US tech shares led markets lower overnight after a stronger European trading session. Software stocks slumped 4% to 6% ahead of the US company reporting season. Crude oil slipped ahead of this week’s OPEC+ meeting, and the Euro moved higher, reflecting consensus that the European Central Bank will keep rates on hold at its meeting on Thursday night.
Sentiment turned on news that the US rejected China’s new claims in the South China Sea. The Secretary of State called the expanded claims “unlawful”, and decried China’s “campaign of bullying”. This marks a substantial change from the previous policy of staying out of regional territorial disputes, and raises investor concerns about increasing US/China hostility.
US company reporting may help close the gap between a dire economic outlook and rallying stocks. The circa 30% gains for share indices on since the March lows have many market measures trading at or near all-time valuation highs, making them highly sensitive to any earnings revision. Expectations are centred around an overall 40% drop in earnings, but potential for individual divergence is high.
The OPEC+ grouping meets on Wednesday. Analysts expect the group to start unwinding production cuts in August, as scheduled. West Texas Intermediate front month futures closed below $40 a barrel for the first time in two weeks.
Futures markets indicate a lower opening in Australia and Japan, although Hang Seng futures finished the night session up 100 points. China trade data, due today at an unspecified time, could shape trading after Singapore GDP data for the second quarter this morning dropped further than expected.