Stock futures rise as China eases currency policy
June 21, 2010 China currently keeps its currency, the yuan, artificially low
to bolster exports. At the same time, the weak currency makes
imported goods expensive for consumers. A stronger yuan compared
with the dollar should allow U.S. manufacturers and exporters to be
more competitive selling their products in China, one of the
world's largest and fastest growing economies.
The stronger yuan should also reduce the threat of inflation in
China, meaning the government won't likely have to raise interest
rates soon. Investors in recent months have been somewhat concerned
that China would take steps to restrain rapid growth in the
country.
Early in the year the country tried to slow the pace of growth
by forcing banks to hold larger reserves. The moves were aimed at
avoiding speculative bubbles in areas like real estate.
Ahead of the opening bell, Dow Jones industrial average futures
rose 133, or 1.3 percent, to 10,506. Standard & Poor's 500 index
futures rose 16.90, or 1.5 percent, to 1,127.10, while Nasdaq 100
index futures rose 28.75, or 1.5 percent, to 1,938.25.
The expected jump at the open should add to momentum that has
been growing in recent weeks. The Dow just completed its best
two-week stretch since November as concerns about Europe's
sovereign debt crisis has eased.
With investors pouring money into stocks and other risky assets
like commodities, bond prices fell sharply. A drop in bond prices
pushed interest rates higher.
The yield on the 10-year Treasury note, which moves opposite its
price, rose to 3.29 percent from 3.23 percent late Friday. The
10-year note is often used as a benchmark for consume loans and
mortgages.
Oil prices jumped $1.18 to $79.44 in premarket electronic
trading on the New York Mercantile Exchange.
Gold hit a record high early in the day. It climbed as high as
$1,266.50 an ounce before pulling back to $1,262.40 an ounce.
The focus on China comes on a quiet day for domestic news. There
are no major economic reports due out Monday, but investors looking
to figure out how healthy the U.S. economy is will get plenty of
reports later in the week.
The Federal Reserve begins a two-day meeting Tuesday where it is
expected to keep benchmark interest rates at historic lows. That
could keep a lid on any spike in interest rates, which often climb
to match the higher rates set by the Fed.
Reports are also due out on existing and new home sales as well
as a final update on first-quarter gross domestic product.
The home sale reports for May will provide investors with the
first glimpse of health of the housing market following the
expiration of a federal tax credit for home buyers. Economists
expect existing home sales rose in May, while sales of new homes
fell in May.
There is some concern that the housing market was artificially
boosted by the tax credit and sales will fall in the coming months.
A recovery in the housing market has been uneven and slow.
In corporate news, Canadian drug maker Biovail Corp. and Valeant
Pharmaceuticals International agreed to a combination. Valeant
shareholders will receive cash and Biovail stock in the deal,
though the new company will take the Valeant name.
Overseas markets all jumped following China's announcement.
Britain's FTSE 100 rose 1.1 percent, Germany's DAX index gained 1.5
percent, and France's CAC-40 climbed 1.6 percent. Japan's Nikkei
stock average surged 2.4 percent, while Hong Kong's Hang Seng
jumped 3.1.