The Thursday Market Minute
- Global stocks weaken amid concerns over the fate of U.S.-China trade talks as lawmakers target Huawei and ZTE with a bill targeting export bans.
- China Vice Premier Liu He confirms he'll attend two-days of talks in Washington starting January 30.
- Global oil prices slip lower as the U.S. dollar gains, EIA data shows domestic production rose to a record 11.9 million barrels per day last week.
- U.S. equity futures indicate a weaker opening on Wall Street ahead of December inflation data and fourth quarter earnings from Morgan Stanley and American Express.
Global stocks edged lower Thursday, pulling U.S. equity futures into the red, as concerns over the fate of U.S. China trade talks offset stronger-than-expected banking sector earnings that helped lift the S&P 500 to a one-month high as it claws back more than half of its losses from the second half of last year.
China's Vice Premier, Liu He, confirmed Thursday that he well travel to Washington for two days of talks with U.S. officials starting January 30, easing concerns that the current government shutdown would delay negotiations that are already running up against a March 1 deadline.
However, reports late yesterday from the Wall Street Journal that China-based Huawei Technologies, the world's biggest telecommunications equipment maker, is being investigated by Federal prosecutors for allegedly stealing trade secrets from American businesses cast a pall on the at-times sputtering negotiations.
That concern was compounded by the launch of a bi-partisan bill on Congress late Wednesday that sought to ban U.S. companies from exporting goods to foreign firms that have violated State Department sanctions and specifically named Huawei and ZTE Corp., its main China rival.
"Huawei is effectively an intelligence-gathering arm of the Chinese Communist Party whose founder and CEO was an engineer for the People's Liberation Army," said Republican Senator and co-sponsor Tom Cotton. "If Chinese telecom companies like Huawei violate our sanctions or export control laws, they should receive nothing less than the death penalty - which this denial order would provide."
Asia stocks slipped lower as a result of the potential tensions that targeting Huawei and ZTE could bring to trade talks, with China's Shanghai Composite and CSI 300 both falling around 0.5% despite fresh liquidity injections from the People's Bank of China into the financial system ahead of the lunar new year, which begins on February 5.
European stocks started the session on a downbeat note, as well, with the Stoxx 600 falling 0.14% and Britain's FTSE 100 slipping 0.31%. European chipmakers were also weaker after Taiwan Semiconductor Manufacturing Co., a key Apple (AAPL) supplier, said first quarter revenues would fall 14%, the steepest decline in at least 10 years.
U.S. equity futures look to follow suit, with contracts tied to the Dow Jones Industrial Average
Morgan Stanley shares fell sharply lower in pre-market trading Thursday after the bank's first earnings miss in two years that looked out of step with sector profits from peers that have taken U.S. stocks to their highest levels in more than a month.
Morgan Stanley posted earnings of 80 cents per share for the three months ending in December, nearly three times the 26 cent tally from the same period last year but well shy of the consensus forecast of 89 cents. Group revenues came in at $8.5 billion, again missing the $9.3 billion estimate, in the wake of increased market volatility and a slump in merger activity over the final three months of last year.
Stronger-than-expected top and bottom lines from both Goldman Sachs (GS) and Bank of America (BAC) , which led the Dow and S&P 500 higher respectively with the best single-day gains in more than six years, have helped drive U.S. stocks into solid gains as the fourth quarter earnings seasons accelerates and data from the broader economy shows modest improvements.
Morgan Stanley follows the major U.S. financials with fourth quarter numbers before the bell today, while Netflix (NFLX) kicks-off the first of the so-called FAANG earnings after the close of trading.
Bank earnings in particular, but the wider market in general, are also finding support from a modestly steepening yield curve, as benchmark 10-year note yields rise amid slow but steady investor optimism for longer-term growth, while shorter-term yields slip as the Federal Reserve signals a pause on interest rate increases.
Benchmark 10-year notes were marked at 2.713% in overnight trading, while 2-year notes yielded 2.527%, putting the slope of the curve at around 18.5 basis points. The U.S. dollar index, which tracks the greenback against a basket of six global currencies, rose 0.1% in early European trading to 96.152.
Global oil prices edged lower on the modest dollar strength, with prices pressured by yesterday's report from the Energy Information Administration that showed U.S. oil production reached a record 11.9 million barrels per day in the week ending January 11, while gasoline stockpiles surged by 7.5 million barrels to a two-year high.
Brent crude contracts for March delivery, the global benchmark, were marked 92 cents lower from their Wednesday close in New York and changing hands at $60.23 per barrel while WTI contracts for February were marked $1.10 lower at $51.21 per barrel.