- Lack of trade progress, global slowdown worries pressures U.S. futures, European shares
- S&P 500 futures reinforce resistance at 2,800
- Morgan Stanley forecasts lower yields, raising a red flag for equities
- GE stock plunges after CEO signals negative cash flow for 2019
European stocks and futures on the S&P 500, Dow and NASDAQ 100 edged lower this morning after a mixed Asian session amid lack of progress on U.S.-China trade negotiations and heightened worries of a global slowdown.
The STOXX Europe 600 slipped alongside automobile producers, though household goods helped the index offset a deeper drop.
After a three-straight hour advance, U.S. future contracts staggered in the fourth hour, with SPX futures reaching a high of 2788.62 at 3:13 EST before slipping away from the 2,800 psychological level that has kept bulls at bay for the last seven sessions.
Earlier, in the Asian session, China’s Shanghai Composite (+1.57%) outperformed its regional peers as traders bought into the Chinese government’s announcement of new stimulus measures, while Japan’s Nikkei 225 (-0.60%) underperformed. A selloff in Chemical, Petroleum & Plastic, Shipbuilding and Rubber sectors weighed on the Japanese benchmark, with a stronger yen throughout the session likely to have put further pressure on prices.
Global Financial Affairs
In yesterday’s U.S. session, equities extended a retreat.
The S&P 500 (-0.11%) slid further below a key psychological level, with losses in Industrials (-0.64%) and Materials (-0.47%)—the two most trade-sensitive sectors—overshadowing gains in Communication Services (+0.63%). Investors were questioning recent reports of an incoming deal between the U.S. and China and focusing on the scarcity of concrete details.
Adding to broad skepticism: a report by the host of popular CNBC program Mad Money, Jim Cramer, argued U.S. President Donald Trump could take advantage of China’s weakening economy to pressure the Asian country into a deal balanced in favor of the U.S. interest, thereby ignoring the more immediate need, by the market, of trade stability. Besides, we have been warning of the potential effect, on trade negotiations, of a slowing Chinese economy since mid-last year.
On a more positive note, data beats on U.S. home sales and non-manufacturing PMI helped the SPX erase early losses around mid-session. However, it wasn’t long before the index slid back into negative territory, after General Electric (NYSE:GE)’s CEO Larry Culp warned the company’s “industrial free cash flow in 2019 will be negative.”
GE Daily Chart
The stock of the conglomerate powerhouse plunged 7.71% after Culp’s warnings, to close 4.72% lower. Technically, short-term bulls since the December bottom are clashing with medium-term and long-term bears, beautifully depicted by the 200 DMA (red).
UST 10-year Daily Chart
Meanwhile, the yield on 10-year Treasurys edged lower for a fourth day. However, the February range’s high, aided by the 50 DMA, provided support, propelling yields well off their lows, where they formed a hammer. The recent boost in demand signals market defensiveness, which led Morgan Stanley analysts to forecast that yields will drop to as low as 2.35% by year end. We had expected a further Treasury rally, which would have also pushed yields lower. However, last week’s three-day jump resulted in a pattern failure, complicating the picture.
DXY Daily Chart
As yields bounced back, they allowed the dollar to subside for the first time in six days, giving up intraday highs—though the greenback kept fluctuating between gains and losses.
GBP Daily Chart
The British pound slipped for the fifth consecutive session on mounting concern that Prime Minister Theresa May’s Brexit plans will suffer another defeat in Parliament. Technically, the price is showing a correction within a medium-term uptrend.
The Australian dollar tumbled after weak GDP data spurred bets on upcoming interest-rate cuts and fed into fears of a global slowdown.
WTI Hourly Chart
WTI fell after a report revealed a bigger inventory buildup than forecast, increasing the potential for a short-term top. Overall, fresh warnings on the state of the Chinese economy may put further pressure on the market, countering the upward price effect of recent Saudi-led supply cuts.
- Bank of Canada is expected to keep rates on hold on Wednesday due to lingering uncertainty on housing and investment, though Governor Stephen Poloz is expected to stick to his message that borrowing costs eventually need to head higher.
- European Central Bank policy makers are expected to leave rates unchanged on Thursday, amid a deteriorating economic outlook. President Mario Draghi will hold a news conference after the decision.
- The U.S. jobs report coming out on Friday may show hiring subsided in February. Nonfarm payrolls are forecast to have increased by 185,000 and the jobless rate to have slipped to 3.9%.
- The STOXX 600 climbed 0.1%.
- Futures on the S&P 500 fell 0.1%.
- The MSCI All-Country World Index advanced less than 0.05%.
- The U.K.’s FTSE 100 rose 0.2% to 7,196.54.
- The MSCI Emerging Market Index increased 0.1% to the highest in a week.
- The Dollar Index gained less than 0.5%, reaching the highest in almost three weeks on its sixth straight advance.
- The euro fell less than 0.05% to $1.1306, the weakest in almost three weeks.
- The British pound dropped 0.3% to $1.3142, reaching the weakest in more than a week on its fifth consecutive decline.
- The Japanese yen rose 0.1% to 111.81 per dollar.
- The yield on 10-year Treasurys fell one basis point to 2.71 %, the lowest in a week.
- Germany’s 10-year yield fell two basis points to 0.15 %.
- Britain’s 10-year yield fell two basis points to 1.268 %.
- Japan’s 10-year yield slid one basis point to -0.004 %.
- The Bloomberg Commodity Index slid 0.1 %.
- Brent crude fell 0.6 % to $65.49 a barrel.
- LME copper declined 0.2 % to $6,465.00 per metric ton.
- Gold advanced 0.1 % to $1,289.35 an ounce.