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The Monday Market Minute

  • U.S. equity futures suggest a weaker start to trading Monday, with the Dow called 178 points lower after weaker-than-expected earnings from Caterpillar
  • Global stocks drift lower as the rally from last week's shutdown agreement faded and investors focused on a busy week of event risk in markets all over the world.
  • China's industrial profits fell for a second consecutive month in December, halving the 2018 tally compare to the previous year, as trade wars and limp domestic demand hits the world's second biggest economy.
  • British lawmakers will debate Prime Minister Theresa May's "Plan B" Brexit deal with week as the pound tests multi-month highs amid bets that a hard exit from the European Union can be avoided
  • U.S. corporate earnings will take center stage over the next two weeks with top-tier FAANG names such as Apple and Microsoft leading a parade of more than 200 S&P 500 companies reporting.

Market Snapshot

U.S. equity futures fell sharply lower Monday as a profit warning from industrial equipment maker Caterpillar Inc. (CAT) cast a pall over the busiest week of the fourth quarter earnings season as markets shifted focus to a series of major event risks and blue chip reports in the week ahead.

Caterpillar posted weaker-than-expected fourth quarter earnings and forecast a "modest" in increase in 2019 sales, sending shares in the industrial equipment marker sharply lower in pre-market trading. Caterpillar also said it expects 2019 profit to increase to a range of $11.75 to $12.75 per share, compared to the Refinitiv consensus forecast of $12.73 per share.

The warning sent shares 5.3% lower in pre-market trading and pushed U.S. equity futures firmly into the red, as investor optimism linked to President Donald Trump's decision to sign a bill that funds the government until February 15 faded in the wake of comments he made during an interview with the Wall Street Journals, as well as on social media, that he may double-down on his demand to $5.7 billion in border wall funding when talks between lawmakers resume this week.

Contracts tied to the Dow Jones Industrial Average indicate an 200 point slide for the 30-stock board, which has gained around 6% since the start of the year, and an 16.5 point pullback for the broader S&P 500 , which has used a steady fourth quarter earnings season and a dovish Fed to a 6.3% gain in the face of the prolonged government shutdown.

Investors will navigate a heavy week earnings -- the busiest of the year -- that will see around 125 S&P 500 companies report quarterly profit details and the Federal Reserve reveal its January interest rate decision on Wednesday afternoon.

Caterpillar and Whirlpool (WHR) are the two bluechip reports expected today, with top-tier tech and consumer names such as Apple (AAPL) , Microsoft (MSFT) , General Electric (GE) , 3M (MMM) , Pfizer (PFE) , Exxon Mobil (XOM) , McDonald's (MCD) AT&T (T) and Ebay (EBAY) all slated to report over the next five sessions.

In Europe, the pound traded at a three-month high of 1.3218 in overnight dealing as investors braced for a series of parliamentary debates that begin Tuesday in London that could define Prime Minister Theresa May's "Plan B" Brexit ambitions.

Investors are betting the Prime Minister will be able to secure support from lawmakers for a deal that takes Britain out of the European Union on March 29, but avoids the so-called "hard Brexit" withdraw that would rip apart 4 decades of economic ties between the bloc and the world's fifth largest economy.

The pound's gains helped push Britain's FTSE 100 0.52% lower in London while the Stoxx 600 was marked 0.63% lower by mid-day in Frankfurt following the Caterpillar earnings release.

Traders were also in a cautious mood following data from China that showed industrial profits for the month of December fell by a more-than-expected 1.9%, the second monthly decline and a figure that brings the 2018 tally to 10.3%, around half the pace of 2017 and further cementing concerns of a slowdown in the world's biggest economy.

The region-wide MSCI Asia ex-Japan index slipped 0.03% while the Nikkei 225 in Tokyo fell 0.60% as the yen strengthened to 109.33 against a weaker U.S. dollar.

Away from equities, the U.S. dollar index, which tracks the greenback against a basket of six global currencies, extended its January decline to around 0.41% as investors continue to bet on dovish signalling from the Fed this week, owing to a collection of slowing economic data and cautious consumer sentiment linked to the 800,000 federal employees that have gone more than a month without a paycheck at a time when December shopping debts are traditionally serviced.

Benchmark 10-year Treasury bond yields were marked at 2.75% through the overnight trading session, while 2-year notes were seen just under 2.6%, suggesting a renewed "flattening" of the yield curve that often signals weakening near-term economic growth.

Bond investors will also have to deal with around $113 billion in new Treasury supply this week, in the form of fresh auctions for 2-year, 5-year and 7-year notes that will help close the record trillion dollar fiscal deficit recorded in the previous financial year.

Global oil prices were active overnight, with crude extending declines after China posted its disappointing industrial profit data as traders reacted to the prospect of weakening demand in the world's biggest energy importer and last week's data from oil services group Baker Hughes that indicated the first expansion of U.S. drilling installations so far this year.

Brent crude contracts for March delivery, the global benchmark, were marked 96 cents lower from their Friday close in New York and changing hands at $60.68 per barrel while WTI contracts for the same month were 93 cents lower at $52.76 per barrel.