Stocks are likely to take their cues from the foreign exchange market again on Tuesday.
Risk assets, stocks and commodities, Monday followed the volatile course of the euro, which fell on a series of negative sovereign-debt related headlines. The euro reacted to worries about Spain, Greece, and also Standard and Poor's late Friday announcement that it changed the outlook for Italy to negative. During the trading day Monday, Fitch cut Belgium's outlook to negative.
The tightly-linked "risk off" trade was also a reaction to data that showed Chinese manufacturing slowed in May. Copper fell 3 percent to $3.990 per pound, and oil was down more than 2 percent at $97.70 per barrel.
The Dow was off 1 percent at 12,381, and the S&P was down 1.2 percent at 1317. Nasdaq was particularly hard hit by tech selling, losing 1.6 percent to 2758.
Tuesday's stock market could be wobbly again. In early Asian trading, the dollar was firmer against the euro.
There is little data Tuesday, with just new home sales at 10 a.m. The Treasury auctions $35 billion in 2-year notes at 1 p.m.
Treasurys rose Monday as investors sought safety in bonds. "It's still just a 'risk off' kind of environment right now. Everybody was buying Treasurys this morning and once stocks stopped going lower and stabilized, we started giving back some of our gains," said Rick Klingman, who runs the Treasury desk at BNP Paribas. "There's not a lot of shorts left in the market so we get these kinds of mornings when there's selling in equities and commodities, we trade them up.. People are either long or flat our market right now." The 10-year was yielding 3.134 percent late Monday, after dipping to 3.08.
Stock traders are watching two high-profile stock offerings Tuesday, with an eye towards how they will fare in a choppy market. One is the government's much anticipated first sale of some of its AIG holdings.
The government and American International Group are offering $9 billion worth of stock, and underwriters have been telling investors they have enough orders to price the 300 million share deal at $29 to $30 per share. The government would reap a profit on the shares if they price above $28.70. AIG stock closed Monday at $29.98, declining 2.7 percent in the market selloff.
Traders Monday were buzzing about the difficult environment the secondary pricing could face if stocks remain under pressure Tuesday. "Any time there's an environment like this, it's going to be hard to come to market.. but this has been so telegraphed. I think they lined up what they needed to do," said one trader.
The other high-profile offering is Yandex, Russia's biggest search engine. The hot internet stock begins trading Tuesday after 52 million shares priced at $25, above the $20 to $22 offer range. Last week's hot IPO, social networking company LinkedIn continued to lose ground Monday, after more than doubling on its first day of trading. The stock fell more than 5 percent to $88.30.
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