The Wednesday Market Minute
- Global stocks drift lower ahead of U.S.-China trade deal signing as investors seek clarity on existing tariffs and future talks between the world's two biggest economies.
- Treasury Secretary Mnuchin says existing levies on China-made goods will remain in place, adding President Trump could 'consider' reductions if phase 2 agreement reached quickly.
- European stocks slip lower amid cautions market reaction, while Asia closes modestly in the red as investors await release of deal text later today.
- Global oil prices ease after API data shows 1.1 million barrel increase in U.S. crude stocks and the Energy Department forecasts a record 13.3 million barrels per day in domestic production for 2020.
- U.S. equity futures suggest modest opening bell declines on Wall Street ahead of December factory gate inflation data at 8:30 am Eastern time and earnings from Goldman Sachs, Bank of America and United Health before the start of trading.
Wall Street futures drifted lower Wednesday, while global stocks traded with caution ahead of today's formal signing of the so-called phase one trade deal between the U.S. and China amid questions over the removal of existing tariffs and the willingness of both sides to follow-through with commitments linked to the agreement.
U.S. Treasury Secretary Steve Mnuchin and U.S. Trade Representative Robert Lighthizer issued a joint statement yesterday pushing back on speculation that the phase on agreement will result in the rollback of tariffs already in place.
"There are no other oral or written agreements between the United States and China on these matters, and there is no agreement for future reduction in tariffs. Any rumors to the contrary are categorically false," the statement said.
Mnuchin later told reporters that President Donald Trump could "consider" easing the 25% tariff that will remain on $250 billion worth of China-made goods if a phase 2 deal were to be agreed quickly, but few analysts expect that to happen prior to this fall's Presidential Elections.
With tariffs in place, and China's economy slowing, the ability of Beijing to add more than $200 billion in purchases of American made goods -- from agricultural products to services -- remains another question for investors ahead of the signing of what Trump called a 'beautiful monster' of a deal, which is expected to begin at 11:30am Eastern time at the White House.
Amid these questions, and reports that the Trump administration is preparing t widen the blacklist of China-backed technology giant Huawei by preventing even more sales of foreign-made goods that contain U.S. components, global stocks have remained in a holding pattern from much of the week.
U.S. equity futures suggest similar caution at the start of trading Wednesday, with contracts tied to the Dow Jones Industrial Average suggesting a 48 point gain at the opening bell and those linked to the S&P 500 indicating a 3.4 point dipp for the broader benchmark.
Goldman Sachs Group (GS) - Get Report shares slipped 1.6% lower after it posted weaker-than-expected fourth quarter earnings Wednesday under its new reporting format, thanks in part to a litigation charge that clouded solid group revenues.
Bank of America was also lower even as it better-than-expected fourth-quarter earnings Wednesday as loan growth offset narrowing interest rate margins at the consumer-focused lender.
Shares of discount retail giant Target (TGT) - Get Report fell sharply after it said sales of toys, electronics and home furnishings over the critical holiday shopping season weren't as strong as expected, and warned that overall growth for its fiscal fourth quarter will likely be lower than predicted.
S&P 500 companies are expected to see collective earnings slip by 0.6% over the fourth quarter, when compared to the same period last year, a figure that translates to share-weighted earnings of £333.3 billion. Revenues, however, will likely edge higher, by 4.2%, suggesting broader consumer health in the world's biggest economy.
However, upcoming earnings are poised for a big rebound from the previous year, according to current Refinitiv forecasts, with gains estimated from 6% in the first quarter to as high at 14.4% by the fourth quarter of 2020.
European stocks were little-changed by mid-day trading in Frankfurt, with the Stoxx 600 slipping 0.12% lead by a 0.18% decline for the trade-sensitive DAX performance index in Germany. Britain's FTSE 100 was essentially flat in the opening minutes of trading in London as the pound bumped higher, to 1.3006 against the U.S. dollar.
Overnight in Asia, risk sentiment faded amid questions over tariffs and U.S. plans to add to the Huawei blacklist, with the safe-haven yen rising to 109.93 against the greenback and clipped 0.45% from the Nikkei 225 in Tokyo. The region-wide MSCI ex-Japan benchmark, meanwhile, drifted a further 0.42% from its recent 19-month high heading into the final hours of trading.
Global oil prices were also modestly weaker in the early European session, with traders citing both trade uncertainty and yesterday's output assessment from the Energy Department, which forecast record domestic production of 13.3 million barrels per day this year as drillers continue to extra shale oil from the Permian basin in west Texas.
Brent crude futures contracts for March delivery, the global benchmark for pricing, were last see seen 21 cents lower from their Tuesday close in New York and trading at $64.28 per barrel, while WTI contracts for February, which are more tightly-linked to U.S gasoline prices, were marked 22 cents lower at $58.01 per barrel.