Tuesday, October 23, 2018

Chinese Market Drop Leads World Stocks Lower, Dow Set For Further Losses

A sharp drop in Chinese stocks led global markets broadly lower on Tuesday, as investors digest the impact of trade tensions on the country as well as other geopolitical worries, such as Italy's debt problems.
After the Shanghai index closed down 2.3 percent at 2,594.83, European markets traded lower. Germany's DAX slipped 1.8 percent to 11,321 and France's CAC 40 was 1.3 percent lower at 4,990. Britain's FTSE 100 lost 0.7 percent to 6,991.
Wall Street is forecast to open lower, with the future for the S&P 500 down 1.1 percent and the Dow future off by 1 percent.
Traders appear to be weighing anew the impact of increased tariffs on most Chinese goods sold to the U.S., ranging from soybeans to electric cars and whiskey. Recent data showed China's economy grew at a 6.5 percent annual pace in the third quarter, its slowest since 2009.
Hong Kong's Hang Seng index sank 3.1 percent to 25,346.55. Japan's Nikkei 225 index gave up 2.7 percent to 22,010.78 and the Kospi in South Korea tumbled 2.6 percent to 2,106.10. Australia's S&P-ASX 200 dipped 1.1 percent to 5,843.10.
Margaret Yang, market analyst at CMC Markets in Singapore, said "investors are starting to price in weaker-than-expected third quarter GDP readings amid intensified trade frictions."
Several large U.S. businesses, which are due to report third quarter earnings later in the day, could either provide markets with much-needed tail winds or rock them further.
Underperformance by companies like Caterpillar, 3M and Verizon could be taken as a sign that rising interest rates, inflation and trade disputes are weighing on the global outlook.
In Europe, the focus was on Italy's dispute with the European Union over its plan to ramp up public spending. The plan expands its targeted deficit to 2.4 percent of GDP next year, three times more than promised by the previous government.
The European Union is worried that this would prevent Italy from lowering its debt, which is second only to Greece among its members.
International credit rating agency Moody's has downgraded Italy's credit ratings in response.

U.S. stock futures pointed to a deeply negative open Tuesday morning as investors continued to sell major technology and financial shares during this turbulent October for markets.

Netflix dropped 2.3 percent in premarket trading, set to add to its 11 percent drop this month. Amazon, Nvidia, Alphabet and Twitter shares were also set to open lower as investors worried about valuations for high-flying technology names with interest rates on the rise.

Bank of America declined 1.4 percent before the bell, set to add to its 7 percent loss for October as investors fretted that rising mortgage rates would crimp loan growth. Higher short-term rates may increase competition for bank deposits as well. Banks led the market lower on Monday.

Dow Jones Industrial Average futures indicated a decline of more than 260 points at the open while S&P 500 and Nasdaq 100  futures also fell sharply. After its fourth straight daily decline on Monday, the S&P 500 sits less than 2 percent away from the low hit earlier this month during this ongoing sell-off.

Tuesday is a big day for corporate earnings, with McDonald’s3MCaterpillar and a number of other firms set to report before the bell, and Juniper NetworksEquity ResidentialCapital One and others due to post their financials after the trading session. This is the busiest week of the earnings season, with more than 150 members of the S&P 500 set to report.

“US corporate earnings season has started with more of a whimper than a bang,” said Nick Colas, co-founder of DataTrek Research, in a note. “Yes, companies are beating expectations, but by less than usual.”

“This week has the chance to turn things around with 32% of the S&P 500 reporting. Still, it is now clear that we are past peak earnings momentum,” Colas added.

European and Asian shares retreated on Tuesday as sentiment soured amid the escalating geopolitical worries. Europe’s Stoxx 600 fell to its lowest level since December 2016 in early morning trade, with concerns over Italy’s fiscal plans and Brexit also depressing sentiment, while Asian markets saw broad losses.

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