US Stocks Shrug Off Slowing China GDP, Rising Rates, For Modest Friday Rebound

The Friday Market Minute

  • Global stocks edging higher despite a triple cocktail of risks from China growth, European crisis and rising U.S. interest rates.
  • China's Q3 GDP eased to the slowest pace since 2009, official data indicated, as Beijing's attempt to reign-in risky lending and the ongoing U.S. trade war bite into growth.
  • EU officials kick-back Italy's 2019 budget, sending government bond yields surging and bank stocks tumbling as the region's third-largest economy beings its long stand-off with Brussels.
  • U.S. equity futures point to a modest opening bell rebound on Wall Street with earnings from Procter & Gamble, Honeywell, Schlumberger and State Street in focus.

Market Snapshot

Global stocks shrugged off a series of headline risks Friday, including the weakest economic growth in China since the financial crisis, allowing markets in Europe and Asia to rebound on the final trading day of the week and pulling Wall Street futures into the green. 

However, China's slowing economy, Italy's ongoing budget tensions with EU officials in Brussels, the still-simmering trade war between Washington and Beijing and a hawkish Federal Reserve could individually or collectively topple the session's early bullish sentiment, which was sparked by comments from China's central bank governor and his pledge to support the nation's financial system with appropriate liquidity.

China's economy grew 6.5% in the three months ending in September, officials said, down from a 6.7% pace over the second quarter, while industrial output for the final month of the quarter rose 5.8%, both figures falling shy of analysts' forecast, with former representing the weakest advance since 2009.

However, Yi Gang's support pledge sparked a late-session rebound for Chinese stocks, lifting the benchmark Shanghai Composite 2.55% by the close of trading and taking the broader MSCI Asia ex-Japan index 0.53% higher into the final hours of trading. Japan's Nikkei 225, which closed prior to Yi's remarks, ended 0.56% lower at 22,532.08 points despite a weakening yen, which fell to 112.05 against a surging U.S. dollar.

China's rebound helped pull U.S. equity futures higher after last night's sharp sell-off, with contracts tied to the Dow Jones Industrial Average indicating a 145 point opening bell rebound and those linked to the S&P 500 suggesting an 14 point advance for the broader benchmark. Nasdaq Composite futures were indicating a 55 point opening bell gain.

PayPal Holdings (PYPL) shares surged in pre-market trading Friday after the online payments group posted stronger-than-expected third quarter earnings as its active customer base topped 250 million and growth on its Venmo platform continued to impress.

Action Alerts Plus holding PayPal shares were marked 6.6% higher in pre-market trading Friday, indicating an opening bell price of $82.60 each, a move that would extend the stock's year-to-date gain past 11% and value the San Jose, Calif.-based group at just under $98 billion.

Procter & Gamble (PG) posted stronger-than-expected fiscal first quarter earnings Friday and said it would buyack $5 billion in shares but noted organic sales would match its previous guidance range as the consumer brands giant faces trade war headwinds and a stronger U.S. dollar.

Procter & Gamble shares were marked 4.05% higher in pre-market trading following the results Friday, indicating an opening bell price of $83.49 each, a move that would trim its year-to-date decline to around 10% and value the Cincinnati, Ohio-based group at just over $200 billion.

Procter & Gamble, Honeywell (HON) , Schlumberger (SLB) and State Street (STT)  publish quarterly reports today with investors looking for further evidence that this earnings season remains as strong as the earlier indications. Of the 69 S&P 500 companies that have reported so far, 88% have beaten bottom line forecasts while 64% have bested estimates for topline revenue growth.

European stocks were modestly higher at the open, before giving back gains and sending the Stoxx 600 down 0.7% as Italy's brewing financial crisis, and the prospect of a so-called Hard Brexit, dented yesterday's bullish sentiment built from strong corporate earnings.

European official said Italy's 2019 budget proposal, which anticipates a 2.4% deficit, was an "unprecedented" violation of EU rules, and gave the government in Rome until October 22 to trim some of its spending plans.

European Central Bank President Mario Draghi also reportedly told EU leaders that there is "no evidence that to undermine all the rules will lead to prosperity, but it will carry a high price tag for all actors" and urged that "rules must be respected in the self-interest of all parties, especially the weaker ones", suggesting the Bank may not act as swiftly as usual if Italian government bond yields rise and domestic financial liquidity is stretched.

Italy's benchmark 10-year bond yields hit 3.76% in early Friday dealing, the highest since 2014, while the FTSE Italia Banks index fell 3.3% at the start of trading in Milan. The extra yield, or spread, that investors demand to hold Italian government debt instead of triple-A rate German bunds rose to 3.4%, the widest in at least five-and-a-half years.

Wow chart! #Italy's 10-year bond #yield now at 3.75%. pic.twitter.com/JLUJpI0z70

— jeroen blokland (@jsblokland) October 19, 2018

Global oil prices inched higher Friday, taking crude from near six-week lows, after traders spotted a much stronger-than-expected refinery throughput figure of 12.5 million barrels from China, which offset the weak GDP numbers and this week's 6.5 million inventory build in the United States.

Brent crude contracts for December delivery, the global benchmark, were seen 52 cents higher from their Thursday close in New York and changing hands at $79.81 per barrel, while WTI contracts for November delivery, which are more tightly liked to U.S gas prices, were seen 22 cents higher at $68.87 per barrel.

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