The Tuesday Market Minute

  • Global stocks weaken as investors shift focus to slowing growth prospects, U.S.-China trade dispute, amid fading NAFTA deal sentiment 
  • IMF's Lagarde cautions on global growth as PMI data from around the world suggests trade-related weakness.
  • Oil prices hit fresh four-year highs as hedge funds pile into crude ahead of U.S.-led sanctions on Iran and analysts start preparing for $100 oil into the end of the year
  • Euro slumps as Italy's ruling Lega party economist talks of lira return, sending 10-year Italian bond yields to the highest in four-and-a-half years and rekindling concern over the breadth of its budget crisis.
  • U.S. equity futures suggests modest opening bell declines Tuesday, with the Dow set to give back around 100 points from yesterday's 190-point USMCA surge.

Market Snapshot

Global stocks retreated Tuesday, with investors citing concerns over prospects for global growth amid lingering trade tensions between the U.S. and China and the potential for Italy's budget crisis to spill over into broader European markets, as the bullish sentiment from yesterday's NAFTA re-vamp began to fade. 

Lost among the trade-related headlines yesterday was a low-key warning from International Monetary Fund Managing Director Christine Lagarde, who hinted to an audience in Washington that the Fund is likely to lower its global growth forecast this month amid the U.S.-China trade war, rising interest rates and a stronger U.S. dollar.

"In July, we projected 3.9 percent global growth for 2018 and 2019," Largade said. "The outlook has since become less bright, as you will see from our updated forecast next week."

The new USMCA trade deal, which replaces NAFTA with some specific yet potentially notable changes in the automotive and dairy industries, could also embolden the White House's stance in its current standoff with Beijing, which currently includes tariffs on $250 billion worth of China-made goods and could add levies on a further $267 billion more before the end of the year.

White House economic adviser Larry Kudlow told Fox Business yesterday that "nothing is imminent on China but we are willing to talk if it's substantial and significant and serious" adding that President Donald Trump and China's President Xi Jinping could meet at next month's G-20 summit in Buenos Aires.

The weakening macro overhang, which was exaggerated overnight by fresh four-year highs for global crude prices, clipped gains for stocks in Asia and looks to set up both European and U.S. markets for weaker starts at the opening bell.

U.S. equity futures suggest the Dow Jones Industrial Average will give back around 57 points from yesterday's 190-plus point surge at the start of trading Tuesday, while contracts linked to the S&P 500 suggest a 4.6 point pullback for the broader benchmark. Nasdaq Composite futures were marked 22.2 points lower from their Monday close.

General Electric (GE) shares extended gains Tuesday, after topping the S&P 500 yesterday with its biggest one-day advance in three months, following a rare upgrade for the stock as investors re-set expectations for new CEO Larry Culp.

GE shares were marked 2.56% higher in pre-market trading Tuesday, following Monday's 7.09% gain, indicating an opening bell price of $12.40 each, a move that would reduce the stock's year-to-date decline to around 29% and value the New York-based conglomerate at around $106 billion.

European stocks were also weaker by mid-day in Frankfurt thanks in part to renewed concerns over the scale of Italy's ongoing budget crisis, where the coalition government is attempting to approve spending plans that would widen its deficit to 2.4% of GDP for the next three years, a move that would add billions to the nation's €2.3 trillion debt pile.

Those concerns were stoked by comments from Claudio Borghi, the chief economist for the far-right Lega party, who said Italy's problems could be solved by a return to the lira, rekindling concern that senior officials could raise the issue of a euro referendum if talks with Brussels break down.

European Commission President Jean-Claude Juncker added to the concern with remarks to German television in Freiburg, where he said that "we have to do everything to avoid a new Greece -- this time in Italy -- crisis." 

Benchmark 10-year Italian government bond yields jumped 10 basis points this morning to 3.435%, the highest since March 2014, while the euro sagged to 1.1512 against the U.S. dollar.

The Stoxx Europe 600 was dragged 0.64% lower as Italy's FTSE MIB benchmark slumped 0.6% as bank stocks tumbled in the wake of Broghi's comments on the euro. Germany's DAX performance index was marked 0.9% lower at the bell, while Britain's FTSE 100 slipped 0.52%.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, bumped higher in overnight trading to a two-and-a-half week high of 95.62 while benchmark U.S. Treasury bond yields edged modestly higher to trade at 3.08%.

The stronger dollar put a brake on rising oil prices in the overnight session, but crude nonetheless is trading at fresh four-year highs as hedge funds pile on bullish bets ahead of next month's sanctions on Iran that could pull as much as 1.5 million barrels from the market each day as customers reject purchases from OPEC's third-largest producer.

Brent contracts for November delivery, the global benchmark, were seen 49 cents lower in early European trading and changing hands at $84.49 per barrel while WTI contracts for the same month, which are more tightly-linked to U.S. gasoline prices, were seen 3 cents loweer at $75.27 per barrel.