Asian indices fell hard in Thursday trading following a massive rout in the US. The Japanese Nikkei led with a loss of 3.72% and outpaced most other major indices in the region. The Nikkei created a large price gap at the open and fell from there, creating a large red candle and setting a new 9-month low. The is bearish and gaining momentum although price action is now approaching a key support level near 21,000.
The Australian ASX posted the second largest decline during the Asian session with a loss near 2.80%. The ASX was led by tech, but bloodshed was not limited to one sector. The energy, financial, and mining sectors all saw substantial losses with shares of Rio Tinto and BHP falling roughly 3.0%. Chinese indices were not immune to the selloff but fared much better than either the Nikkei or ASX. The Hong Kong Heng Seng led Chinese markets with a loss of -1.0%, the mainland Shang Hai index posted a gain of 0.02%.
The ECB Holds Rates Unchanged
In Europe attention was focused on earnings and the ECB. The ECB held their October policy meeting over the past two days and released their statement this morning. The bank decided to hold rates unchanged which was expected; the bank also maintained its outlook for tightening. The ECB says they are on track, barring unexpected data, to end their bond purchase program in December and to begin policy tightening mid to late 2019.
EU markets were mostly flat and mixed at midday. The UK FTSE was the only index to hug the flatline, trading in a tight range over and under 0.00%, while the DAX and CAC were both able to post gains. The CAC led advancing markets with a gain near 1.0% followed by a distant 0.35% for the DAX. Markets in the region were buoyed by earnings more than anything else. Automakers were strong performers as their results reveal dominance over US car makers like Ford (F) who reported sales decline for the region.
US Futures Point To Rebound, Earnings In Focus
In the US futures trading indicated a strong open. The Dow Jones Industrial Average, S&P 500, and NASDAQ Composite were all indicated to post a gain of near 1% led by tech. The NASDAQ was indicated to open with a gain near 1.5% as strong earnings from Microsoft (MSFT), VISA (V), and Tesla (TSLA) all blew past expectations for revenue and earnings growth.
Regarding earnings and earnings season; today is the single busiest day of the season with 66 S&P 500 companies reporting. Reports from Amazon, Google, Intel, Pricesmart, Mattel, and Chipotle Mexican Grill are all due after the bell. Based on reports so far there is a high likelihood this batch will produce better than expected results with a few outlying misses. What will matter to traders is the impact of tariffs and trade war on earnings and how they will affect the outlook for earnings growth over the next five quarters.
Asian indices closed the Wednesday session mixed following Tuesday’s deep declines. Fear of slowing growth has gripped the market despite word from the PBOC it would work to support economic activity in China. The Korean Kospi led decliners with a loss of 0.40% and was closely followed by the Hong Kong Heng Seng Index. Japan’s Nikkei led advancing indices with a gain of 0.37% followed closely by China’s mainland Shang Hai index. Energy stocks were among the regions biggest losers as oil prices move to a new two-month low.
Oil prices fell hard in Tuesday’s US session leaving the price of WTI sitting on a key support level near $66.00. The move began last week when US crude oil inventories increased 4X the expected amount offsetting fears sanctions against Iran would tighten the market. Yesterday’s mass sell-off was sparked by word from Saudi Arabia it would work to ensure global oil markets remain well supplied. The move trimmed 5.0% from the price of WTI and has the price near the bottom of a short-term trading range where it may find support.
The EUR/USD Falls As Economic Activity Falls Short Of Expectation
European indices moved higher in the first half of the EU session with the CAC leading the charge advancing more than 1.15%. The DAX and FTSE were not far behind, each, posting gains in the range of 1.0%, and all three indices supported by earnings. In France, shares of Kering and Societe BIC advanced more than 8.0% on better than expected earnings. Kering, the owner of iconic brands like Gucci, says sales are strong and gave a favorable outlook.
The EUR/USD fell hard during the EU session on weaker than expected economic data. The EU Purchasing Managers Index shows expansion within the EU is still happening but at a slower rate than in the previous month and much slower than expected. The reported 52.7 for the composite figure, both manufacturing and services, fell 1.4 points from previous and missed expectations by 1.2 points. The data raises concerns that EU growth is slowing faster than expected which is an indication the ECB may need to prolong its QE program past the indicated December end-date. The ECB will release its policy statement on Thursday and will likely produce a market moving event.
US Futures Make Triple Digit Swing
In the US equity futures went on a wild ride in the early pre-opening session. The Dow was indicated to open with a triple-digit loss until the release of earnings by Boeing. Boeing reported better than expected top and bottom line issued, a favorable outlook for its business, and raised full year guidance which resulted in a 5% gain for the shares of the stock. Other notable earnings in the pre-market session include AT&T and UPS. AT&T missed on the top and bottom lines sending shares down by 3.0%, UPS reported figures that were only as expected and sent shares of that stock down more than 2.5%.
Today’s action is going to be dominated by two things; earnings and the FOMC. A host of important earnings are due out after the bell including Barrick Gold (BKX), Ford (F), Microsoft (MSFT), and Visa. Before that look out for the Fed’s Beige Book which is due to be released at 2 PM EDT.
Global tensions sent equities markets around the world diving for cover. Fear of slowing growth, the fallout from the US-Sino trade war, and the killing of journalist Jamal Khashoggi all played a part. Asian markets were down the most falling an average 2.5% to 3.0% at the close of the Tuesday session. Indices in the region are trading at or near long-term low levels with the Korean Kospi hitting a near 20 month low with today’s action. The Volatility Index rose more than 20%.
European markets were down an average -1.0% to -2.0% at mid-day, up off the low of the session but still at or near their own 20-month lows and indicated lower. Focus in this region is on the murder of Khashoggi which is turning into a major international event. The journalist, a self-imposed exile from Saudi Arabia, has deep ties to the US, EU and other major western powers who are now faced with the problem of how to deal with the Saudi’s now the cat is out of the bag. The Saudi’s have promised not to weaponize oil but the crisis is far from over.
The Tech Wreck
Technology stocks were hit the hardest in the EU session. Chipmaker AWS led with a loss near -25% as the companies outlook for year-end sales was not convincing enough for shareholders to stand pat. AWS released earnings yesterday delivering a near 50% increase in revenue with upbeat guidance for the final three months of the year.
Tech stocks led Tuesday’s route in both the EU and the US. US futures were indicated down an average 1.5% to 2.0% going into the opening bell and looking weak despite a round of positive earnings releases. Reports from United Technologies, Harley Davidson, Verizon and McDonald’s all beat analysts expectations on the top and bottom lines sending shares of these stocks higher in early action.
US Corporate Earnings Are Strong, Outlook OK
United Technologies and Harley Davidson were able to raise guidance, executives at HOG say stronger sales in the EU have helped to offset issues with tariffs and were a boost to earnings. Verizon’s beat was driven by better than expected subscriber growth. On the flipside, shares of Caterpillar fell more than -6.0% despite its top and bottom line beat due to poor outlook and weak guidance. The company says tariffs and trade woe are having an impact on profitability but was able to reaffirm its guidance. The problem for traders is that guidance was in a range with the lower end well below analysts consensus.
McDonald’s beat was driven by strong comp store sales. Comps in the US rose a strong 2.4%, just shy of the 2.5% estimated, but global comps rose a whopping 4.2%. Analysts had been expecting a more tepid 3.7% but strength was seen in the lead international markets, up 5.4%, and in the high-growth target market, up 4.6%. There is no economic data scheduled for today so traders will be focused on earnings and global headlines. Notable earnings after the close of Tuesday’s US session are Chubb, Texas Instruments, and iRobot.
Indices across Asia closed in the green as markets cheer stimulus action. The Shang Hai Composite led with a gain of more than 4.0% and was followed up by a 2.3% gain in the Hang Seng. Japanese stocks were less buoyant on fears that Chinese latest attempt to stave off economic slow-down will only serve to hurt the country long-term but were still able to close with gains. On Friday, the PBOC and securities regulators issued joint statements supporting equities and efforts to increase liquidity. These moves, such as the reduction of capital requirements for China’s banking system, will only serve to increase debt levels that already have market watchers concerned.
Australia was the real outlier in Monday’s Asian session. The ASX Index fell more than -0.55% on escalating political concerns within the country.
European Markets Rise but Italy Remains a Concern
European markets were lifted by optimism in the China and earnings results. The DAX and FTSE were neck-and-neck in mid-session trading with gains near 0.90% on the news. Shares of Ryanair and Fiat led the market, advancing 3.0% and 7.0%, on mixed results. Fiat announced the sale of Magneti Marelli unit to Japanese investor for $7.1 billion, a move cheered by shareholders, while Ryanair reported earnings that were below expectations. The mitigating factor for Ryanair is that the miss was driven in large part on infrastructure investment aimed at ensuring on-time departures.
News from Italy helped support stocks as well. A downgrade from Moody’s was far less than expected and lifted financial stocks in the country. The downgrade of one notch was expected, what was not expected was the stable outlook rating on Italian sovereignty. Italy’s coalition government has submitted a budget proposal to the EU but expects it will be rejected. Plans for increased public spending have been cited by government officials as the reason.
US Futures Set to Open Higher – Eyes on Earnings
In the US, all eyes are on earnings as the third quarter of 2018 earnings cycle hits its peak. This week will be one of the busiest of the season with just under 158 S&P 500 companies, or 31.6%, scheduled to report. Among these are also 10 Dow Components, 30% of that index, which should ensure an active week for the market. So far, with about 17% of the S&P 500 reporting, the blended rate of earnings growth is 19.5% and on the rise, gaining 0.30% in the last week.
The S&P 500 futures indicated a higher open in the early hours leading up to the US session. The index was looking at an advance near 0.45% at 8:30 AM and expected to rise at the open.
On the economic front, traders will be watching out for the FOMC Beige Book on Wednesday. The report is a monthly survey of all twelve Federal Reserve districts and an important tool for the FOMC. The report is expected to confirm ongoing economic expansion within all twelve districts. Traders will be looking closely at the inflation data for signs of acceleration and indications future interest rate hikes will be needed.