After a steady rally pushed the stock market up more than 2% yesterday, investors are nervous about extending those gains today.

Concerns from Europe are back on the table as Spain may apparently need to tap into a credit facility to avoid turmoil. The Financial Times called the country “the next potential crisis in the eurozone bond markets.”

“This week the Spanish government and BBVA, Spain’s second biggest bank, admitted what investors have known for weeks: the country’s banks are on the brink of a funding crisis because their access to international markets is virtually closed,” the UK newspaper reported. 

Economists at BMO noted that “Spanish 10-year yields are at a near two-year high, while the spread vs. German bunds is flirting with a record high.” They said markets will be watching closely tomorrow when Spain issues €3.5 billion in 10 and 30-year auctions.

Ninety minutes before the opening bell, Dow futures are down 52 points to 10,280 and S&P 500 futures are down 7.00 points to 1,102.25.

The 2-year Treasury note yield is 2.4 basis points lower at 0.734% while the benchmark 10 year note yield is 4.1 basis points lower at 3.268%.

NYMEX light crude oil is down 0.56 to 77.37, and Gold is up 1.60 to $1,236.00

The US dollar is benefiting from the renewed uncertainty. The dollar index is up 29 basis points to 86.27.

Key Events Today:

8:30 ― Housing Starts ― or new construction of single-family homes ― are anticipated to fall in May after building permits contracted 11.5%. In April, the annual pace of starts increased almost 6% to 672k, while in May they are expected to come in at 650k. The expected decline follow two months of substantial month-t0-month growth, but aside from those months the level of starts had hardly budged since February 2009.

“Inventories of new homes are at historically low levels and builders’ confidence has improved, but the excess supply of existing homes and less than robust demand will keep many builders’ tools in the tool shed,” said economists at BBVA. “The recent pick-up in housing starts in recent months points to recovery. Nevertheless, economic conditions indicate that the recovery will be slow.”

Economists at Nomura added: “Housing starts and building permits diverged in April, with starts increasing by 10% m-o-m but permits falling by 10%. We expect the opposite pattern in May, with starts cooling but permits rebounding sharply. We forecast a 62.5% decline in starts to an annualized rate of 655,000 units, and a 10.7% increase in building permits to an annualized rate of 675,000 units.”

8:30 ― Falling gasoline prices are expected to push the Producer Price Index into a state of month-to-month deflation in May. Economists look for headline prices to be slashed by 0.5% in the month, falling a 0.1% drawback in April and a 0.7% increase in March. Core prices, which exclude food and energy costs, are anticipated to rise 0.1% following upticks of 0.2% and 0.1% in the prior two months. 

“Unlike other measures of core inflation, growth in the core PPI has actually accelerated in recent months,” noted economists at Nomura. “This is especially evident when one strips out the volatile vehicle and tobacco components. This likely reflects pass-through into finished goods prices from the rise in commodity prices, particularly metals. Importantly, the PPI does not include any services prices, which are a key factor in the ongoing weakness in the CPI.”

9:15 ― After climbing by a healthy 0.8% in April, Industrial Production is expected to advance by 1.0% in May. Optimistic predictions are based largely on the strength of the nationwide ISM Manufacturing survey, which hit a six-year high in April before moderating slightly in May. Also, the ISM’s employment index hit its second highest reading in 26 years. 

“The re-stocking process is driving manufacturing production sharply higher,” said economist at IHS Global Insight. “Manufacturing hours surged 1.0%, electricity production rebounded on warmer weather, and motor vehicle production rose to its highest level in twenty months.”

Analysts at BBVA added that the ISM survey results should translate into “a significant improvement in industrial production.” They said inventory adjustment and a more solid financial footing were playing a role in the expansion, plus greater financing opportunities and improved confidence among businesses.

“A positive surprise in Wednesday’s data would be a signal that business investment is picking up and that private demand is firming outside of fiscal stimulus,” they wrote.

2:15 ― Charles Plosser, president of the Philly Fed, speaks on a panel on fixing the financial system in New York.