U.S. Futures Extend Decline Amid Shutdown, Bank-Earnings Worries

(Bloomberg) -- U.S. stock-index futures extended declines on caution ahead of major bank earnings and no signs the longest partial government shutdown in modern history is ending. European stocks followed Asian equities lower after China trade data disappointed.

Futures contracts on the S&P 500 Index fell as much as 1.1 percent as of 10:30 a.m. in London after the gauge closed little changed Friday. Contracts on the Nasdaq 100 Index declined as much as 1.3 percent, and those on the Dow Jones Industrial Average slid as much as 1.1 percent. The Stoxx Europe 600 dropped before the U.K. Parliament votes on Prime Minister Theresa May’s Brexit deal Tuesday with technology and health care companies among the biggest decliners.

“The U.S. shutdown is now starting to move into a troubling length from an economic perspective,” and most analysts expect weak earnings from banks, said Nick Twidale, chief operating officer at Rakuten Securities Australia in Sydney. “This should see pressure on the U.S. indices as we move through the week.”

U.S. Futures Extend Decline Amid Shutdown, Bank-Earnings Worries

Despite the shutdown, U.S. stocks completed a third straight week of gains as Federal Reserve Chairman Jerome Powell signaled a more dovish stance and expectations of a positive outcome from the trade talks. The S&P 500 has rallied more than 10 percent since hitting the brink of a bear market on Christmas Eve.

“It’s still too early to say that we have seen the lows,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors Ltd. in Sydney. “There are a bunch of issues that could trip up markets” and could trigger a re-test of the December low, or make new lows in the next few months, he wrote in a note to clients.

Citigroup Inc. kicks off earnings among major banks on Monday, a litmus test for the sector as analysts became increasingly pessimistic, issuing a slew of cuts to ratings and price targets earlier this month. Cost management, geopolitics and loan growth are key issues as investors assess the impact of Fed rate hikes and President Donald Trump’s trade war with China.

Also front in investors minds is the brewing economic impact of the partial government shutdown that became the longest in the modern era on Saturday and shows no signs of abating. About 800,000 federal workers missed their pay for the first time Friday.

Trump and the Democrats remain at loggerheads over the president’s demand for a border wall funding. While the president hasn’t ruled out declaring a national emergency to end the impasse, his budget team is drawing up contingency plans for a shutdown that extends through the end of February, according to an administration official.

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