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The Wednesday Market Minute

  • Global stocks trade cautiously higher amid the increasing confusion over the impact of Prime Minister Theresa May's historic parliamentary defeat on Brexit last night and concern over the lack of progress in U.S.-China trade talks.
  • U.K. lawmakers will debate a non-confidence motion in May's government later today as EU officials plead for flexibility from London to avoid a so-called "hard Brexit" on March 29.
  • Softer industrial data from Japan, as well as reported comments on U.S.-China trade talks, keeps Asian markets in check, while a weaker euro boosts European stocks in early trade.
  • U.S. equity futures suggest a modestly firmer open, with the S&P 500 called 2.3 points higher, ahead of key bank earnings from Goldman Sachs, Bank of America and PNC Financial. 

Market Snapshot

Global stocks gave back earlier gains Wednesday, setting up Wall Street for a weaker start at the opening bell, as investors reacted to last night's crushing Brexit defeat for U.K. Prime Minister Theresa May and worried that progress in U.S-China trade talks may have stalled following reported comments from Washington's top negotiator. 

May suffered the worst defeat in U.K. parliamentary history last night when here proposed withdrawl agreement, which would have seen Britain exit the European Union in March, was defeated by 230 votes, including 100 members of her own party. The humiliating verdict triggered an immediate vote of no confidence in her government, which will debated later today, adding to the growing uncertainty surrounding the fate of two of the world's biggest economies.

"It is clear that the House does not support this deal, but tonight's vote tells us nothing about what it does support," May told lawmakers. "Nothing about how - or even if - it intends to honor the decision the British people took in a referendum parliament decided to hold."

Markets in Asia were further unsettled by comments reportedly from U.S. Trade Representative Robert Lighthizer, as told to reporters by Republican Senator Chuck Grassely, that U.S.-China trade talks aren't progressing as far as investors may have anticipated. 

"(Lighthizer) said that there hasn't been any progress made on structural changes that need to be made," Grassley told the media during a conference call. "Let's say that would include intellectual property, stealing trade secrets, putting pressure on corporations to share information with the Chinese government and industries."

"So structure-wise not much progress, but the Chinese are coming over here in a couple weeks and there will be more negotiations," Grassley added.

The twin uncertainties, coupled with a weaker-than-expected reading for core machinery orders from Japan for the month of November, a key barometer for investment growth in the world's third largest economy, kept markets in the region muted, with the MSCI ex-Japan index edging 0.09% higher and the Nikkei 225 sliding 0.55% to close at 20,442.75 points.

Early indication from U.S. equity futures suggest similar caution on Wall Street, as well, as investors await both the result of the non confidence vote in May, which could trigger fresh national elections, and fourth quarter earnings from Bank of America (BAC) , Goldman Sachs (GS) , PNC Financial (PNC) and BlackRock (BLK) . 

Contracts tied to the Dow Jones Industrial Average suggest a modest 16 point decline for the 30-stock average while those linked to the S&P 500 indicate a 2 point dip for the broader benchmark.

Investors are expecting S&P 500 profits to grow by around 14.5% from the same period last year, 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 in 2018.

The U.S. dollar index was marked modestly higher at 96.05, although that move was held in check by a weaker euro, which slipped to 1.1394 following last night's Brexit defeat and data yesterday which showed Germany's economy grew at the slowest rate in five years last year. Benchmark 10-year U.S. Treasury bond yields, meanwhile, drifted to 2.709%, while two-year notes were marked at 2.533%.

European stocks, on the other hand, were able to book solid opening bell gains thanks to the weaker euro, with the Stoxx 600 rising 0.4% and Germany's DAX performance index notching a similar percentage gain.

Britain's FTSE 100 slipped 0.6% by mid-day trading in London, even with solid gains for domestic banks such as Barclays (BCS)  and U.K. homebuilders such as Barratt Developments (BTDPY) .

The modest dollar advanced helped reverse earlier gains for oil prices in overnight trading as the U.S. Energy Department said domestic crude production will top 12 million barrels per day this year, an all-time high.

"Steady growth from non-OPEC countries, including the United States, headlines the forecast for global crude oil production through 2020," said the Energy Information Administration official Linda Capuano. "We expect the United States to remain the world's largest producer."

Brent crude contracts for March delivery, the global benchmark, were marked 2 cent higher from their Tuesday close in New York and changing hands at $60.66 per barrel while WTI contracts for February were marked 24 cents lower at $51.87 per barrel.