Dow to Open Up on Bailout Boost?

LONDON -- The big news over the weekend was that the EU has agreed on a 100 billion euro bailout of Spain's banks. This is likely to give the Dow Jones Industrial Average (INDEX: ^DJI  ) a lift when markets open this morning, with futures markets pricing in a 0.8% increase.

The relief could be short-lived, however, if trading on European markets is anything to go by. Major European markets opened up strongly this morning, with the FTSE 100 (INDEX: ^FTSE  ) up by 1.8% and Spain's IBEX 35 leaping upward by more than 5% on opening. However, by 7 a.m. EDT, most major European markets had relinquished some of their gains, with the FTSE 100 up by 1%, the DAX up 1.9%, the CAC 40 up 1.6%, and the IBEX 35 up by 2.4%. Brent Crude hit $102 in early trading but had dropped back to around $100 by late morning.

Bond markets saw a similar lift, with the yield on 10-year Spanish government bonds falling rapidly in early trading before settling back up at 6.129%. Yields on German 10-year bonds, on the other hand, rose to 1.399% as the demand for safe-haven debt dropped.

One factor that has limited the bond market's reaction this morning is traders' concerns over the source of the money for the Spanish banking bailout. If it comes from the new European Stability Mechanism fund, which is due to come into action next month, then the loans will have preferred creditor status and be senior to outstanding Spanish government debt. This could upset the bond markets and push Spanish yields still higher. If the money comes from the current European Financial Stability Facility, then this won't apply.

Also in the news this morning was new data from China showing that its exports grew by 15% in May from a year earlier. However, industrial output was up by only 9.6%, and retail sales showed their smallest gain in six years, suggesting that the Chinese domestic economy is slowing down.

In company news, British engineer GKN (LSE: GKN.L  ) rose more than 2% on news that it had been awarded a contract by Boeing to supply complex parts for the 787-9 Dreamliner. Also heavily traded was supermarket giant Tesco (LSE: TSCO.L  ) , which released its latest quarterly earnings, showing that sales had declined again in its U.K. stores on a like-for-like basis. This means it has reported four straight quarters of declining sales in the U.K. Sales in Tesco's U.S. supermarket business, Fresh & Easy, grew by 3.6%, down from 12.3% in the previous quarter.

Despite this, many investors think that the case for investing in Tesco remains stronger than ever -- and one of these is billionaire investor Warren Buffett. Buffett's company Berkshire Hathaway recently doubled its stake in Tesco to 5%, and if you would like to know the full details of Buffett's Tesco holdings, including the dates of his purchases and the price he paid, you can this information in this special free report.

No major domestic economic data or earnings reports are due today.

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Roland Head owns share in Tesco but no shares in any of the other companies mentioned. The Motley Fool owns shares of Berkshire Hathaway and Tesco. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway and Tesco. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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