Futures Slide, Global Rally Fizzles As Trade Talks Begin

U.S. stock futures slumped more than 25 points from overnight highs. European equities dropped and Friday's "jumbo" 747 point surge in the Dow lost momentum as US/China trade talks began in Beijing. Both sides are pressured by concerns over the economy and market jitters. Chinese Vice Premier Liu He unexpectedly attended the first day of talks, Bloomberg reported, to discuss topics including IP, agriculture and industrial purchases in the first formal meeting between the two sides since Donald Trump and Xi Jinping agreed to a 90-day truce on Dec. 1. The dollar fell to the lowest in more than two months against peers.

S&P futures slumped back to red, after gaining as much as 0.8% shortly after the session open, as European equities drop shortly after the open, its third drop in four sessions, and reversing a broad rally in Asia, led by Japanese shares.


European shares slumped right off the start after a stellar opening for Asian bourses helped by the weaker dollar, pushing MSCI’s world equity index, which tracks shares in 47 countries, to its highest level in 2-1/2 weeks, and 6% higher than its December trough. The Stoxx 600 drops 0.4%, dragged by food and beverage sector after beer producers downgrades by Goldman Sachs. Additionally, German factory orders fell more than expected in November. Orders slid 1% from October, and posted a year-on-year decline of 4.3%, the biggest in more than six years

After gains of more than 2% in Shanghai and HK on Friday before the U.S. jobs data and Powell’s comments, both markets added to gains on Monday, with the Shanghai Comp. (+0.7%) and Hang Seng (+0.8%) confirming to the positive tone following the RRR cut announcement and with mid-level trade discussions set to resume between US and China today, although the mainland lagged its regional peers following a CNY 170bln liquidity drain by the PBoC. Japan’s Nikkei reversed Friday’s plunge to gain 2.4%.

“It is a reminder that central banks still have some firepower to deal with lower growth prospects, and perhaps what we are also getting some return of liquidity as investors return from the holidays and the ability to think things through,” said Investec economist Philip Shaw. He warned, however, that there is continued uncertainty about global growth, trade talks between the United States and China and U.S. monetary policy. “There are a number of questions that remain unanswered,” Shaw said.

Elsewhere, emerging-market shares jumped, and the Korean won, Malaysian ringgit and the Indonesian rupiah led gains in major currencies.

Treasury yields fell following Friday's biggest one-day percentage surge in two years amid a broad-based rotation out of bonds and into stocks.


The Bloomberg Dollar Spot Index stayed on the back foot on soft Fed rate-outlook pricing and slid to its lowest level since Oct. 18 as Treasuries gained.Tthe pound slipped against the euro as U.K. lawmakers sought to avoid a no-deal Brexit. The euro currency remained solidly up even as data showed German factory orders fell more than expected in November.

West Texas Intermediate crude extended a recent rebound to trade above $49 a barrel. Gold climbed after China reported increased holdings.

US President Trump and Chinese President Xi Jinping are reportedly mulling a potential summit in H1 2019 if progress is made in trade talks which begin today in Beijing according to sources. Elsewhere, US President Trump renewed his threat to invoke a national emergency as a way to circumvent Congress and build a wall on the southern US border in which he warned he may declare a national emergency dependent on what happens over the next few days.

In the latest Brexit developments, UK PM May warned that Britain would be in unchartered territory if her Brexit deal is rejected by parliament and said the vote would be held around 15th January as expected. May also left open the possibility of a 2nd referendum but stated that this is not a course of action she wanted to follow. More than 200 UK lawmakers from the Conservative and opposition parties have signed a letter to UK PM May asking her to rule out the option of a No deal Brexit. (Newswires) This also comes in the context of reports stating that Parliament will vote on two amendments to the finance bill on Tuesday that would result in a government shutdown unless UK PM May is able to secure support for her Brexit deal.

In geopolitical news, a US destroyer has sailed near the Parcel Island chain to challenge China's excessive maritime claims. Subsequently, China’s Foreign Ministry say they have sent a vessel to verify this, and warn it off. Adding that US action in the sea has violated law, and China has urged the US to stop these actions.

Expected data include ISM Non-Manufacturing Index, while the publication of factory orders is delayed because of the government shutdown. Commercial Metals is reporting earnings

Market Snapshot

  • S&P 500 futures down 0.1% to 2,528.50
  • STOXX Europe 600 down 0.4% to 342.15
  • MXAP up 1.9% to 148.38
  • MXAPJ up 1.3% to 478.07
  • Nikkei up 2.4% to 20,038.97
  • Topix up 2.8% to 1,512.53
  • Hang Seng Index up 0.8% to 25,835.70
  • Shanghai Composite up 0.7% to 2,533.09
  • Sensex up 0.5% to 35,855.89
  • Australia S&P/ASX 200 up 1.1% to 5,683.19
  • Kospi up 1.3% to 2,037.10
  • German 10Y yield fell 1.3 bps to 0.195%
  • Euro up 0.4% to $1.1443
  • Italian 10Y yield rose 3.8 bps to 2.538%
  • Spanish 10Y yield fell 1.0 bps to 1.464%
  • Brent futures up 3.1% to $58.81/bbl
  • Gold spot up 0.4% to $1,290.84
  • U.S. Dollar Index down 0.3% to 95.88
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Gary Anderson 9 months ago Contributor's comment

Tariff related hashtags on twitter are starting to ramp up. Trade is center stage. The US has already lost the steel wars. So what if China opens markets? American goods will be overpriced anyway. iPhones are inferior to Huawei and Samsung phones and are already overpriced. China has the power to destroy Apple, and the price for iPhones if they were made in the USA would be ludicrous. China could shut down Apple in China. Remember, it is only the cult of the iPhone, not quality, that keeps iPhone sales up.