The Wednesday Market Minute
- Global stocks drift lower as investors fade the impact of eased restrictions on Huawei to focus on slowing economic growth and rising geo-political risks.
- The New York Times reports the White House is reading to expand the number of Chinese firms on the so-called Entities List, a move that could escalate trade tensions between Washington and Beijing.
- European stocks drift lower ahead of EU elections later this week, while the pound retreats to near five-month lows as Prime Minister Theresa May faces renewed calls to resign.
- Oil edges higher lower after a bigger-than-expected API build of 2.4 million barrels and a stronger U.S dollar, which is holding at near four-week highs against a basket of six global currencies.
- Wall Street futures suggest a softer open to start to the trading day ahead retail sector earnings from Lowe's Companies and Target.
Global stocks edged lower Wednesday, pulling Wall Street futures modestly lower, as investors faded a move by the White House to ease restrictions on China's Huawei Technologies to focus on worrying signals of slowing economic growth and geo-political uncertainty.
With European elections looming later this week, and Britain's Brexit crisis threatening to engulf its enfeebled Prime Minister, risk appetite was already in short supply in the overnight session, even after yesterday's gains that lifted the Dow Jones Industrial Average nearly 200 points following the Commerce Department's decision to give Huawei a 90-day reprieve on trade restrictions with the United States.
A New York Times report, however, added to overall growth and political concerns by suggesting the White House is prepared to target several more Chinese firms -- including Hangzhou Hikvision Digital Technology Co. and Zhejiang Dahua Technology Co. -- for the so--called Entities List as it tightens the screws on Beijing in an effort to force concessions on trade.
China's Foreign Ministry said it opposed moves by the U.S. to 'smear' Chinese companies by invoking national powers, and urged Washington to provide a fair and non-discriminatory environment for China-based companies.
China's Shanghai Composite extended declines in late trade to close 0.5% lower on the session, trimming gains for the broader MSCI Asia ex-Japan benchmark, which was little-changed into the final hours of trading, as was the Nikkei 225 in Tokyo.
Early indications from U.S. equity futures suggest modest declines at the start of trading Wednesday, with contracts tied to the Dow indicating a 86-point dip while those linked to the S&P 500 are guiding to an 11.4 point pullback after earnings from big box retailers Lowe's Companies (LOW - Get Report) and Target (TGT - Get Report) .
Target posted stronger-than-expected first quarter earnings and reaffirmed its full-year guidance, as the retailer extended its run of same-store sales gains despite increasing competition from Walmart (WMT - Get Report) and Amazon (AMZN - Get Report) , sending shares 8% higher in pre-market trading.
Target's results were a sharp contracts to Lowe's, which trimmed its full-year outlook as rising costs hit profit margins, amid a series of disappointing reports from U.S. retailers. Lowe's shares fell 9.2% in pre-market trading to $100.90 each following the earnings release.
Qualcomm Inc. (QCOM - Get Report) was another notable move, falling 9% after a federal judge has ruled in favor of the U.S. Federal Trade Commission in a long-running antitrust dispute over patents and licensing.
U.S. stocks, while still holding onto sold gains for the year, have been red across the board for the month of May, with the S&P 500 nursing a 2.77% month-to-date decline as concern of the fate of U.S.-China trade talks, and persistently slowing growth figures in retail sales, existing home sales and the manufacturing sector intensifies.
Those issues, and their impact on interest rate policy, where addressed by a trio of Federal Reserve officials yesterday, with both St. Louis Fed President James Bullard and the Chicago Fed's Charles Evans suggesting that weaker inflation, linked to slowing growth, could trigger a late 2019 rate cut.
Boston Fed President Eric Rosengren, however, rejected that view, telling the Economic Club of New York that "I'm not as worried as some of my colleagues about the extent of the inflation miss we have right now."
Neither the U.S. dollar, which is trading near a four-week high against a basket of its global peers at 98.07, not benchmark 10-year U.S. Treasury bond yields, which eased to 2.42% during yesterday's trading session, suggest investors are moving to price in a near-term rate cut, which could put equity markets at risk of further declines if the trade war were to escalate further into the summer.
European stocks were 0.34% lower by mid-day trading in Frankfurt, with the Stoxx 600 rising 0.01%, lead by a 0.3% decline for Germany's DAX index.
The pound continued to slide in early Wednesday trading, following a brief rally in the late hours Tuesday, as reports of a tepid reaction from lawmakers to Prime Minister Theresa May's last-ditch Brexit offer poured in, suggesting she may have only days left as leader before her Conservative colleagues push for her removal.
Sterling traded at 1.2646 against the greenback in early London trade, helping the FTSE 100 -- whose constituents earn 75% of their revenues in non-sterling currencies -- to a lunchtime gain of of 0.4%
Global oil prices were also weaker during the overnight session, held down by a stronger dollar and data from the American Petroleum Institute that showed domestic U.S. stockpiles rose by a larger-than-expected 2.4 million barrels last week.
The declines were capped, however, by OPEC's continued indication that the cartel may carry over their agreed production cuts into the end of the year when ministers meet next month in Vienna.
Brent crude contracts for July delivery, the global benchmark for oil prices, were marked 37 cents lower from their Tuesday close in New York and changing hands at $71.81 per barrel while WTI contracts for the same month were seen 56 cents higher at $62.57 per barrel.