- U.S. futures, European shares drop ahead of tech earnings, U.S.-China talks
- Yen, Treasurys climb on broad investor defensiveness
- Gold sees gains; dollar wavers
Futures on the S&P 500, Dow and NASDAQ 100 are pointing to a lower open, ahead of a week filled with earnings results from key tech companies, including four of the world’s five most valuable technology firms—Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Facebook (NASDAQ:FB). Big tech firms have strongly impacted the recent market performance, making this week’s reports a potential catalyst.
While in recent years seemingly limitless returns helped big tech names win investors’ favor, current economic, market and political conditions make trust hard to come by.
Last quarter’s warning of falling profits aired by numerous Wall Street companies struck a chord with investors. Although, General Motors (NYSE:GM) and some major banks have turned those prospects around this quarter, early this month Apple kicked off tech earnings season by signaling it will miss its revenue target for Q4 2018. The announcement spurred a selloff. Later, Intel’s (NASDAQ:INTC) earnings miss added fuel to the fire, with interim CEO Bob Swan citing heightened trade and macro concerns, especially in China. The company, which is the world’s second-largest semiconductor chipmaker, updated its list of risk factors to include the possibility of a “recession or slowing growth.”
If ever there was a time when continued soft guidance and doom-and-gloom economic forecasts could prompt stock prices to fall hard, it would be now: the post-Christmas bounce has stopped at a technical convergence.
Meanwhile, European shares also opened lower this morning and then slipped further ahead of a crucial round of U.S.-China trade negotiations—starting in Washington on Wednesday—as the outlook for a resolution remains cloudy.
STOXX 600 Daily Chart
Investors tried to gauge whether the retrenchment seen on the STOXX 600 today marked just a temporary pause or a reversal—a legitimate doubt, considering the price is at a trend intersection. It gapped up Friday above a downtrend line since November 8, only to gap down today. The emerging picture is an evening star pattern, with the downtrend line making it all the more poignant, as investors up the ante on both sides of the supply-demand equation.
Earlier, during the Asian session, most stocks ended a choppy session lower. At first, regional shares followed Wall Street stocks higher as investor optimism was boosted by the interim agreement reached by lawmakers to reopen the U.S. government. However, later in the session the focus shifted to looming U.S.-China trade talks, prompting investors to take on a more defensive stance.
While Hong Kong’s Hang Seng rebounded to a 0.03 percent gain, China’s benchmark Shanghai Composite lost 0.18 percent. If investors expected this week’s meeting to yield a diplomatic breakthrough, they would have bought what would be considered very cheap stocks, which since the start of the trade war have lost more than a quarter of their value.
USD/CNY Daily Chart
U.S. Treasury Secretary Steven Mnuchin, who has openly criticized the yuan’s weakness in the past, said high-level talks this week will include discussions about China’s currency policy—we have written extensively about the yuan’s weakening during the recent U.S.-Sino trade talks. In recent days, however, positive sentiment toward the negotiations has lifted the value of the renminbi against the dollar. Today though the USD/CNY pair appears to have found support, as the price rebounded from an early plunge to the previous trough from two weeks ago, forming a hammer.
Nikkei 225 Daily Chart
Meanwhile, Japan’s Nikkei 225 dropped 0.60 percent, underperforming its peers. The index met with overwhelming supply upon a second attempt in a week to contend with the 21,000 level, where the downtrend line since October 2 meets with a previous support from October 26 till December 19, constructing a descending channel. The pattern projects supply outpacing demand.
South Korea’s KOSPI was largely flat while Australian markets were closed for holiday.
Global Financial Affairs
Facing mounting political pressure, U.S. President Donald Trump agreed to temporarily end a 35-day-old partial government shutdown on Friday, despite failing to obtain the $5.7 billion funds he had demanded from Congress for a border wall with Mexico.
Gold Daily Chart
Typical risk-off took hold of the market, with traders buying Treasurys, the yen and Swiss franc. Gold initially bucked the trend, perhaps falling on dollar strength. The USD gained ground despite expectations the Fed will leave interest rates unchanged in this week’s policy meeting. Perhaps, the greenback benefited from increased demand for Treasurys. Gold may also need a correction, after reaching a 7-month high, including a sudden acceleration in mid November. Both gold and the buck reversed their course today.
- Chinese President Xi Jinping’s top economic adviser, Vice Premier Liu He, will meet with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Wednesday and Thursday.
- Apple is expected to report earnings on Tuesday after market, with a $4.17 EPS forecast, after posting $3.89 for the same quarter last year.
- Microsoft is scheduled to release earnings results on Wednesday after market, with upbeat predictions of $1.09 EPS, up from last year’s $0.96 EPS for the corresponding quarter.
- Facebook is due to report corporate results on Wednesday after market, with a $2.17 EPS expectations, from the $2.2 the same quarter last year.
- Qualcomm (NASDAQ:QCOM) will released earnings on Wednesday after market, with a $0.91 EPS prediction, from last year’s $0.85.
- Tesla (NASDAQ:TSLA) will publish earnings on Wednesday after market with a $1 EPS forecast, from $-3.84 the same quarter last year.
- The U.K. Parliament votes on amendments to Theresa May’s Brexit bill on Tuesday. The EU Parliament debates Brexit on Wednesday.
- Also on Wednesday, Fed Chairman Jerome Powell holds a news conference after the FOMC rate decision.
- Futures on the S&P 500 fell 0.4 percent.
- The STOXX 600 dropped 0.3 percent.
- The MSCI Asia Pacific Index slipped 0.2 percent.
- The MSCI Emerging Market Index slid 0.1 percent.
- The Dollar Index is flat after fluctuating between more than 0.1 percent in either direction.
- The euro lost 0.1 percent to $1.1397.
- The British pound edged 0.3 percent lower to $1.3163, the largest fall in more than a week.
- The Japanese yen gained 0.1 percent to 109.46 per dollar.
- The yield on 10-year Treasuries declined one basis point to 2.75 percent.
- Germany’s 10-year yield gained one basis point to 0.20 percent.
- Britain’s 10-year yield was unchanged at 1.317 percent.
- West Texas Intermediate crude fell 1.7 percent to $52.80 a barrel.