Global Growth Jitters Resurface, Pushing U.S. Stock Futures Down
(Bloomberg) -- U.S. stocks are set to drop when investors return after a public holiday as tensions with China and global growth concerns resurface.
Futures on the S&P 500 Index were down 0.5 percent at 9:40 a.m. in London while contracts on the Dow Jones Industrial Average and Nasdaq 100 fell 0.5 percent and 0.7 percent respectively. The slump extends Monday’s decline amid signs the trade dispute between Washington and Beijing will take longer to resolve than first thought. The MSCI Asia Pacific Index slid as much as 0.8 percent. The U.S. stock market was closed Monday for Martin Luther King Jr. Day.
European equities also fell at the open, dragged down by banks and basic resources stocks, but trimmed losses, with the Stoxx Europe 600 trading little changed. Banks were penalized by Switzerland’s UBS Group AG’s fall after the asset management unit reported outflows in the fourth quarter. Commodities stocks fell as investors took profit on miners, steelmakers and oil companies as global growth risks mounted and the dollar rose.
“We’ve seen a definite turn in investor sentiment over the last couple of sessions,” said Nick Twidale, chief operating officer at Rakuten Securities’ Australian unit. “Market headwinds like growth concerns are starting to dominate trading flow.”
Futures contracts extended losses Tuesday after Washington indicated it will pursue the extradition of Huawei Technologies Co. Chief Financial Officer Meng Wanzhou from Canada. Meng was arrested at the behest of the U.S. last month over allegations of bank fraud related to sanctions against Iran. She has denied wrongdoing and is restricted to staying in Vancouver while awaiting further court hearings.
Investor sentiment was already soured after the International Monetary Fund Managing Director Christine Lagarde said risks to the global economy are rising after it cut its forecast to 3.5 percent this year, the weakest in three years due to softening demand across Europe and volatility in financial markets. That was hours after data showed China’s economy grew at its slowest pace since 2009.
The IMF’s second downgrade in three months comes as companies from Apple Inc. to FedEx Corp. warn of a grimmer outlook. FedEx cut its forecast in December, just three months after raising it, reflecting an abrupt change in its view of the global economy. That preceded Apple’s first downgrade in two decades earlier this month on growth fears in China. Halliburton Co. is set to report fourth-quarter earnings Tuesday.
Still, U.S. shares have been resilient even though the longest partial government shutdown in the modern era is showing few signs of abating, the full impact of which is yet to be felt. Stocks have gained 10 of the first 13 days this year as Federal Reserve Chairman Jerome Powell signaled a more dovish stance and on expectations of a positive outcome from the trade talks. The S&P 500 has rallied almost 14 percent since hitting the brink of a bear market on Christmas Eve, and last week exceeded its 50-day average for the first time since December.
Some investors are putting money into a leveraged exchange-traded note issued by Credit Suisse Group AG that gains with stock-market turbulence. The security had its biggest inflows since August last week, even as the Cboe Volatility Index posted a fourth straight weekly decline, its longest streak since May.
“It could be a lot more volatile today” after the updates on “pertinent” issues that have been driving markets, Sydney-based Twidale said. “Chinese data, the IMF report, a couple of Trump tweets too adds a bit more spice.”
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