The Monday Market Minute

  • Global stocks drift lower, but U.S. equity futures hold gains as investors head into the final trading week of the third quarter.
  • Safe-haven assets find favor after muted U.S.-China trade talks last week, while the Fed's move to extend repo operations into October adds to interest rate market jitters.
  • European stocks fall as Germany's factory output slumps to lowest level since 2009, pulling the DAX 1.3% lower in early Frankfurt trading.
  • Oil prices extend gains as U.S. troops are deployed in the Gulf region to support Saudi Arabia's defense of its production facilities following last week's attack in Abqaiq and Khurais.
  • Wall Street futures suggest modest opening bell gains for the Dow ahead of September manufacturing and services PMI data  at 8:30 am Eastern time.

Market Snapshot

Global stocks drifted lower Monday, pulling U.S. equity futures into the red, as investors entered the final full trading week of the third quarter with a new set of concerns, including suddenly-rising oil prices and gummed-up lending markets on Wall Street, to add to worries over growth, trade and Fed rate policies. 

Trade still tops the list, however, with Bank of America Merrill Lynch's benchmark Fund Managers' Survey for September indicating it's remained the largest concern for much of the year. Not much changed in that respect over the weekend, following terse statements of "constructive progress" from officials in Washington and Beijing after two days of talks near the White House last week were punctuated by an 11th-hour cancellation of a visit to some U.S. agricultural regions by the Chinese trade delegation.

High level talks -- which are expected to included Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin -- are still slated for next month, but investors seem to indicate little enthusiasim for a near-term agreement. 

That reality, set alongside a puzzling surge in overnight lending rates between Wall Street banks, has markets in a cautious mood heading into the final full week of the quarter, as government bond yields decline and safe-haven assets find favor over riskier trades.

Wall Street futures suggested opening bell declines in early European trading, with contracts tied to the Dow Jones Industrial Average indicating a 100 point dip to start the week while those linked to the S&P 500, which has only gained 1.7% so far this quarter, are suggesting a 5 point pullback for the broader benchmark.

European stocks slumped lower in the opening hour of trading in Frankfurt, with the benchmark Stoxx 600 falling 1%, after data showed Germany's powerful manufacturing economy slowed to levels last seen during the global financial crisis this month, cementing the case for recession in Europe's biggest economy.

Germany's DAX performance index was marked 1.45% lower while Britain's FTSE 100, meanwhile, slipped 0.8% as the pound held onto recent gains and traded at 1.2427 against the U.S. dollar.

The NY branch of the Federal Reserve will extend its overnight repo auctions, which have injected just under $280 billion in cash into sclerotic bank-lending markets over the past four trading days, well into October, the bank said Friday.

That's helped ease overnight funding costs, which fell to just 1.75% last week, largely in-line with the Fed's new target lending rate of 1.75% to 2%. However, the fact that the Fed sees the need to continue adding to banks' cash levels, while adding to its own balance sheet at the same time, suggests officials are worried that another flare-up could occur in the weeks ahead. 

Benchmark 10-year Treasury bond yields slipped to 1.681% in early European trading, less than 2 basis points above 2-year notes, flattening the slope of the so-called yield curve further and raising renewed concern for the pace of economic growth in the world's biggest economy.

Adding to the growing lists of investor questions heading into the final months of the year are rising oil prices, which jumped another 1% overnight following news that the Pentagon is set to deploy U.S. troops into the Gulf region in order to protect Saudi Arabia from further attacks that could disrupt global crude markets.

Last week's attack on two Saudi oil facilities, which U.S. officials have linked to Iran, lifted Brent crude prices nearly 7% last week and look to unsettle markets in the weeks and months ahead as the Kingdom scrambles to bring the 5.7 million barrels per day of lost output back online.

Multiple media reports that Saudi Arabia has asked neighboring Iraq for as much as 20 million barrels of crude to support domestic refineries, and Energy Department data indicating a decline in crude stocks at the Cushing, Oklahoma delivery hub, added to upward oil price pressures heading into the final week of the quarter.

Brent crude contracts for November delivery were seen 74 cents higher from their Friday close in New York at $65.02 per barrel while WTI contracts for the same month were marked 62 cents higher at $58.71 per barrel.

Overnight in Asia, Japan's Nikkei 225 remained closed for the Autumnal Equinox Day holiday, muting overall market liquidity in the region, while stocks in China slipped more deeply into the red amid the broader trade talk uncertainty.