U.S. Stock Index Futures Fall as China Trade Talks Disappoint

(Bloomberg) -- U.S. stock index futures slipped in Asia after a statement on China trade talks disappointed some investors and lawmakers in Washington remained gridlocked over a resolution on a partial government shutdown.

Contracts on S&P 500 e-minis expiring March slid as much as 0.7 percent. The underlying gauge pared gains on Wednesday as the spending impasse extended into its 19th day. Contracts on the Dow Jones Industrial Average and the Nasdaq 100 fell 0.6 percent and 0.8 percent, respectively.

China and the U.S. wrapped up three-days of mid-level talks on Wednesday with Washington pressing for a way to make sure Beijing delivers on commitments made in any deal. For its part, China said the meetings were “extensive, in-depth and detailed,” and laid the foundation for a resolution of the conflict. Statements from both sides made no mention of the next round of tariffs to be implemented by March.

“Investors are still nervous about all this,” said Shane Oliver, head of investment strategy at AMP Capital Investors Ltd. “There had been a rally earlier in the week after President Trump tweeted that trade talks were going very well. This statement is probably not as upbeat as that tweet was.”

The S&P 500 Index has climbed 5.6 percent in the past four sessions, it’s longest winning streak in four months after the Federal Reserve Chairman Jerome Powell signaled a more dovish stance and expectations of a positive outcome from the trade talks. The index has rallied 10 percent since hitting the brink of a bear market on Christmas Eve.

“Technically we’re at a point where you could have a bit of a consolidation or maybe even a bit of a pullback,” Sydney-based Oliver said. “When you get close to that 50-day moving average you might expect the market to have a bit of a pause after bouncing from oversold levels.”

Investors are also nervous the impact of the partial government shutdown that’s set to become its longest after Trump stormed out of a White House meeting with congressional leaders calling it a “waste of time.” Trump blamed Democrats for refusing to consider funding for a border wall while House Speaker Nanci Pelosi called Trump “petulant” and his approach to the talks “pathetic” as they sought to re-open the government.

Markets should be preparing for the shutdown to impact American growth as Trump and the Democrats play a game of chicken, said Patrick Chovanec, managing director and chief strategist at Silvercrest Asset Management Group LLC. Both sides are fighting over a symbol that neither wants to compromise over, he said.

“Markets have gone through this so many times with these shutdowns that last like a week or whatever and at the end of the day, they realize it didn’t have any impact on GDP,” Chovanec, who was head of internal communications for House Republicans during the 1995 shutdowns, said. “But by Friday it’ll be the longest government shutdown that there’s been, and then you’re going to talk about a real economic cost.”

Read more on the impact already being felt from the government shutdown

The impact is starting to be felt. Uber Technologies Inc. and Lyft Inc.’s initial public offerings, likely the two largest this year, have been left in limbo as the Securities and Exchange Commission is sapped of resources. Airports are girding for disruptions as security screeners call in sick in growing numbers and federal contractors face more than $200 million a day in lost or delayed revenue. About 800,000 federal workers will not receive paychecks on Friday.

“Real pain is going to start to be felt” when workers miss their paycheck and there’s disruptions to air travel, Chovanec said. If people aren’t paid and that money isn’t circulating, “that starts to have an economic impact.”

To contact the reporter on this story: Matthew Burgess in Sydney at mburgess46@bloomberg.net

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Naoto Hosoda, Adam Haigh

©2019 Bloomberg L.P.