The Tuesday Market Minute
- Global stocks retreat for a second day on twin concerns for word economic growth in the form of a sharp China slowdown and reduced 2019 forecasts from the IMF.
- European stocks clipped by growth concerns and Brexit uncertainty as Prime Minister Theresa may attempts to revive her rejected exit deal.
- U.S. earnings take center stage this week with 60 S&P 500 companies reporting, including Dow components IBM, Johnson & Johnson and Travelers later today
- U.S. equity futures suggest a 21 point pullback for the S&P 500 and a 160-point slide for the Dow at start of trading.
Global stocks retreated for a second consecutive session Tuesday, pulling U.S equity futures firmly into the red, as investors reacted to twin warnings on global economic growth and the ongoing uncertainty surrounding Britain's looming exit from the European Union.
China's economy grew at its slowest pace in nearly three decades last year, official data indicated yesterday, as domestic demand and export growth suffered from government moves to crack down on crippling pollution with tighter rules on building and emissions and the ongoing trade war with the United States had a knock-on effect through global supply chains, many of which originate from the world's biggest exporter.
China posts slowest economic numbers since 1990 due to U.S. trade tensions and new policies. Makes so much sense for China to finally do a Real Deal, and stop playing around!- Donald J. Trump (@realDonaldTrump) January 21, 2019
Confirmation of the China slowdown was followed by the second cut in three months to global growth forecasts from the International Monetary Fund, which cited concerns over unresolved trade conflicts between Washington, Brussels and Beijing and slowing activity in Europe.
The Fund sees the world economy growing at 3.5% this year and 3.6% in 2020, clipping 0.2 and 0.1 percentage points respectively from is prior estimate, published as part of its regular World Economic Update in November.
"After two years of solid expansion, the world economy is growing more slowly than expected and risks are rising," IMF Managing Director Christine Lagarde said. "Does that mean a global recession is around the corner? No. But the risk of a sharper decline in global growth has certainly increased," she said, urging policymakers to brace for a "serious slowdown."
The warnings held down gains for Asian and European stocks Tuesday, liquidity returned to markets following yesterday's Martin Luther King Jr. observations in the United States, pulling the region-wide MSCI Asia ex-Japan index 0.87% lower heading into the final hours of trading and the Nikkei 225 in Japan into a full-session decline of 0.47%.
U.S. equity futures are also flashing red Tuesday, heading into a busy week of corporate earnings reports that will see updates from no fewer than 60 S&P 500
Fifty-five S&P 500 companies have reported quarterly earnings for far this year, with 76.4% topping analysts' profit estimates, well above the long-term average of 64%, according to Refinitiv I//B/E/S data, but down from the recent run-rate of 78%. Collective revenues, however, are coming in below both the recent and longer-term averages, with 58.2% of companies beating Wall Street forecasts.
Dow components IBM Corp. (IBM) , Johnson & Johnson (JNJ) , and Travelers (TRV) , as well as Haliburton HAL and Stanley Black & Decker (SWK) highlight today's calendar, with Comcast Corp. (CMCSA) , Ford Motor Co. (F) , American Airlines (AAL) and Starbucks (SBUX) following later this week.
European stocks were also lower at the start of trading, with markets held down by the pessimism surrounding global growth prospects as well as the more specific concerns related to Britain's pending exit from the European Union on March 29.
The Stoxx 600 benchmark slipped 0.25% to 355.48 points by mid-day in Frankfurt while Britain's FTSE 100 was marked 0.55% lower at 6,930.83 points in London.
U.K. Prime Minister Theresa May attempted to revive her failed exit agreement yesterday in Parliament while a series of amendments and counter-proposals were introduced for formal debate next week, including a sequence from opposition leader Jeremy Corbyn that could potentially lead to a second referendum on Britain's EU membership.
"Our amendment will allow MPs to vote on options to end this Brexit deadlock and prevent the chaos of a No Deal," Corbyn said in a statement to media. "It's time for Labour's alternative plan to take center stage, while keeping all options on the table, including the option of a public vote."
The developments had some influence on the pound, alongside strong December wage data, as sterling rose to 1.2911 against a stronger U.S. dollar in the early London session.
The greenback's gains, however, which lifted the dollar index 0.12% to 96.46 against a basket of six global currencies, held down global commodity markets, tipping gold to a three week low of $1,276.31 per ounce and sending oil lower across the board as investors worried that slowing global activity will sap demand.
Brent crude contracts for March delivery, the global benchmark, were marked $1.12 lower from their Monday close in New York and changing hands at $61.62 per barrel while WTI contracts for the same month were marked $1.02 lower at $53.15 per barrel.