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Pre-Market Primer: OECD Warns Central Banks Not to Scale Back QE


The OECD also cut its growth outlook for the US and Europe.

Stocks are heading down today on fears that the Fed will taper off quantitative easing and gloomy economic forecasts from the OECD.

Following yesterday's gains, Dow (INDEXDJX:.DJI) futures are down 0.12% at 15,354 before the opening bell. S&P 500 (INDEXSP:.INX) futures sank 0.14% to 1,652.30 and Nasdaq (INDEXNASDAQ:.IXIC) futures gained 0.89% to 2,985.50.

The Organization for Economic Cooperation and Development warned central banks that ending the global loose-money policies could result in much higher borrowing costs for governments.

"Exit from unconventional monetary policy, when needed, may be difficult to manage and less smooth than desirable, possibly leading to sharp rises in bond yields and serious negative consequences for growth in a number of advanced and emerging economies," said OECD Chief Economist Pier Carlo Padoan. We think that the eurozone could consider more aggressive options. We could call it a eurozone-style QE."

The rich-country group also cut its outlook for the US to 1.9% for this year, down from 2%. It expects global GDP to rise 3.1%, down from an earlier estimate of 3.4%. The eurozone is likely to shrink 0.6%, a more severe contraction than the 0.1% drop previously forecast.

Europe's unelected executive body, the European Commission, is acknowledging that it's unlikely that some countries meet their budget deficit targets, the Financial Times reports. The EC will emphasize structural reform and give Spain, France, and the Netherlands more time to lower deficits to 3% .

Also in global economics, Japanese retail trade rose 0.7% in April, recovering some of March's decline. Unemployment in Germany rose by the most in four years. The unemployment rate stayed still at 6.9% but the jobless number rose to 2.96 million.

With no major economic announcements on the calendar, today's auctions of short term US government debt might draw some attention. Bond yields rose yesterday on fears that the Federal Reserve might scale back its asset purchases. Yesterday's strong consumer confidence report exacerbated these fears, sending 10-year yields up to 2.17% this morning.

Cyclical companies that typically rise and fall with the economy declined in the markets this morning. Bank of America (NYSE:BAC) and JPMorgan Chase (NYSE:JPM) both declined more than 1% in the pre-market.

Shares of Smithfield Foods (NYSE:SFD) rose by 25.33% this morning on reports that it is soon to sell itself to a Chinese company for $4.5 to $5 billion.

US national security regulators cleared Softbank's (OTCMKTS:SFTBF) $20.1 billion acquisition of Sprint (NYSE:S).

Twitter: @vincent_trivett
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