Markets cheer Spain bank bailout

Futures trading suggests a big rally Monday after Europe sends a strong signal of support for Spain's banks. But weakness in China and worries about Greece may limit stocks' gains. The week's big US report: Retail sales on Wednesday.

By Charley Blaine Jun 8, 2012 9:14PM
Charley BlaineUpdated: 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.

Article continues below.
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.
105Comments
Jun 8, 2012 10:02PM
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Why should the German middle class bail out Spain?   It is best that Germany allow all these countries to default.  They will immediately have to balance their budgets as they will not be able to borrow.  Their socialist folly will end.  Of course there will be a price to be paid and it will be paid by the very people that took advantage of their system.  So be it.  If anyone of you bothered to check Spain out, you would find they have to raise their taxes almost 40% across the board to balance their budget.

 

I somehow doubt that a 65% tax rate at the loe end and a 85% rate at the high end would fly...

Feel free to move there if you do...

Jun 9, 2012 9:59AM
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RPE,

 

Well, come join the private sector! First off the average teacher does not work 2080 hours a year. The work on average 7 hour days. Better than bankers hours of 8am-4pm. And I really don't care about hours they work when not 'at work'. Tell that to the poor private sector employee that works those same extra hours if not more, and has to be at the office from 8-5 at a minimum. Considering that teachers enjoy unheard of benefits, that the private sector can only dream of. 22,000? The average private sector employee can only look forward to Social Security (maxing out at far less). Now lets consider the hourly wage for the average teacher.... 55,000? (way on the low side in Illinois). But lets use the 55K number. Consider that they work 42 weeks a year, and lets say they work 40 hours a week (they don't, and they never work weekends!), that comes to 1680 hours. That comes to 32.73 an hour! Or roughly one and a half times what the private sector worker that PAYS for these teachers makes.

Teachers also are RARELY fired or layed off, no matter how poor a job they do. Hell, in NY they ones so bad that they can't be in front of kids sit in a room and collect their pay.

And don't even get me started on the extra Holidays the private sector never has off.

Let's begin the reform of education as follows: First, teachers will work 2080 hours a year at School like everyone else does. They will be at school 8 hours a day doing their jobs. Their will be no extra pay for this. This is a new job requirement. Join the real working world... Second, teacher pay will be tied to achievement, not just for showing up. Second, Teachers will join Social Security if not already memebers. Teachers will contribute to a 401K (or the public sector equivelent) and not also recieve a pension, unless they FULLY pay for it.

Teachers work for the public, not the other way around

Jun 9, 2012 11:48PM
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 Back in the 1950s and before, a family could nicely get by with just one bread winner. Then SOMETHING happened and suddenly it required 2 breadwinners  to make ends meet. And they cleverly called it women's lib when in reality it was a lowering of the standard of living by requiring more income to meet the same ends --and families haven't been the same since
Jun 9, 2012 12:10AM
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This bailout mentality is utter crap. When a business fails or is insolvent, it should go bankrupt. The debt is then cleared and the good assets are sold off. That's known as capitalism. That system worked very well for a couple of hundred years, until Hank Paulson (banker, crook, shill, your favorite here ________)  threatend "tanks in the streets" and an end to the world  in a secret meeting on a Sunday night.

The idea that borrowing money to pay interest on the money you have already borrowed over and over again is idiotic. How many bailout solutions has Greece had thus far??? I"ve lost count.

Jun 10, 2012 7:42AM
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V_L....

 

Sounds like you want the middle class to keep what it earns and give it to government to spend for them.   Big governments in Europe confiscate such a large portion of a workers wages, it is a wonder there is anything left to create demand.  Spain's tax rates are so high, companies feel, when they hire they are just giving the government over hallf of what they are paying the employee, so why hire?  The underground economy in Spain is huge.  After all if you work for cash you get to keep 100% rather than the 47% if you are on the up and up.

 

Spain needs to END it's SPENDING.

 

Just another case of trying to Tax, Borrow and SPEND your way to prosperity.  If only they had a printing press they could add the other socialist tool, Debasing...

Jun 10, 2012 11:55AM
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People CHOOSE to have a lot more stuff than they did 50 years ago, which is why they are spending so much money and think they need 2 incomes.  50 years ago, a typical family of 4 lived in a 1500 sq ft house and had one car.  They didn't pay for cell phones or internet access or cable TV.  They didn't have a bunch of leisure gadgets like iPods, iPads, Kindles, Playstations, etc...  They also didn't eat out 5-6 times a week and most weren't carrying credit card and student loan debt.  Take away all these debt payments and modern conveniences and it's still not that hard to make it with just one income.
Jun 9, 2012 4:50AM
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These socialist countries are in a jam because a) they're socialist, and b) the racketeering operations commonly known as international banks have let them spend themselves into bankruptcy.  So go bankrupt, already.  Who gets hurt?  Greedy banks who created the money out of thin air so they could bleed them dry with endless debt and interest payments.  Same as the US, and the solution is the same--DEFAULT and go back to sound money, not bank-issued debt currency.
Jun 10, 2012 1:33PM
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Gee, really enjoyed the posts about the 1950s. Some were really good. Here are a few of my memories of those years.

We did have two cars; but not until my folks bought a home with a two car garage. Mom worked, not because she had to, but because she wanted to. She was a Public School Secretary for 20 years before retiring to start-up a successful Daycare Center with Pre-school with her Principle and several teachers that retired at the same time (some retirement that was: but shows times were a changing!!). Contrary to some comments made, it was World War II that forever changed the concept of Women working rather than staying at home, not Women's Lib. Women's Lib just made women who wanted to stay home feel guilty.

The 50s were a different time, but, I believe, a time that was much better than today. We actually talked face to face to each other!!:<)

Jun 9, 2012 10:04AM
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Fastback 49

 

Doesn't the USA do the same thing? Correct me if I am wrong, but have we paid a dime of debt in the last 60 years off, without borrowing more to pay it?

We need a balanced budget NOW, and then we must raise taxes across the board to pay this debt off. I figure if the average family kicks in an extra 3,000 a year for 20 years we will onlt cover what the debt Mr. Obama has added.

Think of that, it will take 20 years of a balanced budget with an average family kicking in an extra 3,000/yr just to return to where W (no star either) left us...

We are looking in hte mirror when we look at Greece....

Jun 11, 2012 8:09AM
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...another bailout for a socialist country who will not control themselves. They'll be back asking for more money as they refuse to due anything about it.  Germany should just leave the Euro trap.
Jun 11, 2012 7:20AM
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seems we completely forgot about friday U.S. jobs repoprt...???
Oh...here we go again...Europe  is getting $$$$  (from where)..DOW up.???
Europe is going bellyup.....DOW down...???
Europe is getting cash (from where).....DOW up...???
Europe is going BK......DOW down ...???
China giving $$$$$$  ...DOW up....???
what about U.S. economy...??  1. 8.2% unemployment 
2. U.S.drowning in debt  ($16 TRILLION and rising everyday)
3. home values down 55%
4..VIRTUALLY.... no economic growth = HUGE SELLOFF comin...

Jun 11, 2012 1:33AM
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 Ron Paul has been talking about this stuff for years.We got off the gold standard and its been more and more debt since its only paper. Congress needs term limits bad,if it were up to me only newer members would stay,the rest should be marched out and sent home.Lobbyist and big money has been screwing the average american while making a small percent very wealthy.

     While this talk about europe is fun,the usa has its own problems,16 trillion of them.

I read where the average greek had 32000 of gov. debt and the usa was 35000.Again Ron Paul seems to be the only one willing to say we need really bad medicine to go at the debt.The rest dont want to talk about problems or sacrifice.

   Ill write RP in since Mitt and Obama just make me ill. I recommend you all get ready for economic and social hell coming to a neighborhood near you.Most likely around the election.

Jun 10, 2012 11:03AM
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Tumbles I agree 100%....ie; About, or that back in the 50s we had simpler times; We were still reeling from the Major War and attempting to handle a Police action...That ended in a War, as far as I'm concerned....

I was a kid working menial jobs..

When Housewives left the home to work in the 60s-70s,  the Intentions, were to get a bigger piece of the pie in life, satisfy Women's Lib (somewhat true) and just to get ahead monetarily and in stature.

A week or so ago, I tried pointing this out as "hidden form of Inflation over time."

With two(2) breadwinners in a house there was more disposable income...Food,Homes and Autos starting rising more in price, then I think they would normally under conditions, of less money in the Marketplace?

 

I've never charted or looked closely at comparable prices over 40-50 year time frame, but I would bet there were unwarranted price increases?

Ironically I remember drawing attention to this phenom with my wife, and projecting this might happen....Our 1st. house increased over 50% in value in a matter of 3-4 years, we sold and moved on.

To our first purchase of more land and country living.

Nowadays it almost seem's to take (2) breadwinners in a Family just to get by....The more each makes, depends on the lifestyle they can afford to live...Or pretty much, vice-versa.

2-cars, 2-homes(vac), 4-5 TVs,3-4 computers, 1-2 kids,pool etc.

edit for....Yeah I forgot all the tax or new tax increases, that have ensued since the good old days.

Jun 11, 2012 7:57AM
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Re-TOG - if you're so against keeping the Bush tax cuts, why do you support Obama, who is solely responsible for extending them?  They would have gone away all on their own if Obama hadn't signed the bill extending them...
Jun 9, 2012 7:07AM
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The Spanish bank begging for money is a composite bank made up of several banks who failed collectively because there is no economy. You can read the article, but there is a global lack of jobs caused by a shift to technology by hired-in management. Spain won't get the credit it is requesting because all the other nations caught up in this are engaged in the deflationary aspect of over-printing fiat currency that doesn't flow through Main St economy. Giving more out undermines what they have and it isn't much-- globe-wide. You did touch on Central Banks and International Banks as rackets. They absolutely are. Enough job creation is improbable because once you do, you need an economy to sustain them. Forcing financier-executives out of business and restoring jobs for the middle-aged will slow the Tsunami Effect natural aging without incomes or cash flow will surely cause. It's only about job recovery now. Using every new fiat currency unit to revive someone who can pay taxes and who buys stuff. Funding small enterprises that are crafted to take down big old businesses in all sectors would help as well. When the Founder died, the Board just inherited the powerful enterprise he built and hired their own kind to run it. They didn't pay for that power. We are certainly not interested in paying for the corruption they wrought on us abusing that power.  
Jun 9, 2012 3:28PM
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Spain and Greece need to be removed from the Euro and put back on failing pesos.  Rolling over debt to create bigger and bigger debt down the road hurts everyone.  Eventually they will need to kick them out of the Euro family because they are simply not bringing anything of worth to the table to justify their inclusion.  The same as America at least had the common sense to see instantly that Mexico brings nothing of value and refused to create a North American union and form the Amero currency.  They would have crashed and burned already had they agreed to this poorly conceived plan.  Europe will eventually cleanse itself of the worthless breeders and useless nations which do nothing but rollover debt forever to suck on the teat of socialism forever without ever contributing in ANY WAY.
Jun 10, 2012 11:05AM
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If  you are playing in the market, you are going to get hammered, in the next 6 months we will see a drop that willmake you wish for 2008.
There is only one way to get  stable, prosperous market, that is to have a stable, prosperous economy..
No business owner or CEO, will invest any significant amount of money in equipment, expansion or people  as long as we have an anti business administration.

Jun 11, 2012 8:35AM
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Re-TOG - you can try and shift blame around any way you want to.  But the buck stops at the desk of the POTUS - if he doesn't sign the bill, the tax cuts go away.  Period. 

Obama chose to sign the bill that extended them...
Jun 11, 2012 8:22AM
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Fiat currency?  A currency with no backing other than the interest, good will, and intentions of the country printing it.  After Friday and the POTUS comments about what a good job he is doing and everyone else is not I get this very weak feeling about the future of our dollar.  Most folks know that what he said isn't true.  Now if you heard what he said how confident are you that the US will do the right thing to maintain a responsible committment to our currency?  Thus the rest of the world watches and snickers. Massive inflation will be the result!

Jun 10, 2012 11:47PM
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Spain is not the markets biggest worry.  The Obama administration loaned the EU 16 trillion usa greatgrandchildrens money.  The EU gave it to Greece and the rest so they could avert a complete reneg and offer every other country a pass out of the EU thus destroying the new world order.  So sorry Charlie the POTUS along with Geithner and Bernanke are the biggest worry to the Market!
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