N AMERICAN MORNING BRIEFING: Stocks To Follow Europe A Touch Down

26th Jul 2010 11:28

DJIA Futures 10369.0 -17.0 -0.2% S&P 500 Futures 1098.5 -2.1 -0.2% Nasdaq Futures 1873.0 -0.8 -0.0% Above are as of 0600 ET FTSE 100 5308.2 -3.8 -0.1% Xetra DAX 6149.2 -17.2 -0.3% CAC40 3608.4 +1.3 +0.0% Above are as of 0600 ET Nikkei 225 9503.7 +72.7 +0.8% Hang Seng 20839.9 +24.6 +0.1% Above are closing prices SNAPSHOT: -Stocks seen lower; Treasurys higher; dollar mixed; Nymex crude lower at $78.55; gold higher at $1191.32. -Watch for: U.S. Home Sales at 1000 ET. -Economic News: Japan Finance Ministry ups economic view in April-June report; PBOC: flexible exchange rate helps combat inflation; U.K. July house prices -0.1% on month, +2.0% on year; Russia planning biggest privatizations since '90s. OPENING CALL: Stock futures are indicating a slightly lower open, with U.S. markets following Europe, which in turn is weaker on disappointment at the results of the European bank stress tests released Friday. David Morrison, CFD strategigst at GFT Global, said: "the prevailing feeling is that the tests have been a fudge and we're none the wiser on what the European banking system is like." Morrison said there are few clear triggers for strong market moves, with new home sales the only major data item and no key companies reporting results. EQUITIES: The board of BP PLC (BP) is negotiating the departure of its embattled chief executive, Tony Hayward, according to people familiar with the matter. It's seen as a bid by the U.K. oil company to move beyond the Gulf of Mexico disaster that has undercut his three-year effort to remake the company. His replacement seems likely to be Robert Dudley, who would be its first American chief executive. BP shares in London were up 2.1% at 407.05 pence. A third of the way through the earnings season and 78% of companies have beaten expectations, the Wall Street Journal reports. Yet the S&P 500 is only up 1.5% since the season started. That's because for every upside surprise in corporate earnings, it seems there's a disappointing piece of economic data. The cost of borrowing euros in the interbank market hasn't fallen despite the European bank stress tests released Friday. Monday's rate fixing showed the cost of borrowing for three months nudged to the highest level in nearly a year, 0.889%, with analysts saying the result reflected lingering concerns about the health of Europe's financial system. A new front has opened in the battle between Google Inc. (GOOG) and Microsoft Corp. (MSFT): selling Web-based email and other software to the federal government. The two technology giants already compete to win contracts from private businesses as well as state and local governments. Such customers hope to cut costs by switching to Web-based software from programs installed on their own computers, the Wall Street Journal reports. BONDS: Treasurys were higher in London as European equities trimmed gains. The much anticipated bank stress tests helped calm nerves somewhat last Friday, although market participants continue to question if the tests were sufficiently severe. Concerns also persist over the pace of economic recovery in the U.S. "Treasurys remain strongly bid on the U.S. inflation and Fed rates outlook, parallel equity and bond gains reflect a strong market liquidity environment," said Lena Komileva at Tullett Prebon. The 2-year note was down at 100-02+/32 to yield 0.58%, the 10-year note was up at 104-13+/32 to yield 2.976%, the 30-year bond was higher at 106-19/32, yielding 3.994%. Corporate bonds: European corporate bonds were tighter, suggesting cautious optimism in credit markets as they continue to digest the results of the European bank stress tests released Friday. Traders said the CDS market is quiet, with single-name CDS little changed as credit markets waited for stronger direction. They said European bank debt is seeing decent demand, taking spreads on senior paper another 3-5 bps tighter, and continuing the bullish trend seen ahead of the stress test results announcement late Friday. FOREX: The euro was a little lower as European bank stress test results, released late Friday, failed to widen sovereign debt yield spreads despite concerns that the tests weren't credible. Market attention is now shifting to U.S. economic data on schedule this week, including the first estimate of second quarter GDP growth on Friday. While some forecasters expected the data to prove as disappointing as other recent data has from the U.S., others are looking for surprises on the upside. "This should be positive for the dollar, especially after its weak performance due to the recent weak economic data. Our U.S. data surprise index is well into negative territory suggesting that the market is more sensitive to upside rather than downside surprises," said Raghav Subbarao, a currency strategist with Barclays Capital in London By 0530 ET, the dollar was down in Europe at Y87.14, while the euro was down at $1.2901 and the pound had risen to $1.5501. COMMODITIES: Oil futures were lower in the morning, reversing earlier gains, as the euro slid into negative territory versus the dollar. Crude prices were also losing the weather premium that occurred before the weekend when a tropical storm called Bonnie threatened to disrupt the oil producing region of the Gulf of Mexico. Gold's weak technicals are making investors unwilling to go long, putting a near-term cap on prices around $1,200/oz, said Standard Bank analyst Walter de Wet. "I think people are a bit wary of getting too heavily long in gold because the technicals below $1,185/oz look really bearish." He said a break below $1,185/oz could lead to a pullback towards $1,145/oz. However, added there is appetite in the physical market for gold below $1,185/oz, which could keep gold range trading near-term. =======TODAY'S CALENDAR======= ET PERIOD 1000 Jun U.S. New Residential Sales ============================== OTHER TOP STORIES OF THE DAY: JAPAN KEY GOVERNMENT PLANNERS EYE 10% BUDGET CUT FOR ALL MINISTRIES TOKYO (Dow Jones)--Japan's key budget planners decided Monday to impose an across-the-board 10% spending cut on all ministries and agencies in the national budget for the next fiscal year, pressing ahead with plans for a wide-ranging budget overhaul. JAPAN EXPORT GROWTH SLOWS, BUT ASIAN DEMAND STILL SOLID Japanese exports rose at their slowest pace in half a year in June, but still registered stronger-than-expected growth as China and other Asian countries continued to demand more of the country's steel, cars and electronic parts. CHINA THINK TANK SEES NO BASIS FOR SHARP RISE IN YUAN A Chinese government think tank said Monday there is no basis for a sharp appreciation in the yuan's value, but the government needs to closely watch the currency's movement and prevent a massive influx of speculative funds. AUSTRALIA LABOR HAS ONLY NARROW LEAD IN LATEST POLL Australia's ruling Labor government holds only a narrow lead over the main opposition Liberal-National coalition of center-right parties as the election campaign enters its second week, according to the latest voter poll published Monday. -By Gren Manuel, Dow Jones Newswires; +44 207 842 9279; [email protected] (MORE TO FOLLOW) Dow Jones Newswires July 26, 2010 06:28 ET (10:28 GMT)