Stock markets around the world have been teetering on the brink of collapse for the last week and overnight it looks like a later than usual seasonal selloff has started in earnest. US index futures are down 0.5% while the Dax is down 1.2% the Hang Seng down 1.6% and the FTSE
down 0.7%. USD has levelled off following yesterday’s gains enabling gold to rebound 0.5% while WTI crude is sitting steady on $50.00.
A number of factors have combined to knock the bottom out from under equities. First, headwinds from the higher USD on US corporate earnings and the prospects for a US rate hike this year remain in place following yesterday’s as expected FOMC minutes. Second, a big 10.0% drop in Chinese exports and a 1.9% drop in Chinese imports both much worse than street expectations have raised concerns about the health of the global economy. Third, sentiment toward earnings season remains sour with the street ignoring an earnings beat from US railroad CSX overnight while awaiting 3 big banks on Friday, JPMorgan, Citigroup and Wells Fargo.
Meanwhile the Brexit dispute between the UK and the EU has started to spill over from the national to the corporate level. A dispute over pricing has popped up between UK grocer Tesco and consumer products giant Unilever. I think most of us who fill up our cars with gasoline regularly are familiar with corporations who are quick to raise prices and slow to lower prices. In this case, Unilever wants to raise its UK prices due to the plunge in the pound over the last few months while Tesco is saying that Unilever benefitted for years from a higher pound and now needs to reduce its margins. Unilever products made wholly in the UK have become a particular source of dispute. This has put Brexit back front and centre and could cause traders to re-evaluate the earnings prospects for continental companies and their access to the UK market on Brexit considering that UK economy has been one of the few bright spots in Europe of late. This explains why the Dax is underperforming the FTSE even though the currencies are steady today.
Crude oil remains in focus today on mixed news. API inventories rose 2.7 mmbbls last week but this was offset by the successful completion of the first US oil and gas IPO in over two years. Oil, natural gas and gasoline along with energy stocks and currencies could all be active later this morning around inventory reports.
Canada may also be in the spotlight today around house price announcements with traders looking for indications of whether new government policies to cool hot markets particularly in Vancouver have had any impact. This may give an indication of how much pressure Toronto and Ontario may be under to follow BC’s lead, particularly related to foreign purchasers. In addition, house prices may influence Bank of Canada decisions on whether to cut interest rates this year or not which could impact trading in the loonie.
CSX $0.48 vs street $0.45
ADP US Crude Oil Inventories 2.7 mmbbls
China Trade Balance $41.9B vs $53.0B
China imports (1.9%) vs street 0.6%
China exports (10.0%) vs street (3.3%)
Germany consumer prices 0.7% as expected
Upcoming significant economic announcements include:
8:30 am EDT Canada new house prices street 2.8%
8:30 am EDT Canada Teranet house prices previous 11.4%
8:30 am EDT US jobless claims street 253K
10:30 am EDT US natural gas
11:00 am EDT US DOE oil and gasoline inventories