Wall Street set to rally on EU agreement

MARKETS-USA-STOCKS-WALL-STREET:Wall Street set to rally on EU agreement

new York  June 29, 2012, 18:41 IST

new York  06 29, 2012, 18:50 IST

 

Wall Street was poised for a rally at the open on Friday after euro zone leaders agreed to allow rescue funds to be used to stabilize the region's banks.

Details of the agreement, which includes the creation of a single supervisory body for euro area banks, remain to be worked out. Still, Italian and Spanish borrowing costs fell as market expectation for any action during a two-day European Union summit had all but vanished.

"We've gotten used to being underwhelmed by the outcomes, so with little to no expectations for success, the fact that it appears we are going to get something substantial is a real important positive for the market in the near term," said Art Hogan, managing director of Lazard Capital Markets in New York.

"It's inching closer to a banking union and the closer we get to a banking union would put (the EU) well on the road to a fiscal union."

Financial stocks could attract the most buyers in U.S. markets as the risk of exposure to their European peers diminishes. The Select Sector Financial SPDR rose 2.2 percent in premarket trading.

A more than 1 percent jump in the euro against the U.S. dollar could entice investors into commodity-related sectors like basic materials and energy. The Select Sector Energy SPDR added 2 percent.

Equities and other risky assets have recently been weighed by concerns that stubbornly high borrowing costs in Spain and Italy could force the fourth- and third-largest economies in the bloc to seek bailouts.

S&P 500 futures jumped 25 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures rose 194 points, and Nasdaq 100 futures added 50 points.

The steep gains trimmed a quarterly decline in S&P futures to about 4 percent. Futures have, so far, gained 2.8 percent in June.

Still, trading could be volatile and see higher volumes as managers square positions ahead of the end of the second quarter. The outperformance of bonds in the past three months could trigger inflows into stocks and extend the expected rally.

The Institute of Supply Management Chicago releases its June index of manufacturing activity at 9:45 a.m. (1345 GMT). Economists forecast a reading of 52.5 compared with 52.7 in May.

The Thomson Reuters/University of Michigan Surveys of Consumers final June consumer sentiment index is due at 9:55 a.m. (1355 GMT), with economists looking for a reading of 74.1, unchanged from the preliminary June figure.

Futures trading barely reacted to U.S. data showing consumer spending was flat in May.

Hospitals and insurers providing Medicaid plans for the poor were the main corporate winners from the U.S. Supreme Court's decision Thursday to uphold President Barack Obama's Affordable Care Act, as they prepare to see an influx of customers with no prior access to healthcare.

U.S.-traded shares of Research in Motion tumbled 14.5 percent in premarket trading in the wake of the company's decision Thursday to delay the make-or-break launch of its next-generation BlackBerry phones until next year.

Nike shares dropped 10 percent in premarket trading, a day after the world's largest sportswear maker missed quarterly profit estimates for the first time in at least two years.

Shares of KB Homes rallied 10 percent after the fifth-largest U.S. homebuilder reported a narrower second-quarter loss, helped by higher sale prices and net orders.

(Editing by Bernadette Baum)