The Tuesday Market Minute
- Global stocks extend declines after last night's steep selloff on Wall Street as investors count the economic cost of ongoing trade disputes and keep a close eye on tomorrow's Fed rate decision.
- Japan slashes current and next year GDP forecasts as trade disputes and natural disasters hammer growth in the world's third largest economy.
- Global oil prices slide, sending U.S. crude well below $50 a barrel, as shale production forecasts suggest more supply will hit the market next year as demand slumps in key markets around the word.
- Benchmark 2-year Treasury note yields fall to multi-month lows, while Fed funds bets tumble, as investors question the certainty of tomorrow's rate decision.
- U.S. stocks set to open higher, with Dow futures indicating a 163 point opening bell gain, ahead of key November housing data at 8:30 am eastern time.
Global stocks followed Wall Street lower Tuesday, as markets around the world retreated in the face of slowing economic growth and rising political uncertainty while investors looked to this week's Federal Reserve rate decision to steady nerves amid one of the worst Decembers on record for U.S. equities.
With Wall Street three major indices nearing month-to-date losses of 8%, and the benchmark S&P 500 trading at the lowest levels since October 2017, international investors were unwilling to add to risk positions heading into the final trading days of the year amid further indications that the ongoing trade war between Washington and Beijing is taking its toll on global growth.
Japan's cabinet cuts its GDP forecasts for the world's third-largest economy for both this year and next Tuesday, citing trade tensions and a spate of natural disasters, sending the Nikkei 225 1.82% lower by the close of trading in Tokyo. Stocks in China were also notably weaker on the session, as investors failed to find details from a keynote speech by President Xi Jinping to return to markets as the broader economy continues to slow.
Early indications from U.S. equity futures, however, suggest a modest rebound on Wall Street Tuesday, with contracts tied to the Dow Jones Industrial Average
Boeing (BA) shares jumped notably higher in pre-market trading Tuesday after the world's biggest planemaker boosted its quarterly dividend and increased the size of its share buyback program.
Boeing shares were marked 2.2% higher in pre-market trading Tuesday, indicating an opening bell price of $323.05 and the first gain for the Dow component in four sessions. The move would trim the stock's three-month decline to around 9.1% and value the Chicago based group at just over $182 billion.
The Federal Reserve begins its two-date rate setting meeting today in Washington against a contradictory backdrop of solid overall economic growth and tumbling share prices. The Atlanta Fed's GDPNow forecasting tool pegs fourth quarter GDP growth at 3%, while unemployment sits at the lowest levels in nearly 50 years.
I hope the people over at the Fed will read today's Wall Street Journal Editorial before they make yet another mistake. Also, don't let the market become any more illiquid than it already is. Stop with the 50 B's. Feel the market, don't just go by meaningless numbers. Good luck!— Donald J. Trump (@realDonaldTrump) December 18, 2018
However, housing market data continues to suggest a sharp slowdown heading into 2019 and domestic equities -- including the Russel 2000, which slipped into bear market territory last night -- have given back more than $3.4 trillion in value since their last September peaks.
"Given the steep decline in equities and the economic slowdown in Asia and Europe, many investors hope that the Fed will shelve the December rate hike," said Hussein Sayed, chief market strategist at FXTM. "In my opinion, avoiding a rate hike in December will send a negative signal to markets, confirming the views that a recession is about to hit the global economy."
Still, benchmark 2-year Treasury bond yields slipped 3.5 basis points in overnight trading to 2.658%, the lowest since May, as investors reduced bets on near-term Fed rate hikes, while 10-year note yields fell to 2.826%, the lowest since August.
The CME Group's FedWatch tool suggests a 69% chance the bank will lift its benchmark rate to a range of 2.25% to 2.5% when its two-day meeting wrap up Wednesday, but is only assigning a 16% chance of a follow-up hike in March - down 10 percentage points from Monday.
European stocks followed Asia lower at the start of trading Tuesday, with investors growing increasingly concerned over the political impasse over Brexit in the United Kingdom, where parliament continues to debate procedural issues surrounding Prime Minister Theresa May's EU exit deal and isn't likely to formally vote on it until early next year.
The Stoxx Europe 600 slipped 0.1% lower by mid-day trading in Frankfurt, extending a quarter-to-date decline that would be the steepest since 2011 if it holds until the end of the year. Britain's FTSE 100 fell 0.48% lower to 6,740 while the pound edged higher to 1.2698 against a weaker U.S. dollar.
Global oil prices were once again on the back foot Tuesday, with U.S. crude falling well below $50 a barrel after the Energy Information Administration said domestic shale production from seven key basins is likely to pass 8 million barrels per day by the end of the year, and rise further into 2019, adding to already record output from what is now the world's biggest producer.
Brent crude contracts for February delivery, the global benchmark, were marked $1.31 lower from their Monday close in New York and changing hands at $58.30 per barrel while WTI contracts for January delivery, which are more tightly liked to U.S gas prices, were $1.16 lower at $48.72 per barrel.