The Monday Market Minute
- China stocks re-open after Lunar New Year break with heavy selling, but global stocks steady following Friday's market rout.
- China shares tumble 8%, the most in nearly five year, as investors lop more than $400 billion in equity value from major benchmarks in the first trading day since the coronavirus outbreak.
- Government efforts to limit short-selling, as well as targeted rate cuts and billions in new liquidity, hold bears at bay and provide at least some support for broader global markets.
- Copper prices hit 3-year low in Shanghai, however, as crude extend's January sell-off to a fresh one-year low as the economic impact of the virus continues to escalate.
- U.S. equity futures suggest a firmer open on Wall Street ahead of ISM manufacturing data at 10:00 am Eastern time and earnings from Google parent Alphabet after the close of trading.
U.S. equity futures rebounded Monday, but an overnight rout in Chinese stocks on their first day of trading since the coronavirus outbreak, as well as extended declines for oil and copper, are likely to cast a defensive shadow over global markets as the human and economic costs of the deadly disease continue to escalate.
China's major stock benchmarks fell the most in nearly five years Monday, loping around 8% from their January 23 closing levels and erasing more than $400 billion in value just hours after trading began in Shanghai and Shenzen.
Government efforts to curb short-selling, alongside liquidity injections and targeted rate cuts from the People's Bank of China, stemmed some of the downside tide, but investors were taking not chances with the Communist Party's statement that U.S. media had exaggerated the extended of the coronavirus outbreak and that the damage to the economy would be limited.
More than 360 people have died from the respiratory-focused virus, with at least 17,000 others -- including 171 people from 24 countries outside China -- have been infected.
Global investors, however, had assumed today's maiden session in China would trigger heavy-selling, and with PBOC efforts to support bank liquidity, and little suggestion that the spread of the virus has accelerated faster than its previous pace, stocks in Europe and the U.S. were set for modest rebounds following Friday's sharp decline, which hived 58 points from the S&P 500 and ended the biggest week of loses for U.S. benchmarks since last August.
Monday's opening, however, is likely to claw some of that lost value back, with contracts tied to the Dow Jones Industrial Average indicating a 160 point opening bell gain while those linked to the S&P 500 suggesting a 20 point move higher for the broader benchmark.
With no major earnings on the docket prior to the market open -- and Google parent Alphabet (GOOGL) - Get Report set to report after the closing bell -- market focus is likely to turn to the January ISM manufacturing sector activity reading at 10:00 am Eastern time, which continues to be affected by Boeing Co.'s (BA) - Get Report decision to suspend production of its grounded 737 MAX aircraft.
Investors will also be looking to results from the Democratic Party's Iowa caucuses later this evening, where voters will choose their preferred candidate to take on President Donald Trump in November. Vermont Senator Bernie Sanders has held consistent leads in recent polls, but the race remains too tight to call among the 11 Democratic hopefuls, including national favorite and former Vice President Joe Biden.
European stocks opened firmer across the board, but pared gains throughout the morning session to put the Stoxx 600 little-changed from Friday's close by mid-day, even with a 0.14% bump higher for the DAX performance index in Germany. Britain's FTSE 100 gained 0.4% during the opening hours of trading in London.
Defensive assets, however, remain firmly in the frame, with 10-year Treasury note yields trading at 1.529% and the safe-haven yen rising to 108.42 against the U.S. dollar.
Commodity prices, too, are extending recent declines on the back of significant markdowns for GDP growth prospects in China -- the world's biggest energy importer -- as the virus shutters factories for exports and erodes domestic demand.
Copper prices, a closely-watched bellwether for global economic growth, traded at a three-year low on the Shanghai Futures Exchange Monday following a 7% early-session plunge.
Global crude oil prices, meanwhile, fell to the lowest levels in more than a year Monday -- tacking on losses to the worst January for oil prices since the early 1990s -- as reports of significant reductions in refinery outputs in China, alongside weakening demand in Europe and Asia, continued to hammer prices.
Oil pared some of those loses, however, after a Reuters report which indicated that OPEC members, along with non-member allies such as Russia, were considering a further 500,000 barrel per day increase to their 1.7 million in production cuts in order to stabilize global prices.
Brent crude futures contracts for April delivery, the global benchmark for pricing, were last see seen 51 cents lower from their Friday close in New York and trading at $56.11 per barrel, while WTI contracts for the same month were seen 12 cents lower at $51.44 per barrel.