Markets cheer Spain bank bailout

Updated: 1 a.m. ET Monday

Who'd'a thunk it: A week after the stock market suffered its biggest drubbing of the year, it bounced back with its best weekly performance of the year.

It looks like the rally will continue Monday after Spain agreed to a $125 billion bailout of its banking system Saturday from a eurozone rescue fund and China’s exports grew faster than expected.

Futures trading Sunday afternoon sees the Dow Jones industrials ($INDU) rising more than 125 points at Monday's open, with the Standard & Poor's 500 Index ($INX) and the Nasdaq-100 Index ($NDX) rising sharply as well. Crude oil (-CL) in New York and gold (-GC) were also higher.

The big question is whether the rally in the futures markets will continue through Monday and beyond. There are still worries that Spain's government may need a bailout itself, and Greece faces another parliamentary election on June 17. If Socialists win, that could lead to Greece's leaving the eurozone and causing more turmoil in financial markets. And before one even gets to the election, there are fears that the Greek government really will run out of cash.

Here at home, it's a fairly quiet week ahead. The most important economic report comes Wednesday when the Commerce Department reports on retail sales for May. Earnings reports are especially light, but there are important analyst days -- where companies explain how business is going and where it might be headed -- due from the likes of Dell (DELL), biotech company Biogen Idec (BIIB), oil-and-gas producer Apache (APA) and apparel giant VF Corp. (VFC), which owns such brands as Lee, Wrangler, the North Face and Nautica.

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The few important earnings reports are due from Kroger (KR), Pier 1 Imports (PIR) and Smithfield Foods (SFD).

Chip-maker Texas Instruments (TXN) will issue its midquarter update after Monday's close. Pay attention to this one. Because Apple (AAPL) is a big customer, what TI has to say about mobile semiconductors will offer a signal of what Apple sees.

The terrible, no good, very bad week that wasn't
The tension thus will be fairly intense, especially after this past week. Many pundits and analysts had expected a difficult week for stocks. Instead, the U.S. market held up more than well.

The Dow gained 3.6%, with the S&P 500 up 3.7% and the Nasdaq Composite Index ($COMPX) up 4%. The gains for the Dow and S&P 500 were the best since the week of Dec. 19. The Nasdaq's gain was its best since the week of Nov. 28. The Nasdaq-100 Index, which tracks the largest Nasdaq stocks, jumped 4.1% last week, its best performance since the week of Nov. 28.

The Dow moved back into the black for 2012, ending the week up 2.8%. The S&P 500 is still up 5.4%, with the Nasdaq up 9.7%.

Home Depot (HD) was the Dow winner for the week, jumping 9.2%. Bank stocks were strong. Citigroup (C) added 9.4%. JPMorgan Chase (JPM) rose 5.7%. Even energy stocks were strong, though oil prices were off more than 2%. Anadarko Petroleum (APC) rose 9.8% for the week.

Facebook (FB) had a week that CEO Mark Zuckerberg would rather forget. Shares fell 2.2%, bringing the total decline since it went public at $38 to 28.7%.

Markets for the week
			6/8/2012			6/1/2012			% chg.			YTD chg.
Dow Industrials			12,554.20			12,118.57			3.59%			2.76%
S&P 500			1,325.66			1,278.04			3.73%			5.41%
Nasdaq			2,858.42			2,747.48			4.04%			9.72%
Russell 2000			769.19			737.42			4.31%			3.82%
Crude oil			$84.10			$83.23			1.05%			-14.90%
(per barrel)			0.00			0.00			0.00%			0.00%
U.S. Dollar Index			82.56			82.97			-0.50%			2.53%
10-yr. Treasury			1/0/1900			1/0/1900			11.59%			-12.51%
Gold			$1,591.40			1,622.10			-1.89%			1.57%

The risks of Spain and China
Which brings us back to Spain, Greece and China.

Greece is like a running soap opera, and the big event comes June 17 when Greek voters go to the polls in hopes of forming a government. The government says it may run out of cash by some time in July. Its unemployment rate hit 21.9% in March, the most recent report, up from 15.7% a year ago.

But Spain looks to give markets a big relief rally on Monday.

Saturday's decision to accept a bank bailout made Spain the fourth and largest European country to agree to accept emergency assistance as part of the continuing debt crisis. The aid offered by countries that use the euro was nearly three times the $46 billion in extra capital the International Monetary Fund said was the minimum that the wobbly Spanish banking sector needed to guard against a deepening of the country’s economic crisis.

It is not clear if Spain's government won't need help. And, at a Sunday news conference, Prime Minister Mariano Rajoy warned against expecting a quick turnaround following the banking rescue. "This year is going to be a bad one, growth is going to be negative by 1.7%, and also unemployment is going to increase," he said.

That leads many to conclude Spain will have an even larger deficit -- and need even more borrowing.

Helen Haworth, head of European interest-rate strategy for Credit Suisse in London, told The Wall Street Journal on Sunday there could be a bit of a relief rally this week. But fundamentally, she said, "to me, there is still no buyer of Spanish debt beyond the domestic investor base, which is basically the Spanish banks."

Spain's banking crisis is largely built on a crash in real-estate prices. Deposits are being moved to Germany, Britain and elsewhere because there are worries that the Spanish government doesn't have the resources to guaranty losses in the event of a big failure.

(In the case of Greece, the worry is that savings in Greek banks will be substantially less if the nation leaves the eurozone and goes back to its old currency, the drachma.)

Germany, Europe's largest and strongest economy, is supporting the Spanish bailout. One reason: Its export-oriented economy would be hurt if Spain's problems spun out of control.

The situation is not unlike Lehman Bros. 

The United States would be affected because consumer spending would be affected. So, too, would big tech companies like IBM (IBM), Cisco Systems (CSCO), Hewlett-Packard (HPQ) and Caterpillar (CAT).

China's problems become clearer
Chinese data showed exports grew last month at more than double the pace analysts estimated. But investors were more concerned about inflation, industrial output and retail sales all flagged in May for a second straight month of sluggish growth.

China’s overseas shipments climbed 15.3% in May from a year earlier, its customs bureau said. That beat analyst estimates.

Industrial output, however, rose by less than 10% for a second month, and retail sales increased the least in almost six years excluding holiday-month distortions, the government said on Saturday.

The reports helped to explain China's surprise interest-rate cut on Thursday - its first since the global financial crisis. The Chinese economy is not nearly as robust as thought.

China has seen its economy falter after its big real estate bubble burst.

China had been a big buyer of natural resources, including coal, oil, chemicals and copper, as it has expanded. A slowdown in the Chinese economy that took hold a year ago is a big reason why Caterpillar shares are down 28% just since mid-February and Freeport-McMoRan (FCX) shares have fallen 47% since early 2011 as demand for copper has fallen.