The Thursday Market Minute
- Global stocks slide following two extraordinary days on Wall Street that saw the biggest pre-Christmas fall on record and the first 1,000 point surge in history for the Dow Jones Industrial Average
- Japanese stocks roar out of bear market territory with a near 4% gain, but the momentum stalls in Europe with a 1.7% decline for the Stoxx 600 benchmark.
- U.S. Treasury bond yields hold steady following yesterday's jump, putting the yield curve at its steepest in three weeks, but mixed U.S. data could add to fading rate hike bets.
- U.S. stocks set to open lower, with Dow futures indicating a 340 point opening bell decline, ahead of housing and jobless claims data at 8:30 and 9:00 am eastern time.
Global stocks returned to the red Thursday, following two of the most extraordinary trading sessions in Wall Street history on either side of the Christmas holiday, as investors weighed some soothing statements on trade and personnel from the White House against concern that the world economy faces significant challenges in 2019.
Wall Street astonishing Wednesday session, which saw the first-ever 1,000 point gain for the Dow Jones Industrial Average and the biggest single-day advance since March 2009 for the S&P 500, provided a notable tailwind for Japanese stocks in overnight trading, lifting the Nikkei 225 some 3.9% by the close to trading in Tokyo to haul the benchmark out of the bear market slump it had fallen into earlier this week.
Many of the same drivers of yesterday's gain -- stronger-than-expected holiday spending, with Mastercard Inc. (MA) - Get Report reporting a 5.1% increase that took the 2018 tally past $850 billion, signals from the White House that President Donald Trump will not fire either his Treasury Secretary, Steve Mnuchin, nor the Federal Reserve Chairman, Jerome Powell and a Bloomberg report of a trade delegation heading to China for talks with Beijing early next week -- were in evidence Thursday, although the underlying issues surrounding weakening growth, political uncertainty and trade-related tensions kept gains in other markets in check.
Early indications from U.S. equity futures remained red despite the stronger European open, with contracts tied to the Dow I:DJI indicating a 3340 point decline and those linked to the S&P 500 I:GSPC suggesting a 37 point pullback for the broader benchmark. The tech-focused Nasdaq Composite index I:IXIC , which leader markets yesterday with a 5.84% surge, is set for a 90-point decline, according to futures prices.
"While yesterday's price action is definitely a positive sign, it's still too early to conclude whether the market correction is over or more downside is yet to come," said Hussein Sayed, chief market strategist at FXTM. "Such rallies are not uncommon in troubled times, and we have experienced many of them in past bear markets. To call for a bottom, we need at least a couple of days of strength, not just in price, but also in trading volume, breadth of the market, and fundamentally supported environment. So far, we don't see a shift in fundamentals."
China's Shanghai Composite slipped 0.61% by the close of trading, while the Hang Seng index in Hong Kong fell 0.67% despite the gains just a few hours earlier in Japan.
Europe's Stoxx 600 index, the regional benchmark, inched higher in the opening minutes of trading in Frankfurt, but weakness in Germany's DAX, which fell 2.1% on the back of softer index heavyweights in the power sector, pulled the benchmark down 1.65% lower by mid-afternoon in Frankfurt.
Britain's FTSE 100 was marked 1.3% lower, as well, despite a weaker pound, which held at 1.2630 against the U.S. dollar following a weekend interview with the leader of the opposition Labour party, Jeremy Corbyn, who said he would still push for Brexit even if he won a general election over Prime Minister Theresa May.
Yesterday's massive equity surge on Wall Street, which notched near 5% gains for both the Dow and the S&P 500, also rippled through U.S. Treasury bond markets, lifting benchmark 10-year yields by the most in nearly two months, to 2.809%, and pulling the difference between 2-year yields to the steepest in three weeks.
The positive moves, however, were set against some contradictory U.S. economic data, with the aforementioned Mastercard reading on holiday spending and a robust Christmas sales tally from Amazon Inc. (AMZN) - Get Report offsetting a record slide in manufacturing activity as measured by the Richmond Federal Reserve as new orders for export dried up in the face of the ongoing trade war with Beijing.
The mixed picture, as well as the fact that the CME Group's FedWatch tool suggests that investors aren't pricing in any rate hikes for next year, has kept both the dollar index in check and put a cap on investor sentiment heading into the final trading days of the year.
Global oil prices, too, reflected a more tepid outlook for both the U.S. and world economy Thursday, following last night's 8 percent gains that mirrored the surge in equity markets, with prices slipping modestly ahead of inventory day from the American Petroleum Institute later today and ahead of next week's 1.2 million barrel per day production cuts from OPEC (and Russia) which kick in next week.
Brent crude contracts for February delivery, the global benchmark, were marked $1.23 cents lower from their Wednesday close in New York and changing hands at $53.24 per barrel while WTI contracts for the same month were marked 94 cents lower at $45.28 per barrel.