Opening Bell: Global Stocks Drop As Earnings Flops Reawaken Trade War Fears

Key Events

Futures on the S&P 500, Dow and NASDAQ 100 mirrored global stocks extending a selloff this morning, with several indices completing or developing bearish patterns after underwhelming earnings reports heightened fears that worsening U.S.-China trade relations will continue to take a toll on global growth.

SPX contracts deepened the underlying index’s slide below the key 3,000 number, while NASDAQ futures took a beating from Netflix (NASDAQ:NFLX) missing expectations on both subscriber growth and revenue, as the U.S. internet giant posted a significant loss of U.S. customers.

Europe’s STOXX 600 was also hit by some relevant earnings misses—most notably by trade-dependent companies such as SAP (DE:SAPG), the region’s most valuable tech company, which warned shareholders will have to wait until 2020 for any significant margin improvement, citing the downward effect of ongoing trade jitters. The stock lost 7% on the news, dragging Germany’s DAX lower.

Shares of Swedish engineering services firm Indutrade (ST:INDT) and British online retailer ASOS (LON:ASOS) also plunged on some weak metrics, by 12% and 13.5% respectively in early trading—with the latter wiping out this year’s profits.

In the earlier Asian session, regional equities drowned in a sea of red. Japan’s Nikkei 225 underperformed, tumbling 1.97% on reports that Canon (T:7751) operating profit could plunge as much as 40%. Technically, the index may have completed an island reversal.

China’s Shanghai Composite retreated 1.04%. Technically, the gauge may have completed a bearish rising flag.

Global Financial Affairs

On Wednesday, U.S. stocks stretched a selloff amid mixed earnings and fears of stalling U.S.-China negotiations over, among others, recent U.S. restrictions on Chinese telecom giant Huawei.

The S&P 500 fell 0.65%, pressured lower by industrials (-2.18%). The index slipped back below the psychological 3,000 milestone, while extending the penetration of an evening star, as the price fell below its uptrend line. The timing of this selloff is crucial, as it happened right at the top of a massive broadening pattern—which tends to form at market tops—ranging since January 2018.

The dollar dropped for a second day within its falling channel, though it managed to crawl above neutral levels by late European morning. The yen strengthened on risk off and even the pound, which remains consistently under pressure from Brexit headwinds, gained against the greenback.

South Korea’s won strengthened even after the country's central bank lowered interest rates, while Indonesia’s rupiah held earlier gains after policy makers cut the repo rate.

Bitcoin pared much of a second day’s advance, after today’s intraday high found resistance precisely on the $10,000 mark.

Overall, with less than two weeks before the Federal Reserve meets to decide on its next interest rate move, the central bank's Beige Book report suggested a generally positive outlook, with the labor market seen as tight. Yet companies are still struggling to pass on higher wages on one side and tariff-related costs on the other—and the start of earnings season, with several companies warning against the impact of the prolonged U.S.-China trade spat, surely hasn't improved sentiment.

Up Ahead

• Canadian Retail Sales and Core Retail Sales for May are released Friday.

• Microsoft (NASDAQ:MSFT) reports on earnings after market close on Thursday, with investors likely to seek more insight into the company's prospects for a continued rally.

• BlackRock (NYSE:BLK) unveils its financial results before market open on Friday, with some analysts highlighting the asset manager's high vulnerability to global growth risks and trade jitters.

Market Moves

Stocks

• Canada’s S&P/TSX Composite closed down 0.11 percent on Wednesday.

  Germany’s DAX Index slid 1.1% on the largest decrease in almost seven weeks.
• The MSCI Asia Pacific Index fell 0.8% on the biggest fall in more than a week.

Currencies

• The Canadian loonie was down 0.15 percent against the U.S. greenback early Thursday, trading at 0.7651.

• The U.S. Dollar Index dropped 0.16% for the second day and a total loss of 0.33%.
• The British pound advanced less than 0.05% to $1.2439.
• The euro increased 0.1% to $1.1238.
• The Australian dollar climbed 0.4%.
• The Japanese yen gained 0.2%.

Bonds

• Canada’s 10-year yield was up early Thursday at 1.538, a 0.65-percent increase.

• The yield on 10-year Treasurys fell less than one basis point to 2.04%.
• The yield on 2-year Treasurys climbed less than one basis point to 1.82%.
• Britain’s 10-year yield slipped two basis points to 0.739%.
• Australia’s 10-year yield declined four basis points to 1.351%.

Commodities

• Gold dropped 0.3% to $1,422.06 an ounce.
• West Texas Intermediate crude fell 0.2% to $56.69 a barrel.
• LME nickel increased 2.8% on its seventh straight advance.