Pre-Market Primer: Stocks Fall Ahead of Spanish Stress Tests

By Vincent Trivett  SEP 28, 2012 9:05 AM

Spain's budget satisfies Europe, but we don't know how strong these banks are.

 


MINYANVILLE ORIGINAL Stocks are set to erase yesterday's gains as investors await the results of a stress test of Spain's banks.

US indices turned up yesterday as Spain vowed to cut its deficit and bad Chinese economic data raised expectations that the country will step up the fiscal and monetary stimulus that it already has in place.

Dow (INDEXDJX:.DJI) futures fell 0.52% to 13,344.00, S&P 500 (INDEXSP:.INX) futures slipped 0.47% to 1,434.30, and Nasdaq (INDEXNASDAQ:.IXIC) futures headed down by 0.35% to 2,804.75.

US personal income fell short of expectations last month. Income increased only 0.1%. Economists expected personal income to rise 0.2% after an 0.3% rise in July. Consumer spending fell right in line with expectations, speeding up from 0.4% gains in the month before. Later this morning, the Reuter's/University of Michigan Consumer sentiment survey is expected to show that US consumers are about as pessimistic as last month.

Yields on Spanish 10-year bonds rose 11.2 basis points to 6.058% ahead of today's publication of stress tests that Spain conducted on its banks. The independent tests will test whether capital requirements are sufficient to weather even worse conditions. Uncertainty over whether some banks will pass wore on investor sentiment today.

More lousy data poured out of Europe today. German retail sales in August increased 0.3% over July, but remained 0.8% below the figure for the year earlier. French GDP stagnated for a third straight quarter in the three months ending in June. Consumer manufactured-goods consumption in France fell more than expected in August, decreasing by 1.0% after gaining 0.5% in July. Producer prices in the country rose by 1.2% last month, exceeding expectations. France's cabinet just approved President Francois Hollande's 2013 budget plan that will include both spending cuts and increased taxes on companies and high-net-worth individuals to close the country's budget deficit.

Consumer prices increased by more than expected in the eurozone. The HICP Flash reading came in at 2.7% in September, up from 2.6% in August. The global headwinds are wearing on the Japanese economy as well. Industrial production in the world's third-largest economy slipped 1.3% from the month earlier. Economists expected a drop of 0.4%. Earlier data showed that the slump in European and Chinese demand for Japanese products is seriously wearing on Japan's exports.

Fitch ratings slashed its estimate for Chinese GDP growth for this year to 7.8% from 8%, but they don't expect China to suffer a hard landing because the country has the capacity to limit the downturn. Today, the Chinese renminbi rose to 6.2856 per dollar, its highest level on record.

Research In Motion (NASDAQ:RIMM) posted a narrower-than-expected loss yesterday, sending shares up 16.39% to $8.30 in after-hours trading. Overseas sales, especially in emerging markets,  helped offset huge declines in developed markets.

Nike (NYSE:NKE) was less fortunate. The sports-apparel company's earnings fell 12% to $1.23 per share. Revenue rose 10% worldwide, but poor sales in Europe dragged on profits.

Twitter: @vincent_trivett
No positions in stocks mentioned.

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