European debt crisis flares up again

U.S. stocks will open lower Monday as investors still have hangovers from Friday’s disappointing Nonfarm Payrolls figures and today’s renewed concerns over Europe’s sovereign debt crisis as Spain’s credit spread widens to record.

Alcoa will initiate the earnings season on hangovers from Nonfarm Payrolls
S&P 500 Index futures are currently down 1.2 percent ahead of the open as risk off sentiment is consolidating following the disappointing Nonfarm Payrolls figures last Friday and concerns over Europe’s debt crisis.

Today’s main event is Alcoa’s earnings release as the company starts the second quarter earnings season. The release will not impact markets before the Asian stock markets open as the earnings release is scheduled to be released after the market is closed. Estimates on earnings are USD 0.325 per share up 150 percent from the same period last year as the alumina industry is continuing to recover from its historic slump following the credit crisis in 2008. Investors will focus on sales as the numbers have disappointed for two quarters in a row and operating margin development as higher energy costs may have impacted the bottom line more than anticipated.

European stocks down on renewed concerns over debt refinancing
In Europe, the Euro STOXX 50 Index futures are currently down 2.0 percent driven by declines in BNP Paribas (-4.7%), Banco Santander (-3.1%) and ING (-5.1%) as investors are dumping financial stocks due to concerns over Italy’s upcoming refinancing of debt.

In a response to the sharp declines in Italian financial stocks, the country’s financial industry regulator Consob is ordering investors to disclose their short positions when they reach 0.2 percent or more of the company’s capital. This is normally a clear sign of weakness when regulators move in the direction of protecting financial institutions. The next step could very well be an outright banning of short selling of specific financial stocks. The move by Consob tells us that the regulators think that Italian banks are very weak and fragile to the market’s price setting mechanisms.

In credit markets nervous investors have pushed the Spanish-German 10 year bond yield spread to Euro-era record and the Swiss Franc is surging as investors are fleeing into safe havens.

On a more slightly positive note, French manufacturing and industrial figures for May came out this morning beating the economists’ estimates.