Futures Up; 10-year Yield Hits 6-Month High
U.S. stock index futures made slight gains ahead of the open Monday as investors drove up the yield of 10-year Treasurys to a six-month peakahead of the expected approval of Bush-era tax cuts.
Congress is set to vote on a tax package compromise put forward by President Obama that would extend Bush-era tax cuts for two years. The extension is expected to pass even though it proved highly controversial with Democrats, so a late-stage failure could dent stocks.
Deal activity was also giving a lift to the market ahead of the open as Dell agreed to buy Compellent Technologies for about $960 million in cash, as it pushes into cloud computing and General Electric announced plans to buy Wellstream Holdings , a British oilfield services company, for about 800 million pounds ($1.3 billion). Also, Thermo Fisher Scientific, a scientific instruments maker, will acquire Dionex for $2.1 billion to broaden its lab-equipment offerings.
Chinese inflation will also be closely watched after policymakers stopped short of raising interest rates to cool growth in the region. China issued another selective hike to bank reserve ratios instead.
Chinese stocks ended sharply higher after the policy news, with most Asian indexes closing higher. European shares were in the green with mining stocks leading the gains.
Investors are starting to think about closing their books for the year, which will likely reduce volumes and potentially add volatility toward the year end, Tom Mackay-James, stock broker at Redmayne, told CNBC.com.
"The whole notion of a Santa Claus rally certainly isn't guaranteed," Mackay-James said. "The question on most investors' minds is will the rally continue or is it running out of steam?"
Mackay-James pointed out that even though stocks were pushing to multi-month highs, the CBOE Volatility Index was at its lowest level since April, which gave a potential warning signal.
Meanwhile, liquidity tracking company TrimTabs said it was "cautiously bullish" on U.S. stocks and that the outlook for the economy had improved thanks to recent economic data.
Also on the economic front, the Federal Reserve will meet Tuesday for its monthly meeting to discuss monetary policy. The Fed is expected to confirm its flexible approach to stimulating the economy and keep its quantitative easing program, where the Fed buys assets to add liquidity, unchanged.
In other news, Genzyme now has until Jan. 21 to consider Sanofi-Aventis' $18.5 billion cash offer. And grocery-store chain Great Atlantic & Pacific Tea , known as A&P, filed for bankruptcy over the weekend.
Goldman Sachs resumed coverage of information technology hardware companies. The brokerage added Apple to its "conviction buy" list and gave it a price target of $430 a share, and initiated coverage of Xerox with a "neutral" rating and a $12 price target. Goldman also Dell and Hewlett-Packard with "sell" ratings, and EMC with a "buy" rating. IBM , NetApp and Seagate Technology were resumed with "neutral" ratings.
Also, the board of Hormel Foods approved a 2-for1 stock split, which would be a first for the maker of Spam in ten years.
On Tap This Week:
MONDAY: FedEx's busiest day.
TUESDAY: NFIB small biz index, PPI, retail sales, business inventories, FOMC meeting announcement; before-the-bell earnings from Best Buy.
WEDNESDAY: CPI, credit card default rates, MBA mortgage applications, New York manufacturing survey, industrial production, housing market index, oil inventories; Honeywell's 2011 outlook and Atlanta Fed Pres Lockhart speaks.
THURSDAY: Housing starts, jobless claims, Philadelphia Fed survey; before-the-bell earnings from FedEx, General Mills; after-the-bell earnings from Oracle, Accenture, Research In Motion, and Take-Two.
FRIDAY: Leading indicators, Quadruple witching.
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