Pre-Market Primer: Banks Will Get More Basel Leeway; Berlusconi Gets Closer to Power

By Vincent Trivett Jan 07, 2013 8:50 am

The stars are aligning for the return of Silvio Berlusconi.

On the eve of earnings season, stocks slipped from Friday's five-year high as banks were given more leeway with international liquidity rules.

Stock futures are little changed this morning. Futures on the Dow Jones Industrial Average (INDEXDJX:.DJI) fell 0.13% to 13,329 and S&P 500 (INDEXSP:.INX) futures slipped 0.12% to 1,455.90. Nasdaq (INDEXNASDAQ:.IXIC) futures are down 0.14% to 2,709.25.

Bank stocks rose today after central bankers approved easier liquidity rules for banks at their gathering in Basel, Switzerland. The central bankers also gave banks four extra years to meet required liquidity coverage ratios and they will be allowed to use a wider range of assets such as equities and mortgage debt to meet the requirements. Citigroup (NYES: C) rose more than 2% in the pre-market, the most of all US banks this morning.

Financial companies are also being lifted as 14 big banks closed a settlement with regulators that could result in $3.5 billion going to wrongly-foreclosed homeowners and $6.5 billion in loan modifications for underwater borrowers. After the Fed signals approval, the deal could be officially announced as early as today.

Shares of Illumina (NASDAQ:ILMN), a company working on DNA sequencing, dipped 8.33% after Roche Holdings (PINK:RHHBY) announced that it was abandoning its bid for the company. Roche Chairman Franz Humer said that Illumina would not abandon an a “totally unrealistic” asking price.

Yahoo (NASDAQ:YHOO) shares fell 1.16% after Sanford Bernstein analysts downgraded the stock to 'market perform' from 'outperform.'

Japan's newly-elected Liberal Democratic majority under Shinzo Abe said that it will increase fiscal stimulus by 12 trillion yen. Much of the spending will be on public works projects.

Eurozone investors are still very pessimistic, but less so than they have been in 18 months. After falling to -16.8 last month, the Sentix index rose to -7. (Readings below zero signal pessimistic expectations for the economy.)

Silvio Berlusconi's People of Liberty Party will run as a coalition with the Euro-sceptic, anti-immigrant Northern League. This puts the center-right coalition in a much better position in February's election. Luigi Bersani's center-left Democratic Party was projected to win in a landslide, but political analysts are not predicting a win for the right. Especially with Berlusconi's participation, the upcoming Italian election could have destabilizing effects on the eurozone as a whole. On Italian radio, Berlusconi said that he would rather not take the seat of Prime Minister this time around. He would rather be Italy's finance minister.

After news of the coalition came out, Italian 10-year bond yields reversed their downward slope, rising 1.08%, or 4.8 basis points, to 4.311%.

Twitter: @vincent_trivett

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