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US Pre-Open Call

Last updated 6/19/2012 4:30 AM ET (GMT -5) 0 Comments - Add your comment

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David Morrison

Market Strategist, GFT

Follow @DMorrison_GFT

US stock index futures are little-changed this morning after a mixed session yesterday. Investors are putting the Greek election result behind them as it looks as if New Democracy and PASOK will form the rump of a "pro-bailout" coalition. Any new coalition will be looking to renegotiate bailout terms as a "reward" from the EU for finally getting their act together. However, any hopes that the terms of the EU/IMF/ECB (troika) loans to Greece would be softened were dashed yesterday. German Chancellor Merkel continues to insist that any Greek government must stick to the commitments already made. The troika will meet with the new government within the next month to ensure that this is the case before the next tranche of the bailout is released. Meanwhile, the strain in Spain continues to worry investors as yields on 10-year government debt topped 7% again yesterday to hit a fresh all-time high. The country is due to auction up to 3 billion euros of 12 and 18-month debt later this morning. Before this, we heard that Spain has delayed the release of an independent audit of its banking sector by two months until September. All this fed into concerns that Spain would require a full-blown bailout itself - over and above the 100 billion euro banking bailout agreed last week. If this were required, then doubts over the stability of Italy's banking system would escalate quickly. Neither the European Financial Stability Facility nor the European Stability Mechanism has the funds available for a full-scale bailout of either country, let alone both. As an aside, there are still issues with the ESM which the German Constitutional Court is examining. In the worst case scenario, this could result in a delay of its proposed July launch. The Fed's two-day FOMC meeting begins today and speculation is intensifying over the likelihood of further stimulus measures being announced. There is a growing feeling that the FOMC will announce something. However, there is also a view that an extension to Operation Twist (which expires this month) would be a disappointment, and won't be enough to boost risk assets appreciably. This suggests that a fresh programme of asset purchases (possibly aimed at mortgage debt) is what the market is looking for. As expectations tick higher, there is an increased danger that investors end up disappointed - particularly if the Fed decides to hold back from any form of further intervention. Data-wise, we have Building Permits and Housing Starts later today. G20 meetings are also ongoing, so traders will be keeping an ear open for any unguarded comments from our political leaders.

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About The Author

David Morrison has worked in financial markets for over 25 years. He joined GFT in February 2009 to deliver commentary and research for derivatives products. Before then David had been instrumental in setting up two spread betting companies, managed trading desks, and implemented and ran successful risk-management strategies.

He has appeared on Bloomberg, Reuters, and Sky TV, and is widely quoted by financial newswires. He has written numerous articles covering economics and trading strategies using fundamental and technical analysis.