Traders on Wall Street this morning are trying to look beyond the decidedly market-unfriendly election results in Italy, with U.S. stock index futures posting minor gains ahead of the opening bell.
European stocks continue to be down sharply this morning, led by a more than 4-per-cent drop in Italy's FTSE MIB index, and Asian stocks overnight also tumbled. But some traders are betting that the political stalemate in Italy, which has ignited renewed fears over the European debt crisis, was already factored into U.S. stocks on Monday when the S&P 500 tumbled 1.8 per cent, its biggest dip since early November. The TSX should also see some modest gains at the open, with some haven buying in the gold sector helping to support precious metals stocks.
As the Globe's Eric Reguly writes this morning, the Italian election produced no clear winner, with a surprisingly tight three-way race between Pier Luigi Bersani's centre-left coalition, Silvio Berlusconi's centre-right coalition and the upstart, anti-establishment Five Star Movement of Beppe Grillo. Caretaker prime minister Mario Monti's centrists were all but destroyed.
While the centre-left barely won the lower house of parliament, there was no clear winner in the upper house – the senate. A majority in both houses, which rank equally, is required to govern. Particularly worrisome for investors was the strong showing of Mr. Berlusconi and Mr. Grillo, who delivered strong anti-austerity messages during their campaign.
Borrowing costs rose overnight in Europe, with Italian 10-year bonds seeing yields up 29 basis points to 4.73 per cent. Bond yields in Spain, Portugal and Greece also rose sharply.
North American markets will have more to absorb than just political developments in Europe today. A batch of U.S. economic data is due on housing and consumer confidence, and the Federal Reserve's Ben Bernanke will be testifying before the Senate Banking Committee. Mr. Bernanke will continue his semi-annual testimony on Wednesday, and past trends suggest the appearance before Congress could be helpful for the stock market. Over the past six years, the S&P 500 index has finished higher nine out of 12 times during the two-day period, according to an analysis from MarketWatch.
This time around, however, it may be tough for markets to gain much enthusiasm given that the so-called sequester - more than $80-billion in government spending cuts - is set to start kicking in on Friday unless there's some political intervention. So far, it doesn't appear there will be any quick resolution to that issue.
Now, here's a more detailed look at what's going on this morning and what's to come.
MARKETS:
Equities:
U.S. futures: S&P 500 +0.2 per cent; Dow +0.2 per cent; Nasdaq +0.2 per cent
Hong Kong's Hang Seng index -1.31 per cent
Shanghai composite index -1.41 per cent
Japan's Nikkei -2.26 per cent
London's FTSE 100 -1.33 per cent
Germany's DAX -1.89 per cent
France's CAC 40 -2.29 per cent
Italy's FTSE MIB -4.56
Commodities:
WTI (Nymex Apr) -0.73 per cent at $92.43 (U.S.) a barrel
Gold (Comex Apr) +0.27 per cent at $1,590.90 (U.S.) an ounce
Copper (Comex May) -0.42 per cent at $3.55 (U.S.) a pound
Currencies:
Canadian dollar up 0.0002, or 0.02 per cent, at $0.9750 (U.S.)
ECONOMIC INDICATORS TO WATCH:
The S&P Case-Shiller home price index for December rose 6.8 per cent from a year ago, the biggest jump since 2006 and a bit higher than the 6.62 per cent rise expected by economists.
(10 a.m. ET) The U.S. Commerce Department reports on new-home sales in December. Economists expect 380,000 annualized sales.
(10 a.m. ET) U.S conference board releases consumer confidence index for February. Economists expect a reading of 61.0, up from January's 58.6.
STOCKS TO WATCH:
Bank of Montreal reported adjusted earnings of $1.52 a share in its latest quarter, beating the median Street view of $1.47, even while its overall profit fell 5 per cent. It also raised its dividend. Shares are up 1 per cent in the U.S. premarket on very light volume.
Home Depot Inc. reported a 32 per cent jump in fourth-quarter earnings, with both profit and revenue beating analyst predictions. Shares are up 1.5 per cent in the premarket.
Other earnings today include: BASF SE; Bata India Ltd.; Calfrac Well Services Ltd.; DreamWorks Animation SKG Inc.; Esprit Holdings Ltd.; First Resources Ltd.; Macy's Inc.; and Neiman Marcus Inc.
Telus Corp. is ramping up its presence in health care with a deal to acquire Ontario's largest provider of electronic medical records. Terms are not yet known.
THIS MORNING'S TOP INVESTING READS ON THE WEB:
10 stocks that U.S. hedge funds love. Note that Canada's Nexen Inc. was ranked as having the fifth biggest fund long position at the end of 2012, when its $15-billion Chinese takeover was in doubt.
Why the bad news for Apple Inc. is likely to keep on coming.
Talk about volatility. Research In Motion Ltd. has traded an average of 5 per cent in either direction every day this year.
Why investors aren't panicking (yet) over the sequester.
Five signs the rally is on hold.
Top lies investors tell themselves.
Why estimating long-term future stock returns should never be counted on when considering portfolio allocation.
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The premarket report is constantly updated to reflect the latest news developments and market moves. For instant headlines on breaking economic and corporate news in the premarket, follow Darcy Keith on Twitter at @eyeonequities
Darcy Keith