The Thursday Market Minute

  • Global stocks drift lower ahead of key event risks in Europe and slowing U.S corporate profit growth.
  • Prime Minister Theresa May meets with EU leaders in Brussels for one last attempt to save her defeated Brexit agreement, while the Bank of England holds it regular rate-setting meeting and publishes fresh growth and inflation forecasts.
  • Oil prices retreat as rising U.S. supplies and record production offset OPEC supply cuts and the impact of sanctions on the sale of Venezuelan crude.
  • U.S. corporate profits are expected to grow by only 0.3% in the first quarter of 2019, raising the prospect of a so-called earnings recession as the impact of tax cuts fades and global growth stalls.
  • U.S. equity futures suggest a modest pullback on Wall Street ahead of weekly jobless data and earnings from T-Mobile U.S., Mattel, Philip Morris and Yum! Brands.

Market Snapshot

Global stocks drifted lower again Thursday, with investors focused on political and macro events in Europe and weakening profit forecasts in the United States, as the earnings season draws to a close and market struggle to find direction during the holiday week in Asia.

With no new headline drivers to push stocks in either direction overnight, apart from confirmation that Treasury Secretary Steven Mnuchin will travel to Beijing next week to re-start trade talks with China, and many markets closed for Lunar New Year celebrations, the region-wide MSCI ex-Japan index slipped 0.09% from its four month high in quiet trading. Japan's Nikkei fell 0.6% in Tokyo to close at 20,751.28 points despite strong gains for SoftBank Corp.  (SFTBY) following yesterday's after-the-bell earnings.

U.S. stocks look set to open weaker, as well, with contracts tied to the Dow Jones Industrial Average I:DJI indicating a 120 point pullback and those linked to the broader S&P 500 I:GSPC suggesting a 14 point decline ahead of weekly jobless data and December quarter earnings from T-Mobile U.S. (MUS) - Get Report , Yum! Brands (YUM) - Get Report , Philip Morris (PM) - Get Report and Mattel (MAT) - Get Report .

The fourth quarter earnings season has largely surprised to the upside, with profits expected to rise by around 15.8%, according to Refiniitv data, with around 75% of the S&P 500 reporting so far. However, with 2019 forecasts coming in weaker-than-expected, thanks in part to slowing economic growth and the still-to-be-agreed trade deal with China, first quarter earnings growth is currently pegged at just 0.3%, suggesting the prospect of so-called earnings recession -- where profits shrink for two consecutive quarters -- could now be in the market's cross-hairs. 

European stocks opened with a weaker tone ahead of two key event risks for the region, as U.K. Prime Minister Theresa May travels to Brussels for what could be her final attempt to persuade EU lawmakers to re-open terms of the exit deal she negotiated late last year -- but which also suffered the biggest Parliamentary defeat in British history last month -- in order to avoid a so-called hard Brexit on March 29.

However, the Stoxx 600 benchmark extended declines, falling 0.48% after the European Commission slashed its growth forecast for the $19 trillion European economy Thursday, but stopped short of predicting a deeper recession in Italy, as the region braces for the impending departure of its biggest trading partner when Britain leaves the bloc at the end of next month.

In its regular quarterly forecasts, published today in Brussels, the Commission said it sees broader Eurozone growth to slow to 1.3% this year, down from a prior forecast of 1.9% before rebounding modestly to a 1.6% growth rate in 2020. The new forecasts are notably lower than the Commission had estimated in November and also included softer projections for currency area inflation of 1.4% for this year, well shy of the European Central Bank's 'just below 2%' price stability target.

Against that backdrop, the Bank of England will hold its regular interest rate meeting today in London, with an announcement at 7:00 am eastern time, and publish fresh growth and inflation forecasts for the U.K. economy amid the conflicting dynamics of slowing domestic and global growth but rising wage and inflation pressures.

The pound was marked around 0.2% lower against the U.S. dollar at 1.2903 heading into the meeting, which is expected to keep rates on hold but trim near-term growth projections, with investors also citing the unlikely prospect of progress from Prime Minister May as she heads to the Belgian capital.

Global oil prices were also drifting into the red in overnight trading, as a stronger U.S. dollar and yesterday's reading from the Energy Information Administration, which showed a 1.2 million barrel increase in domestic crude stocks and a record production rate of 11.9 million barrels per day, offset concerns over OPEC supply cuts and sanctions on the sale of Venezuelan crude.

Brent crude contracts for April delivery, the global benchmark, were marked 19 cents lower from their Tuesday close in New York and changing hands at $62.50 per barrel while WTI contracts for March were seen 24 cents lower at $53.77 per barrel.