TheStreet

The Thursday Market Minute

  • Global stocks retreat as the impact of progressing U.S.-China trade talks, and a dovish Federal Reserve, fades in favor of a focus on U.S. corporate earnings.
  • Slowing inflation in China suggests the world's second largest economy continues to struggle, while a firmer European single currency clips gains for regional stocks. 
  • Global oil markets give back some of yesterday's 5% surge as U.S. gasoline supplies rise to a two year high.
  • Fed Chair Jerome Powell tops a list of five central bank speakers today as Minutes reveal a dovish tilt on rates as the economy adjusts to slowing global growth.
  • U.S. stocks set end four-day rally, the longest since September, with S&P 500 futures indicating an 18 point pullback ahead of weekly jobless claims data at 8:30 am eastern time.

Market Snapshot

Global stocks retreated Thursday as the twin impact of progressing U.S.-China trade talks and a suddenly-dovish Federal Reserve faded and investors shifted focus to the corporate earnings season and the prospect of weakening profit guidance for the coming year.

China's Commerce Ministry described the three-day talks with U.S. officials in Beijing as "deep and thorough exchanges on trade and structural issues of common concern" but, like the U.S. Trade Representative office, declined to offer scheduling on a second round of face-to-face meetings between envoys of the world's two biggest economies.

Yesterday the China said that there will be a detailed statement for the trade talk. The statement released today is very brief and vague. No details given. My take: the Chinese side may think the negotiations are difficult to be executable, or too many one-sided concessions. pic.twitter.com/G9a6kArw0C

— Iris Pang 彭蔼娆 (@Iris_Pang_China) January 10, 2019

That disappointment was somewhat offset by uniformly dovish signals from the Federal Reserve yesterday, including four regional Presidents -- and three voting members of the FOMC -- and Minutes from the central bank's December meeting, all of which cemented the notion of patience and flexibility on rate hikes as the economy seeks to define its 2019 growth path.

"Many participants expressed the view that, especially in an environment of muted inflation pressures, the committee could afford to be patient about further policy firming," according to Minutes of the Fed's last meeting, which ended on December 19. "Several participants expressed the view that it might be appropriate over upcoming meetings to remove forward guidance entirely and replace it with language emphasizing the data-dependent nature of policy decisions."

U.S. corporate profits could be one of those data points, in fact, as investors head into the fourth quarter reporting seasons expecting S&P 500 earnings to grow by around 14.5%, according to I/B/E/S data from Refinitiv, before slowing to just 3.9% in the first quarter of 2019, a figure that would be significantly below the 26.8% growth rate recorded over the same period last year. 

U.S. equity futures suggest the four-day rally on Wall Street, the longest winning streak since September, may not extend into the Thursday session as contracts tied to the Dow Jones Industrial Average indicate a 150 point decline and those linked to the S&P 500 suggest a 19point pullback for the broader benchmark.

Ford Motor Co. (F) shares were an early mover of note after it said it will exit some of Europe's biggest markets, and cuts thousands of jobs, as car sales around the world slump and uncertainly surrounding Britain's Brexit plans stifle investment.

News of the European strategy changes come amid multiple media reports that Ford will announce a deeper alliance with Volkswagen AG (VLKAY) , the world's second largest carmaker, as next week's auto show in Detroit.

Ford shares were marked 0.92% higher in pre-market trading Thursday, extending yesterday's 4.24% advance and indicating an opening bell price of $8.80 each, a move that would trim its three month decline to around 0.22%.

Fed chairman Jerome Powell will speak later today at the Economic Club of Washington, with four other central bank Presidents slated to make public comments on the economy alongside weekly labor market data.

European stocks traded weaker at the open, as well, following a softer session in Asia where slowing Chinese inflation offered yet another signal of disappointing growth in the world's second largest economy, which has led to significant changes in sales and profit assumptions from some of the world's biggest companies, including Apple (AAPL) and Samsung (SSNLF) , over the past week. 

The Stoxx Europe 600 index, the broadest measure of regional share prices, slipped 0.4% by mid-day in Frankfurt, following a modest 0.2% gain for the MSCI Asia ex-Japan index earlier in the session. 

Away from equities, the U.S. dollar index, which tracks the greenback against a basket of six global currencies, steadies at 95.25, but has fallen some 1.8% since the Fed's December meeting as rate hike bets fade in the face of weaker-than-expected growth signals. 

Global oil prices, however, have risen more than 11% since the Fed meeting, as both a weakening dollar, surging U.S. output and OPEC production cuts have combined to lift crude from multi-year lows.

That trade faded overnight, however, after data showed U.S. gasoline stocks rose by 8.1 million barrels last week, according to the Energy Information Administration, to reach the highest level in at least 2 years. The stronger-than-expected build, coupled with a 1.7 million barrel increase in domestic crude stocks, clipped some of yesterday's 5% rally in overnight trading even as the U.S. dollar extended declines.

Brent crude contracts for March delivery, the global benchmark, were marked 45 cents lower from their Wednesday close in New York and changing hands at $60.99 per barrel while WTI contracts for February were marked 40 cents lower at $51.96 per barrel.

 

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