Stock index futures rose on Tuesday, indicating a rally in equities may continue after their first weekly gain since April, on hopes China may unleash more spending measures and Greek election polls pointed to support for conservative parties.
The official Shanghai Securities News reported on Tuesday, citing unidentified sources, that China’s biggest banks appeared to have accelerated lending toward the end of this month as Beijing starts to fast-track its approval of infrastructure investments in an effort to stem sagging growth.
Investors were also encouraged by weekend polls in Greece that showed the conservative New Democracy party, which backs the country’s international bailout, has a lead over the leftist SYRIZA party, which opposes it ahead of a June 17 election. In Ireland, voters appear poised to reluctantly approve Europe’s new fiscal treaty.
Spain’s prime minister has insisted his country will not need an international rescue for its banks as investors recoiled at a €19bn rescue of Bankia, sending the country’s borrowing costs over Germany’s to the highest level since the start of the euro.
Bankia, Spain’s second-biggest bank by local deposits, would have collapsed if Madrid had not agreed to the rescue last week, Mariano Rajoy warned, adding that this would have risked bringing down Spain itself.
“We are not going to let any regional government fall, or any bank fall, because they can’t . . . if that happens the country will fall,” Mr Rajoy said at an unscheduled news conference, calling again on Brussels to restore confidence in the currency union.
The yield on Spain’s 10-year government bonds spiked above 6.5 per cent, closer to the 7 per cent level that prompted bailouts for Greece, Portugal and Ireland, while spreads on Spanish 10-year bonds over German Bunds hit new euro-era highs, climbing to 511 basis points.
Clearly, any faith in those liquidity operations is vanishing. Yields on Spanish two-year bonds are up 22 basis points today, hitting 4.7 percent. That’s more than double the cost of borrowing from just two months ago—in March, yields on two-year bonds were just 2.2 percent.
JPMorgan Chase has sold an estimated $25 billion of profitable securities in an effort to prop up earnings after suffering trading losses tied to the bank’s now-infamous “London Whale,” compounding the cost of those trades.
Chief Executive Jamie Dimon earlier this month said the bank sold corporate bonds and other securities, pocketing $1 billion in gains that will help offset more than $2 billion in losses.
As a result, the bank will not have to report as big an earnings hit for the second quarter.
The sales of profitable securities from elsewhere in the bank’s investment portfolio will increase its costs by triggering taxes on the gains and by eliminating future earnings from the securities.
Gains from the sales could provide about 16 cents a share of earnings, about one-fifth of the bank’s second-quarter profit, analysts said.
But rather than creating new value for investors, the transactions merely shift gains in securities from one part of the company’s financial statements to another.
Bankia, Spain’s second-biggest bank by local deposits, would have collapsed if Madrid had not agreed to the rescue last week, Mariano Rajoy warned, adding that this would have risked bringing down Spain itself.
“We are not going to let any regional government fall, or any bank fall, because they can’t . . . if that happens the country will fall,” Mr Rajoy said at an unscheduled news conference, calling again on Brussels to restore confidence in the currency union.
The yield on Spain’s 10-year government bonds spiked above 6.5 per cent, closer to the 7 per cent level that prompted bailouts for Greece, Portugal and Ireland, while spreads on Spanish 10-year bonds over German Bunds hit new euro-era highs, climbing to 511 basis points.
Tuesday:
S&P Case-Shiller home-prices report (9 a.m.): March home prices in the 20-city index seen sliding 2.5%, after falling 3.5% in February.
Consumer Confidence (10 a.m.): seen rising in May to 70.3 from 69.2.
Dallas Fed Manufacturing Survey (10:30)
Earnings: DryShips, Neiman Marcus
Wednesday:
Pending Home Sales (10 a.m.): seen flat in April, after rising 4.1% in March.
Earnings: Lions Gate, TiVo
Thursday:
ADP Jobs (8:15 a.m.): delayed a day due to the holiday; May jobs seen up 150,000, after April’s 119,000 gain.
Weekly jobless Claims (8:30): seen flat at 370,000, again.
GDP, second read (8:30): first-quarter GDP expected to be revised down to 1.9% from 2.2%.
Chicago PMI (9:45): seen easing for Mary to 56.0 from 56.2.
Earnings: J Crew, Ciena, Omnivision, Splunk
Friday:
Nonfarm Payrolls (8:30): May saw the economy add 150,000, up from 115,000 in April. Unemployment rate’s seen remaining flat at 8.1%.
Consumer Spending (8:30): spending rose 0.3% in April, flat with March’s rate.
ISM Manufacturing PMI (10:00): May’s index seen easing to 53.5 from 54.8.
Construction Spending (10:00): April’s rate seen up 0.4%, from 0.1% in March.