The Thursday Market Minute
- Global stocks slide, pulling U.S. futures sharply lower, after Apple warns that slowing China iPhone sales will hit current quarter revenues.
- Apple CEO Tim Cook says "trade tensions between the U.S. and China put additional pressures on their economy."
- Apple warning drives yen to multi-month highs against the dollar, while U.S. Treasury bond yields fall and gold hits a fresh six month peak, as safe-haven flows dominate overnight trading.
- Asia stocks fall, while Japan remains closed, and Europe opens weaker on concerns for U.S. corporate earnings growth in the upcoming reporting season.
- U.S. stocks set to open sharply lower, but pare declines after a stronger-than-expected ADP employment reading for December, with the Dow poised for a 250-point opening bell decline while Apple slumps 7.7% in extended hours trade.
Global stocks tumbled Thursday as investors reacted to a shock revenue warning from Apple Inc. that raises serious questions for the health of the upcoming U.S. corporate earnings season and the strength of the world economy.
Apple Inc. (AAPL) shares fell sharply in after-hours trading Wednesday after CEO Tim Cook said revenue for the three months ending in December would come in around $84 billion, notably shy of the Street consensus of around $91.5 billion and the company's own previous guidance of between $89 billion and $93 billion.
"While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China," Cook said. "In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad."
Cook pinned the weaker iPhone demand in China on several factors, including a slowing economy worsened by "rising trade tensions with the United States" and cited high prices tied to the strength of the U.S. dollar, fewer carrier subsidies and customers taking advantage of reduced battery replacements in the softened demand for new iPhones.
The shock warning sent ripples around world financial markets as investors piled into safe haven assets such as the Japanese yen amid renewed concerns for the impact of the ongoing trade war between Washington and Beijing.
The yen, a traditional flight-to-safety assets in Asia trading owing to the size of Japan's U.S. dollar holdings and the depth and liquidity of its currency market, was marked 1.12% higher against the greenback at 107.6, after hitting a March 2018 low of 104.96, following the Apple warning.
Regional stocks were also on the back foot, with the MSCI Asia ex-Japan index falling 0.6% heading into the final hours of a trading session that did not include dealing on the Nikkei 225 in Tokyo, where markets remain closed for the traditional early January holidays.
With the U.S. corporate earnings season only weeks away, and investors trimming expectations for 2019 profit growth to around 7% -- sharply lower than last year's 24% pace -- Apple's softer revenue guidance has the potential to extend the current market decline if other domestic companies find similar struggles in overseas markets.
However, a stronger-than-expected December reading of private sector employment, which showed 271,000 new job creations, helped pare some of the pre-market declines, with contracts tied to the Dow Jones Industrial Average
Apple shares fell more than 7.7% in after-hours trading following the release, and changed hands at $145.65 each, the lowest since July 12, 2017 and a move that extends the stock's three-month loss to around 35.5%. Apple alone will clip around 82 points from the Dow if the decline continues into the opening bell.
Stocks in Apple's global supply chain were also notably weaker in early overnight trading, with Taiwan Semiconductor Holdings (TSM) falling 3.12%, Skyworks Solutions (SWKS) down 5.8% and Lumentum Holdings (LITE) down 8.2%.
European stocks were notably lower at the start of trading, with the Stoxx 600 sliding 0.5% in Frankfurt, led to the downside by basic resource and tech stocks.
Apple's German-listed units were marked 8.3% lower at €127.40, while Apple's European supply chain led the tech stock slump, with ASML NV (ASML) falling 2.75% in Amsterdam and Austrian chipmaker AMS AG (AMSSY) plunging 12%. STMicroelectronics (STM) was marked 3.8% lower while Anglo-German Dialog Semiconductor (DLGNF) fell 6.5%.
U.S. Treasury bond yields fell in overnight trading amid the safe-haven demand, as well, taking benchmark 10-year yields to 2.66%, just 2 basis points from a technically significant level of 2.64% that would mark a 50% retracement from the early October high of 3.25%.
Gold prices, as well, got an extra boost from the fading sentiment, with bullion touching a June 15 high of $1,292.01 per ounce after rising 0.6% on the session.
In an interview with CNBC Cook also told CNBC television that the revenue slowdown was "100% from iPhone" and "primarily in greater China."
"It's clear that the (Chinese) economy began to slow there for the second half and what I believe to be the case is the trade tensions between the United States and China put additional pressure on their economy."
A key private reading of manufacturing activity in China published Wednesday, the Caixin-Markit PMI, slipped below the 50 level that separates growth from contraction for the first time in 19 months, according to data published Wednesday, as similar activity gauges around the region showed associated weakness over the month of December.
Global oil prices were also muted in the overnight session, even with the sharp pullback in the U.S. dollar, as investors continue to question the strength of overall energy demand over the first half of 2019 and the impact of record output levels from the United States, Russia and Saudi Arabia, the world's three biggest producers.
Brent crude contracts for February delivery, the global benchmark, were marked 56 cents lower from their Wednesday close in New York and changing hands at $54.35 per barrel while WTI contracts for the same month were marked 93 cents lower at $45.61 per barrel.