The Thursday Market Minute
- Global stocks mixed as risk sentiment is challenged by China's decision to move forward with sweeping security legislation for Hong Kong.
- China's parliament overwhelmingly backs the controversial bill, which U.S. Secretary of State Mike Pompeo says threatens Hong Kong's autonomy.
- European stocks book solid gains as EU moves ahead with €750 billion coronavirus rescue package.
- Oil prices slide after API data shows 8.7 million crude invetory build for the week ending May 22.
- U.S. equity futures pare gains, but are still set for a positive open ahead of weekly jobless, durable goods orders and first quarter GDP data at 8:30 am Eastern time.
U.S. equity futures pared gains Thursday, but are still set for a solid opening bell gain, after China's parliament voted to move ahead with a sweeping security bill that tightens its grip on Hong Kong and risks stoking further tensions between Washington and Beijing.
The new rules, which are likely to be in place by September, are aimed at what Chinese officials have called 'secession, subversion, terrorism and foreign interference" in the island protectorate, but are more likely to provoke a reaction from President Donald Trump in the coming weeks as U.S. lawmakers debate the future of Hong Kong's special autonomous status from mainland China.
“Hong Kong does not continue to warrant treatment under United States laws in the same manner as U.S. laws were applied to Hong Kong before July 1997," said Wednesday ahead of today's vote in the Great Hall of the People in Beijing. No reasonable person can assert today that Hong Kong maintains a high degree of autonomy from China, given facts on the ground."
The vote, while expected, pierced risk sentiment in overnight trading, pushing the Chinese yuan to a near record low of 7.1556 against the U.S. dollar and tipping the region's MSCI ex-Japan equity benchmark into the red heading into the close.
U.S. equity futures weakened, as well, with contracts tied to the Dow Jones Industrial Average now indicating a 180 point opening bell gain, following last night's close which lifted the 30-stock average to the highest levels since early March
Around 60 points of the projected move, however, is linked to the 5.75% jump in shares of Dow component Boeing Co. (BA) - Get Report, which announced the limited resumption of its 737 MAX production program, as well as 12,000 job cuts, late Wednesday.
Contracts linked to the S&P 500 suggest a 5.6 point advance for the broader benchmark while the tech-focused Nasdaq is primed for an 88-point pullback.
Fresh data, as well, underscored the weakness of the economy heading into the second quarter, with the GDP contraction for the three months ending in March revised 0.2% lower to -5%.
Weekly jobless claims were pegged at 2.135 million, pulling the four-week average down to 2.608 million for the seven days ending on May 22.
European stocks, however, were holding onto solid gains in the early session and could support U.S. markets heading into the open as traders cheered plans put forward by the European Commission to use collective borrowing power in order to fund a €750 billion coronavirus rescue package of grants and loans to member states.
The Stoxx Europe 600, the region's broadest measure of share prices, was last seen 0.75% higher on the session, extending its two month gain past 30%, while Britain's FTSE 100 was marked 0.5% higher at 6,173.12 points.
In currency markets, the European rescue fund plan pushed the euro to a 10-week high of 1.1003 against the greenback, clipping gains for the dollar index, which was little-changed against a basket of its global peers at 99.078 even as the yuan continued to drift lower after the Hong Kong vote.
Benchmark 10-year Treasury note yields, meanwhile, held at 0.685% ahead of a $44 billion auction of 7-year notes later this morning that will cap a week in which nearly $130 billion in new Treasury paper hit the market as the government continues to fund its myriad coronavirus support programs.
Oil prices were also lower in early European trading, pushed into the red by declining risk appetite and data from the American Petroleum Institute yesterday which showed a surprise increase of 8.7 million barrels in domestic crude inventories.
Brent crude futures for July delivery fell 51 cents per barrel from yesterday's close to change hands at $34.23 while WTI futures for the same month were marked 57 cents lower $32.24 per barrel.
Japan's Nikkei 225 extended its recent run of gains with a 2.15% advance Thursday, taking the benchmark to just under 22,000 points, after Parliament passed a new $1.1 trillion stimulus package that takes total government spending to combat the coronavrius pandemic past the $2 trillion mark.
The MSCI ex-Japan benchmark, meanwhile, was little changed heading into the close of trading, with gains in Australia and China offset by a slump in Hong Kong.