The Wednesday Market Minute
- Global stocks look to close out a brutal October on a high note, with investors snapping up beaten-down shares despite lingering headline risks related to U.S.-China trade, rising interest rates and weakening corporate earnings.
- Asia shares were supported by central bank action in Japan and China, with the former trimming its near-term inflation forecast and the latter signalling efforts to defend the yuan from further weakening against the U.S. dollar.
- European stocks post solid opening bell gains as the single currency weakens and blue chip earnings surprise, but Italian risks keep a lid on sentiment as the EU warns that its rising debt levels put the region's stability at risk.
- U.S. equity futures suggest Wall Street will book decent Halloween trading gains, but with benchmarks nursing losses of between 9% and 11% for the month, investors will be hard-pressed to reach for risk until some of the market's larger questions on trade and rates are sufficiently answered.
Global stocks are on track to close out one of the worst months since the financial crisis on a high note Wednesday, with investors cautiously moving cash into beaten-down equities that are trading at their cheapest levels in more than two years even as headline risks related to U.S.-China trade rising interest rates and weakening corporate earnings continue to challenge sentiment.
The MSCI Word Index, the broadest measure of developed and emerging market shares, has fallen some 8.55% so far this month, mirroring steep declines for benchmarks all over the world, dragging value measures for stocks to the lowest since 2016, based on projections for corporate earnings in 2019. Those projections, however, are creating concerns that companies are increasingly concerned over the fate of the world economy and the impact of the ongoing U.S.-China trade dispute, which President Donald Trump said earlier this week could either be resolved or escalated over the coming weeks depending on his upcoming meeting with Xi Jinping at the G-20 Summit in Argentina.
Overnight trading in Asia reflected both of those concerns, in fact, with stocks in Tokyo surging more than 2% after the Bank of Japan trimmed its medium term inflation forecast, citing slowing global growth prospects, and renewed its pledge to keep rates are near or below zero for an extended period of time, a move that weakened the yen and boosted the value of export-focused companies on the Nikkei 225.
Markets in China were also supported by central bank action, with the PBOC announcing plans to sell around $2.9 billion worth of bills on the Hong Kong market, a move that many see as a signal it will defend the yuan from falling past the 7 level against the U.S dollar and followed data showing that activity in the country's manufacturing sector eased to its slowest pace in two years.
Samsung Electronics (SSNLF) shares were a notable mover in the Asia session, rising 0.12% in Seoul even as the world's biggest semiconductor maker cautioned that memory markets would soften over the near-term, thanks in a part to a glut in chips that has weakened pricing power, and slashed it capital spending plans despite posting record third quarter profits.
"Looking further ahead to 2019, earnings are forecast to be weak for the first quarter due to seasonality, but then strengthen as business conditions, particularly in the memory market, improve," Samsung said in a statement.
Early indications from U.S. equity futures suggest Wall Street will attempt to extends last night's solid gains through the final day of October trading, a month which has seen the S&P 500 fall 7.91% and come within a whisker of "correcting" from the all-time high it reached on September 20.
Contracts tied to the Dow Jones Industrial Average (^DJI) indicate a 240-point opening bell gain for the 30-stock average while those tied to the S&P 500 (^GSPC) suggest a 30-point rise for the broader benchmark. Nasdaq Composite (^IXIC) futures were marked 103 points to the upside it looks to claw back some of the 11% it has lost amid a brutal month for U.S. tech stocks.
Wednesday's earnings calendar is relatively light, although third quarter updates from General Motors (GM) - Get Report , AIG (AIG) - Get Report , Estee Lauder (EL) - Get Report and Express Scripts (ESRX) will give investors some direction on 2019 profits to add to the already mixed picture from the more than half of S&P 500 companies that have reported so far this season.
General Motors, however posted much stronger-than-expected third quarter earnings Wednesday and said full-year profits could surprise to the upside thanks to favorable tax rates and improving performances in key markets in the U.S. and China.
General Motors shares were marked 7% higher in pre-market trading following the results, indicating an opening bell price of $35.88 each, a move that would trim the stock's year-to-date decline to around 10% and value the Detroit, Mi.-based icon at more than $52 billion.
Facebook Inc. (FB) - Get Report shares were indicated higher in pre-market trading Wednesday after the world's biggest social media group said near-term costs linked to keeping its website safe from fake news and data breaches, as well as pivoting its business towards messaging and video traffic, would be less than expected, softening the blow of weakening revenues.
Facebook shares were marked 5.4% higher in pre-market trading Wednesday, indicating an opening bell price of $154.11, a move that would trim the stock's year-to-date decline to around 17% and value the Menlo Park, Calif.-based group at just over $425 billion.
European stocks were also broadly stronger at the start of trading Wednesday, with the Stoxx 600 benchmark rising 1.64% by early afternoon in Frankfurt amid solid gains for benchmarks in France and Germany, as well as a softer single currency, which slipped to 1.1333 against the greenback in overnight trading.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, edged past a 16-month high of 97.06 in early New York trading, while benchmark 10-year government bond yields rose 3 basis points from Tuesday to trade at 3.145% after a firmer-than-expected reading for U.S consumer confidence and plans by the Treasury to sell more than $1.3 trillion in new bonds over the course of the current fiscal year to fund the nation's deepening deficit.
Global oil prices rose for the first day in three, defying both the stronger dollar and data from the American Petroleum Institute yesterday which showed domestic stockpiles grew by 5.7 million in the week ending October October 26.
Brent crude contracts for December delivery, the global benchmark, were seen 84 cents higher from their Tuesday close in New York and changing hands at $76.75 per barrel while WTI contracts for the same month, which are more tightly liked to U.S gas prices were marked 63 cents higher at $66.81 per barrel.