U.S. Stocks Set For Solid Open as Q3 Earnings Impress; Goldman Boosts Dow

The Tuesday Market Minute

  • Global stocks edge cautiously higher, but Saudi tensions, weak China data keep a lid on gains as U.S. earnings season kicks into high gear
  • Secretary Pompeo arrives in Riyadh to meet with King Salman amid reports that Saudi Arabia may admit some responsibility for the disappearance of prominent journalist Jamal Khashoggi
  • China stocks fall into bear market territory ahead of Friday's Q3 GDP release amid persist concern that its U.S. trade war will harm second half growth.
  • U.S. stocks called higher, with the Dow slated for a 160 point gains thanks to solid earnings from Morgan Stanley, Goldman Sachs and Johnson & Johnson.

Market Snapshot

Global stocks rebounded Tuesday as U.S. earnings helped equity futures rise firmly into positive territory, even as investors continue to eye developments in Saudi Arabia linked to the disappearance of prominent journalist Jamal Khashoggi and fret over further signals of a trade war-related slowdown in China. 

U.S. Secretary of State Mike Pompeo arrived in Riyadh earlier today and will meet King Salman to discuss the Khashoggi case amid speculation that the Kingdom is preparing a report that will admit the journalist's death but pin the responsibility on interrogators working at the Saudi consulate in Istanbul, where Khashoggi was last seen on September 28.

Khashoggi's disappearance, and presumed murder, has cast a dark shadow over both a planned investment conference later this month in Riyadh, which had been expected to include some of the biggest names in U.S. business, as well as broader global market sentiment given the potential fall out between the U.S. and a critical security ally in the Gulf region.

Market sentiment has been further blunted by persistent signals of slowing growth in China, the world's second largest economy, linked to the impact of its ongoing trade war with the United States, and the implications of rising interest rates in the U.S. and elsewhere, which have clipped equity benchmark all over the world.

Asia markets were mixed in overnight trading as a result, with a weaker Japanese yen helping the Nikkei 225 jump 1.25% by the close of trading to 22,549.24 points while the broader MSCI Asia ex-Japan index was marked 0.5% higher by the close of trading. Stocks in China traded notably to the downside, however, with the Shanghai Composite falling 1.1% to drag the benchmark into bear market territory from its May 21 peak.

"China's GDP Growth Likely Weaker than Friday's Numbers will Show" @freyabeamish @mc_economist https://t.co/dVALeFfF9l #PantheonMacro pic.twitter.com/6vlXrA5BGl

— Pantheon Macro (@PantheonMacro) October 16, 2018

Early indications from U.S. equity futures suggest a solid rebound is slated for Wall Street after earnings from Morgan Stanley (MS) and Goldman Sachs (GS) , Johnson & Johnson (JNJ)  came in ahead of consensus forecasts. Contracts tied to the Dow Jones Industrial Average indicated an opening bell gain of 158 points while those linked to the broader S&P 500 were suggesting an 15 point bump.

Dow component UnitedHealth Group Inc. (UNH) shares were helping the benchmark higher Tuesday after its third quarter earnings showed a stronger-than-expected gain in health plan subscriptions of 2.8 million that boosted earnings past Street forecasts and allowed the company to raise its full-year guidance.

UnitedHealth now sees full-year earnings per share in the region of $12.80, well ahead of the prior $12.50 to $12.75 range. UnitedHealth shares gained 1.1% in pre-market trading following the release to indicate an opening bell price of $263.10 each.

Goldman posed a 20.5% rise in third quarter profits, as earnings of $6.28 per share soundly topped the $5.38 consensus, in the first earnings report under new CEO David Solomon. Goldman shares, one of the heaviest weights on the Dow, were marked 1.5% higher at $218.41 in pre-market trading.

Ford Motor Co. (F) shares were indicated higher in pre-market trading Tuesday after the automaker revealed its the latest sport utility vehicle it plans to launch in China as part of its renewed effort to turnaround sales in the world's biggest car market.

Ford shares were marked 0.72% higher in pre-market trading Tuesday, indicating an opening bell price of $8.88 each, a move that would still leave the Detroit-based icon with a year-to-date loss of around 26% after hitting a six-year low of $8.55 in Friday trading. Domestic rival General Motors (GM) has also slumped hard this year, falling 21.6% to close at $32.10 in New York trading Monday.

The Nasdaq Composite index , which slipped into correction territory last week, was marked 52 points higher in early trading as investors await the kick-off of FAANG earnings after the bell in the form of a third quarter update from Netflix (NFLX) .

European stocks extended gains following the solid spate of U.S. earnings, with the Stoxx 600 rising 1% by early afternoon in Frankfurt, although investors remained fixated on both the European Commission's reaction to Italy's budget plans, which envisage a 2.4% deficit next year, and the potential for a no-deal Brexit ahead of a crucial EU summit later this week in Brussels.

Global oil prices were modestly weaker overnight, even as data continues to suggest that shipments of Iranian crude have fallen sharply since President Donald Trump withdrew from a multi-lateral nuclear treaty last spring and threatened sanctions on Tehran's oil sales, which come into force on November 4. A stronger U.S. dollar, which rose 0.1% against a basket of six global currencies, and questions over China demand were strong enough to hold down prices, even amid the rising tensions in the Gulf linked to the Khashoggi case and Trump's warnings of "severe punishment" if Riyadh were found to be involved.

Brent crude contracts for December delivery, the global benchmark, were seen 47 cents lower from their Monday close in New York and changing hands at $80.31 per barrel while WTI contracts for November delivery, which are more tightly liked to U.S gas prices, were seen 43 cents lower at $71.35 per barrel.
 

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