News on Bank Rules Abroad Lift Futures

Includes: CRZBY, DB, EWJ
by: optionMONSTER

By Bryan McCormick

U.S. stock index futures are higher this morning after bombshell news hit markets in Japan.

There had been concerns mounting that stricter Basel rules on bank capital requirements would force weak lenders to raise funds to meet higher liquidity requirements, thereby diluting them. That was putting additional pressure on banks that already had poor capital ratios. The news last night was that enforcing such changes might include a grace period, potentially of years.

DB Chart

As a result, banking stocks in Japan were initially in a rare "bids only" situation, meaning that there were only buyers and no sellers. Many banks were up more than 19 percent at the open and helped lead the Nikkei to a higher close, with the broader banking index up over 7 percent.

Similarly in Europe, Deutsche Bank (NYSE:DB) and Commerzbank (OTCPK:CRZBY) were both up more than 4 percent, with those stocks leading the broader indexes higher. In short, if we were looking for a catalyst that might help push stocks around the world out of the holiday doldrums, this news might well be it. Stocks in Europe and the U.K. are broadly higher this morning.

The dollar has also come off its highs as the euro, yen, and U.K. pound have rebounded. The lower dollar has helped commodity prices, though at this time the change has been limited. Although U.S. banking stocks are rebounding in relatively muted fashion, they could still help push indexes higher because the financials have been the weakest sector of late.

Among sell-side research analysts, the pace of calls is relatively slow but do include some notable reports. General Electric (NYSE:GE) had its price target raised to $20 at Goldman Sachs. Kaufman Brothers raised its price target on Broadcom (BRCM) to $33. Deutsche Bank upgraded T. Rowe Price (NASDAQ:TROW) and Charles Schwab (NYSE:SCHW) to "buy." Morgan Stanley initiated coverage of the U.S. Diversified Financial Sector at "in line." UBS upgraded Darden Restaurants (NYSE:DRI) to "buy." JP Morgan took up Carnival (NYSE:CCL) and Royal Caribbean Cruises (NYSE:RCL) to "overweight."

In earnings, the response to yesterday's report from Adobe Systems (NASDAQ:ADBE) is tepid so far. Paychex (NASDAQ:PAYX) reports after the market closes, and tomorrow we will hear from Oracle (NYSE:ORCL), General Mills (NYSE:GIS), Discover Financial Services (NYSE:DFS), FedEx (NYSE:FDX), and Nike (NYSE:NKE). All of these stocks may move ahead of their news.

The U.S. Dollar Index is lower this morning, with all currencies in the basket higher against the greenback. Though a relatively small move, the lower dollar has helped commodity prices.

With additional economic news releases this morning, this situation may be subject to change. At this stage, the dollar may be a neutral factor in how other assets are priced.

(Chart courtesy of tradeMONSTER)

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