Futures Fall as Dollar Soars, Banks Drop
Futures pointed to a lower open for Wall Street Monday as the dollar and U.S. Treasury yields soared on the back of last week's cheerier jobs data, which prompted speculation that the Federal Reserve may raise rates at its next meeting.
Much of the early weakness was coming from bank stocks.
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Today is the deadline for federal regulators to approve capital-raising plans at nine of the nation's largest banks. But it also coincides with mandatory management reviews for the companies, and that is creating problems among some of those institutions, the Wall Street Journal reported.
Among the companies affected, Bank of America shares dropped 1.8 percent and Citigroup shares were off 2 percent in premarket trading.
In a related development, some of the large institutions will be allowed to repay federal bailout money, but some of those shares were down as well. JPMorgan Chase and Goldman Sachs both fell 1 percent. There was some fear that the government could be letting the banks repay too soon, making things more difficult should the institutions need more money again later.
Friday's surge in the unemployment rate to 9.4 percent also seemed to be taking its toll on the stocks outlook for Monday.
"With the unemployment rate hitting levels not seen for over 20 years, the announcement of the 37th bank failure of 2009 and news that credit card delinquencies rose by 11 percent for the 1st quarter, investors are starting to take some money off the table," GFT wrote in its morning forecast.
Asian and European markets declined, with commodity stocks dragging down the indexes on softer raw material prices. Some profit-taking in the basic resource sector may take place, after last week's sharp rise after mining giants Rio Tinto and BHP Billiton agreed to an iron-ore joint venture, according to various analysts.
Government bonds' yield curve is likely to become steeper, David Roche, global strategist at Independent Strategy Limited, warned on CNBC while Thio Chin Loo, senior currency strategist at BNP Paribas, said that the main theme of the week will be to shift away from stocks into higher yielding assets.
The auction of about $65 billion in 3-, 10- and 30-year Treasury notes takes place this week.
Oil also fell Monday after posting its largest one-day rise in more than five months on Friday.
Technology stocks will be something to focus on as the Apple developers conference begins Monday. Hopes are that Apple CEO Steve Jobs will attend the event after taking medical leave from the company. If he does so, Apple's stock is likely to jump.
Dow component AT&T shares also could be in focus after Goldman Sachs removed the company from its conviction buy list on belief that investors may cycle out of telecoms. Though the company remains on Goldman's buy list, shares fell 1 percent premarket.
Investors also were watching McDonald's , which reported same-store sales for May up 5.1 percent. But the US numbers missed the mark and the company said its quarter earnings would suffer if currency exchange rates remain at their current levels. McDonald's shares fell 2 percent premarket.
In corporate news, Barclays confirmed Monday it was in talks to sell its investment arm, Barclays Global Investors (BGI), with BlackRock and Bank of New York Mellon. BlackRock is the frontrunner to land the asset manager in a deal that could be worth $12 billion, Reuters reported, citing people familiar with the matter.
The Obama administration is expected to announce this week that a high-than-expected number of large financial institutions will be allowed to repay their government bailout funds, the Washington Post reported at the weekend. The newspaper said the size of the repayments may be twice the initial estimate of $25 billion.
Also in the financial sector, fund giant Fidelity Investments and private equity Kohlberg Kravis Roberts (KKR) have struck a deal to sell shares of KKR initial public offerings to retail customers.
Indiana pension funds and consumer groups asked the U.S. Supreme Court on Sunday to stop the sale of bankrupt automaker Chrysler to a group led by Fiat while they challenge the deal, Reuters reported. Fiat can walk away from the deal if it does not close by June 15.
Federal Reserve Governor Daniel Tarullo will speak on financial regulation in Washington.