the opposite direction, pushing the Italian 10-year yield up to 7.2%, deeper into the danger zone of unsustainability. Signs of European bank funding stress continued to increase.
“European shares may be overjoyed, but the plumbing hasn’t improved,” RBS Treasury strategists wrote.
The U.S. calendar is light again today, with Case-Shiller home prices, consumer confidence and Tiffany earnings due.
The news out of Europe, meanwhile, hasn’t been encouraging so far. Italy struggled to sell debt at an auction this morning, paying well north of 7% for bonds of three different maturities, including 7.89% for three-year debt — that’s higher than the yield it pays for 10-year debt, usually a sign of real trouble.
Despite that, everything’s higher as of this writing (roughly 6:00 a.m. ET), suggesting the need to bounce is outweighing everything else right now. That could change the longer the market has to wait for European leaders to get their act together.
Italy paid record yields of nearly 8 percent to sell three-year paper on Tuesday, a level seen driving its debt burden out of control if sustained over time.
The yield on a new three-year BTP soared to euro lifetime high of 7.89 percent at the closely watched auction which allowed Rome to raise 7.5 billion euros.
The amount was close to the top of a targeted range of between 5 billion and 8 billion euros.
The new Nov. 2014 issue carries a 6 percent coupon, the highest for this maturity from 1997.
Only a month ago, Italy had paid a 4.93 yield to sell three-year paper.
The yield on a 10-year BTP bond due in March 2022 rose to 7.56 percent, marking a new euro lifetime high, from 6.06 percent at the end of October.
Italy also sold an off-the-run Sept. 2020 BTP bond.
Today’s Markets:
In Asia, Japan +2.3% to 8478. Hong Kong +1.2% to 18256. China +1.2% to 2412. India -1.0% to 16008.
In Europe, at midday, London +0.4%. Paris +0.3%. Frankfurt +0.6%.
Futures at 7:00: Dow +0.5%. S&P +0.8%. Nasdaq +0.6%. Crude +0.65% to $98.85. Gold +0.3% to $1716.00.Tuesday’s economic calendar:
7:45 ICSC Retail Store Sales
8:55 Redbook Chain Store Sales
9:00 S&P Case-Shiller Home Price Index
10:00 Consumer Confidence
10:00 FHFA Housing Price Index
10:00 State Street Investor Confidence Index
11:30 Fed’s Yellen: ‘The Global Economic Recovery’
12:30 PM Fed’s Lockhart: Economic Outlook
8:00 PM Fed’s Kocherlakota: ‘Making Monetary Policy’