Bonds Once Again Weighing on Stocks

Plus, a look at the latest in the Japanese reflation debate.
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Again, it's all eyes on the bonds.

The Treasury market remains under pressure this morning, with investors cautious ahead of this afternoon's $12 billion auction of 10-year notes, and the April

retail sales

figures and the

producer price index

coming out tomorrow.

"There are some nerves about tomorrow's numbers," said Mike Cloherty, senior economist at

Credit Suisse First Boston

. "Retail sales is a very volatile number -- there's a lot of risk involved in forecasting that. The big question is, with market sentiment where it is right now, what's the response to an ugly print on tomorrow's number?"

The prospect of higher yields has put a cap on the stock market.

"If we continue to get yield creep in the bond market, it's going to spill over into the stock market," said Bill Allyn, head stock trader at

Jefferies

. "Investors are cautious. In the utility market, for instance, we're beginning to see some supply that we had not seen. That's an indicator, in my view."

At 9 a.m. EDT, the 30-year bond was flat at 91 25/32, putting the yield at 5.84%. The

S&P 500

futures were up 0.2, putting them about 2 points below fair value and indicating slight weakness at the open.

Japanese stocks rose on a wave of good corporate news. Among the stocks moving were

Takeda Chemical

, up on the news that it developed a new HIV treatment, and

Nintendo

and

Matsushita Electric

(MC) - Get Report

, reported to be in a game-console development deal.

Meanwhile,

Liberal Democratic Party

tax policy committee head Okiharu Yasuoka told reporters that the government is debating a new round of stimulus -- something the market likes to hear these days. The

Nikkei

added 204.18, or 1.2%, to 16,947.36.

Hong Kong stocks improved, but while the market has remained pretty sanguine amid recent Sino-U.S. tensions, the

HSBC Holdings

share placement today is another matter. Though HSBC fell only slightly, the supply could have something of a hangover effect on the market over the next few trading sessions.

The

Hang Seng

climbed 138.6, or 1.1%, to 13,012.97.

European stocks, anticipating weakness on Wall Street, were under mild pressure.

In Frankfurt, the

Dax

was off 4.11 to 5245.04 as reaction to Russian President

Boris Yeltsin's

sacking of Prime Minister

Yevgeny Primakov

was muted. The move by Yeltsin, who goes through prime ministers like

George Steinbrenner

used to go through managers, was widely expected.

In Paris, the

CAC

was down 5.32 to 4344.66. In London, the

FTSE

was down 22 to 6356.3.

Wednesday's Wake-Up Watchlist

By

Elizabeth Roy

Staff Reporter

  • Cox Communications (COX) is buying TCA Cable TV (TCAT) in a $4 billion stock-and-cash deal that values TCA at $63.89 a share. Cox closed yesterday at 88, TCA at 52 1/16.
  • Microsoft (MSFT) - Get Report is in talks with Britain's Cable & Wireless (CWZ) to buy up to 30% of the company's cable TV unit for more than $4 billion, The Wall Street Journal reported. Announcement of a deal isn't imminent, the Journal said.
  • Microsoft and the Sony Music Entertainment unit of Sony (SNE) - Get Report agreed to jointly promote software, music and video products on the Internet. Sony Music's content will be available on the Internet through Microsoft's Windows Media Technologies 4.0 software, to be shipped this summer.
  • Consolidated Natural Gas (CNG) rejected Columbia Energy Group's (CG) - Get Report unsolicited takeover bid and accepted a sweetened $6.4 billion offer from Dominion Resources (D) - Get Report.
  • As expected, Lycos (LCOS) and USA Networks (USAI) - Get Report called off their merger agreement. The deal had been opposed by Lycos shareholders, including its largest shareholder, CMGI (CMGI) .
  • Speculation is building that CIT Group (CIT) - Get Report will call off its planned acquisition of Newcourt Credit (NCT) because Newcourt's stock price has dropped sharply since the company reported disappointing first-quarter results last week, the Journal's Heard on the Street column says. In other news (earnings estimates from First Call):
  • Chancellor Media (AMFM) reported a first-quarter loss of 77 cents a share, including a charge. The consensus estimate called for a 64-cent loss.
  • Cisco (CSCO) - Get Report was up 5 1/8 at 117 in premarket activity after last night reporting better-than-expected third-quarter earnings.
  • Federated Department Stores (FD) reported first-quarter earnings of 40 cents a share, beating the consensus estimate by 9 cents.
  • Kmart (KM) reported first-quarter earnings of 14 cents a share, in line with expectations.
  • Payless Shoesource (PSS) reported first-quarter earnings of $1.09 a share, beating the consensus estimate by a penny.
  • Perot Systems (PER) - Get Report reported first-quarter earnings of 15 cents a share, beating the consensus estimate by 4 cents.