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The Tuesday Market Minute

  • Global stocks retreat as investors react to weaker-than-expected China manufacturing data and a disappointing first quarter earnings report from tech giant Alphabet.
  • U.S.-China trade talks resume in Beijing, with reports suggesting a deal remains stuck on the cancellation of U.S. tariffs and enforcement mechanisms placed on China.
  • European stocks drift lower despite a stronger-than-expected first quarter GDP estimate of 1.2% annual growth.
  • Global oil prices book gains as Saudi Energy minister Khalid Al-Falih says OPEC production cuts could be extended into 2019, defying calls for faster output from President Donald Trump
  • U.S. equity futures suggest modest declines on Wall Street ahead of quarterly earnings from Pfizer, GM, GE, McDonald's, Merck, AMD and Eli Lily before the bell, as well as a major update from Apple after the close of trading later today.

Market Snapshot

Global stocks slipped lower for a second consecutive session Tuesday, pulling U.S. equity futures into the red, as investors reacted to renewed weakness in China's manufacturing sector and braced for the impact of softer-than-expected revenue gains from online ad giant Alphabet Inc. (GOOGL - Get Report) .

The Google parent's shares are set for their biggest one-day decline in nearly seven years, based on after-hours trading, after the company posted its weakest revenue gains since 2016 and cautioned that costs linked to monitoring content on its Youtube property, as well as slowing mobile phone sales, would likely keep earnings muted in the months ahead.

The big miss on Wall Street last night was coupled with a softer-than-expected reading for activity in China's key manufacturing sector, which continues to expand but only at a very modest pace, setting up bets on fresh stimulus from Beijing as officials meet with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steve Mnuchin in the latest round of U.S.-China trade talks.

With markets in Japan closed to mark the ascension of new Emperor Naruhito, stocks in Asia were influenced by both ripples from Google's first quarter earnings and details of the biggest profit drop in two years for chip and smartphone maker Samsung Electronics SSNF. China's Shanghai Composite rose 0.33% on fresh stimulus bets, but the broader Asia ex-Japan benchmark slipped 0.5% as investors retreated from risky stocks.

U.S. equity futures look set for a mixed session ahead of another heavy slate of corporate earnings, which includes updates from AMD (AMD - Get Report) , Eli Lily (EL - Get Report) , General Electric (GE - Get Report) , General Motors (GM - Get Report) , McDonald's (MCD - Get Report) , Merck (MRK - Get Report) and Pfizer (PFE - Get Report) before the bell and Apple Inc.'s second quarter earnings report after the close of trading this afternoon.

McDonald's posted weaker-than-expected first quarter earnings but noted that comparable store sales in both the U.S. and international markets improved thanks in part to promotions such as the Bacon Event and the 2 for $5 Mix and Match deal.

General Electric posted stronger-than-expected first quarter earnings Tuesday, and confirmed its full-year guidance, as new CEO Larry Culp moves towards steadying the financial fortunes of the former Dow component.

General Electric said continuing earnings for the three months ending in March came in at 11 cents per share, while adjusted GAAP earnings were pegged at 14 cents per share, down 2 cents from the same period last year and five cents ahead of the Street consensus forecast. Group revenues, GE said, slipped 4.8% to $27.286 billion and beat analysts' forecasts of $27.05 billion.

Merck posted stronger-than-expected first quarter earnings Tuesday, and lifted its 2019 profit guidance, as its blockbuster lung cancer treatment topped $2.2 billion, sending shares 2.74% higher while Pfizer boosted the mid-point of its full-year profit forecast thanks to anticipated gains in biopharma consumer healthcare.

Contracts tied to the Dow Jones Industrial Average suggest a 82 point gain for the 30-stock average while those linked to the S&P 500 suggest a 1 point dip for the broader benchmark, which printed an intra-day record high of 2,949.52 points in late Monday trading. 

Nasdaq Composite futures are indicating a larger 50 point fall for the tech-focused index as traders factor in the 7.9% after-hours decline for Alphabet. 

Despite Google's surprisingly weak quarter, however, the U.S. earnings season has been fairly solid, with just over three quarters of the nearly 250 S&P 500 listed companies reporting so far this season have topped earnings estimates, according to data compiled by FactSet, a figure that stis modestly ahead of the five year average of 72%.

Blended earnings growth for the quarter, FactSet suggests, is likely to show that first quarter earnings will shrink 2.3% from last year, well ahead of the 3.9% contraction forecast just a few weeks ago.

European stocks drifted lower in Frankfurt, with the Stoxx Europe 600 falling 0.19% even after the Eurozone economy grew at a stronger-than-expected pace over the first three months of the year, according to initial estimates from the region's statistics office, defying concerns that a German-lead slowdown would tip the single currency area into recession.

Away from equities, a mixed set of economic readings in the United States yesterday, which showed personal spending rising at the fastest pace in 9.5 years even as inflation eased tot he slowest in eight months, has fixed income investors stymied ahead of the two-day rate setting meeting of the Federal Reserve which kicks off later this morning in Washington.

Benchmark 10-year U.S. Treasury bond yields held at 2.527% in overnight trading, while 2-year notes were marked at 2.278%, putting the slope of the so-called yield curve at around 21.5 basis points, a narrow gap in historic terms but one that is moving in the right direction for equity market bulls.

Global oil prices reversed course Tuesday, rising back towards six month highs after  Saudi Energy minister Khalid Al-Falih says OPEC production cuts, which are taking 1.2 million barrels from the market each day, could be extended into 2019, defying calls for faster output from President Donald Trump.

Brent crude contracts for June delivery, the global benchmark for oil prices, were marked 77 cents higher from their Monday close in New York and changing hands at $72.84 per barrel while WTI contracts for the same month were seen 64 cents higher at $64.14 per barrel.