The Wednesday Market Minute
- Global stocks drift lower as new U.S.-China trade tensions take shine off of solid Q3 earnings from Apple.
- Reports the White House is ready to take tariffs on China-made goods to 25% hits Asia shares, mutes European opening gains.
- European earnings clouded by trade concerns, with Volkswagen falling sharply despite solid Q2 profits.
- Apple shares set for record high after iPhone sales, and higher selling prices, drive stronger-than-expected top and bottom line beats.
- Benchmark 10-year Treasury yields nearing 3% as investors pre for Fed statement at 2:15 Eastern time.
- Wall Street futures suggest cautious start to August trading, with earnings from T-Mobile U.S., Humana and Tesla in focus.
Global stocks slipped lower Wednesday, with investors balancing reports of a escalation of trade tensions between the U.S. and China against the relief of stronger-than-expected quarterly profits from Apple Inc. (AAPL) that look to have soothed concerns over the health of the tech sector after a mixed series of earnings from some of the world's biggest companies.
Action Alerts Plus holding Apple shares jumped 4.65% to a record high of $199.13 each following last night's Street-busting third quarter earnings, which included the sale of 41.3 million iPhones and robust average selling price of $724 that ultimately drove revenues of $52.3 billion and a bottom line of $2.34 per share. A robust current quarter outlook, in which the group sees revenues as high as $62 billion, not only eased concerns for the fate of consumer-facing tech companies in the months ahead, but also added a bullish sentiment to the start of trading in Asia, where many of Apple's supply-chain companies are listed.
That optimism was short-lived, however, after multiple media reports, first from Bloomberg News, suggested that the White House is ready to more than double the level of threatened tariffs on China-made goods -- to 25% from 10% -- as part of its effort to tackle another record trade deficit with the world's second-largest economy. The report came amid news that China's manufacturing sector appears to be already suffering from a trade-related slowdown, with the Caixin/Markit PMI falling to an eight-month low of 50.8 last month as new export orders slumped the most in at least two years.
That data, as well as comments from China's Foreign Ministry spokesman that the country would hit back at any attempt to increase tariffs on its exports, sent China-based shares sharply lower, with the CSI 300 falling 1.9% and the Shanghai Composite sliding 1.65% heading into the close of trading.
"U.S. pressure and blackmail won't have an effect," the Foreign Ministry said. "If the United States takes further escalatory steps, China will inevitably take countermeasures and we will resolutely protect our legitimate rights. Unilateral threats and pressure will only produce the opposite of the desired result."
Japan's Nikkei 225, however, put together a solid 0.86% gain across the session as a weaker yen, which slipped to 112.05 against the dollar following Tuesday's dovish Bank of Japan policy meeting, drove export-focused stocks higher.
Europe stocks edged lower at the opening bell as investors keyed on developments in the expanding trade dispute between the U.S. and China and digested a plethora of earnings from some of the region's blue chips, including Volkswagen AG (VLKAY) , the world's second-largest automaker, Infineon Technologies AG (IFNNY) , Europe's biggest tech company, and BNP Paribas SA (BNPQY) , France's biggest bank.
Volkswagen shares were marked 1.2% lower in early Frankfurt trading after the group posted a forecast-beating 23% rise in second quarter profits, but cautioned that "growing protectionism also poses major challenges for the globally integrated automotive industry" would make it difficult to meet full-year financial targets. Infineon shares were also lower, falling 0.48% despite robust third quarter earnings and guidance that suggested the group will comfortably meet its full-year margin targets.
The Stoxx 600 index, the region's broadest measure of share prices, was marked 0.18% lower in the opening two hours of trading, while Germany's DAX performance index fell 0.08% and Britain's FTSE 100 was marked 0.83% to the downside thanks to big declines for basic resource stocks after disappointing first half earnings from mining giant BHP Billiton plc (BHP) .
Copper prices, as well, were under pressure amid the renewed trade tensions, with 3-month futures on the London Metal Exchange falling 2.1% to $6,169.00 per ton, following a 4.9% decline last month that saw prices hit a one-year low of $5,988.
COPPER: bounced to lower-highs, then failed, miserably, down -2.5% this morning in conjunction with the Chinese selloff pic.twitter.com/KgiYyPfG7j— Keith McCullough (@KeithMcCullough) August 1, 2018
Early indications from U.S. equity futures suggest Wall Street may struggle to hold on to last night's momentum, with the overhang of trade tensions pulling markets lower in early European trading. Contracts tied to the Dow Jones Industrial Average
Another busy slate of second quarter earnings reports will guide trading today, with numbers expected from Apache Corporation (APA) , T-Mobile U.S. (TMUS) , MetLife (MET) , MolsonCoors (TAP) , Humana (HUM) and Tesla (TSLA) .
The U.S. dollar index, which benchmarks the greenback against a basket of six global currencies, found favor in overnight trading as investors retreated from the low-return currencies such as the yen and the euro, taking the index to 94.603, before paring the advance to 94.53.
Tcash didn't seem to be filtering in to U.S. Treasury bonds, however, as yields on benchmark 10-year notes rose to 2.992% ahead of today's interest rate decision from the U.S. Federal Reserve, which is expected to reaffirm its commitment to gradual rate hikes over the coming months, and stronger-than-expected reading of 219,000 private sector job gains last month by payroll provider ADP.
In the run-up to today's conclusion of the #Fed meeting, large moves in yields on US government #bonds have been due more to what's happening abroad (including #Japan) than in the US.This only changes if the #FOMC surprises #markets (e.g., by taking a 4th 2018 hike off the table) pic.twitter.com/iyHB4lKM1w— Mohamed A. El-Erian (@elerianm) August 1, 2018
Global oil prices extended declines in early European trading, following the biggest one-month slide in at least two years, following a much larger-than-expected increased of 5.6 million barrels in domestic U.S. crude stocks, according to preliminary data from the American Petroleum Institute.
Brent crude contracts for September delivery, the global benchmark, were seen 52 cents lower from their Tuesday close in New York and changing hands at $73.69 each in early London dealing while WTI contracts for the same month, which are more tightly-linked to U.S. gas prices, were marked 58 cents lower at $68.18 per barrel.