Opening Bell: Futures Sell Off On U.S. Data Flop; Europe Drops Ahead Of ECB

Key Events

European stocks and futures on the S&P 500, Dow and NASDAQ 100 slipped lower following a mixed Asian session. A continued deterioration of the economic outlook—with the focus now shifting to the U.S. and Europe—aggravated pre-existing market worries of a global slowdown.

The STOXX 600 dropped to the lowest level of the week ahead of today's ECB meeting where policy makers are expected to downgrade forecasts for inflation and growth and to inject banks with liquidity as a counter measure.

The euro held onto yesterday’s gains, after the previous two-day selloff. Considering the single currency has been trading within a descending channel for the year, it’s expected to keep falling.

Conversely, the pound sterling gave up Wednesday’s climb on reported skepticism, from EU officials, that Brexit talks later this week will yield any breakthrough. Technically, we expect the U.K. currency to keep climbing in the medium-term—after trading within an ascending channel, and after leaping above the 200 DMA. The 50 DMA has also crossed over the 100 DMA and it's on its way to crawl above the 200 DMA, triggering a Golden Cross.

U.S. futures pointed to an extension of the current stock selloffs to a fourth straight day, as headwinds from new economic data threatened to further spook investors: official figures published yesterday showed the U.S. trade deficit for 2018 surged to a 10-year high—to $621 billion—and new hiring by private companies, at 183K, slid sharply below last month’s 300k figure.

The market will now wait with bated breath for tomorrow’s jobs report to see whether the historical lows have plateaued. On a more positive note, the rebound expected in the unemployment rate would ease pressure on the Fed to increase interest rates—always a welcome signal for markets.

Earlier, in the Asian session, Australia’s S&P/ASX 200 (+0.29%) outperformed, followed by China’s Shanghai Composite (+0.14%), where the government's announce pro-growth measures continued to offset the effect of the U.S.-China trade stalemate and of a weakening domestic economy. Japan’s Nikkei (-0.65%) led losses in the region.

Global Financial Affairs

On Wednesday, U.S. stocks extended their selloff to a third day, hitting a three-week low on downbeat domestic trade data.

The S&P 500 dropped 0.65% for the third straight day, suffering its worst week so far this year, falling over 1.5% since Tuesday’s intraday high over the 2,800 psychological level.

Technically, yesterday’s close crossed an uptrend line from the Dec. 24 bottom. This marks the third uptrend line failure since the pre-Christmas selloff, as can be seen in the chart. The recent uptrend line was justified after Tuesday’s new peak in the current uptrend, the highest since Nov. 7.

Health Care (-1.46%) continued underperforming due to uncertainty over the future of the country's health care system, with the “Medicare for all” bill presented by Democrats last week pledging to end private medical benefits and introduce a government-controlled single-payer system.

Energy (-1.27%) tracked oil prices lower after U.S. inventories bulked up more than expected.

Export-sensitive Industrials (-0.94%) seemed to be taking a hit from the reversal in perception around diplomatic progress in the U.S.-China trade saga. Interestingly, Materials (+0.22%), the other trade-war proxy sector, was the only sector posting gains—though they may have been prompted by the stronger dollar.

General Electric (NYSE:GE) tumbled 7.98%, suffering a cumulative two-day loss of 10.69%, after CEO Larry Culp's harsh outlook on 2019 cash flow reminded investors the company's troubles are far from over. More broadly, GE warnings add to the trend of soft guidance that has besieged U.S. firms since Q4 last year. Technically, the price extended the fall below its uptrend line, sliding below the 50 and 100 DMAs. The price formed a lower low, increasing the chances of a trend reversal, and the MACD and RSI provided sell signals, as we forecast yesterday.

Another implication of yesterday's data flop is that it undermines U.S. President Donald Trump's trade rhetoric, also heightening scrutiny on the historic tax cuts he introduced, which increased demand for imports. This perspective exacerbates the view of a U.S. administration impaired by its own policies.

The strengthening dollar also adds to the challenge, and we therefore expect Trump to ramp up his narrative against a strong greenback—though, two years after his infamous “the dollar is killing us” speech, the president’s rhetoric may not carry the gravitas it used to, and may thereby fall short of scaring traders out of the USD.

Perhaps the most important takeaway from Wednesday's weak data, however, is the understanding that Trump doesn’t have as much leverage over trade negotiations as he may think, considering the economic outlook both at home and in China has raised some important red flags since the start of the dispute.

In commodities trading, WTI crossed the halfway point to $57 a barrel as investors weighed a stockpile surge that threatens to undermine OPEC’s bid to avert a glut. Some analysts though pointed out that the large build in stocks is not indicative of faltering U.S. or global demand but rather of seasonal variations. Technically, the price has been consolidating between $55 and $58 since Feb. 18, as investors await a directional resolution.

Up Ahead

• European Central Bank policy makers are expected to leave rates unchanged on Thursday, amid a deteriorating economic outlook. President Mario Draghi will hold a news conference after the decision.
• The U.S. jobs report coming out on Friday may show hiring subsided in February. Nonfarm payrolls are forecast to have increased by 185,000 and the jobless rate to have slipped to 3.9%.

Market Moves

Stocks

• The Stoxx Europe 600 edged 0.3 percent lower, the largest decrease in three weeks.
• Futures on the S&P 500 Index fell 0.3 percent to the lowest in three weeks.
• The U.K.’s FTSE 100 slid 0.5 percent.
• Germany’s DAX dropped 0.5 percent.
• The MSCI Emerging Market Index slipped 0.6 percent, hitting the lowest in more than two weeks with the first retreat in a week.
• The MSCI Asia Pacific Index fell 0.6 percent to the lowest in more than two weeks on the biggest fall in a week.

Currencies

• The euro climbed less than 0.05 percent to $1.1308.
• The Japanese yen was unchanged at 111.77 per dollar.

Bonds

• The yield on 10-year Treasurys dropped less than one basis point to 2.69 percent, the lowest in more than a week.
• Germany’s 10-year yield increased one basis point to 0.14 percent.
• Britain’s 10-year yield climbed one basis point to 1.235 percent.
• Italy’s 10-year yield gained three basis points to 2.617 percent, the biggest climb in more than a week.

Commodities

• West Texas Intermediate crude rose 0.1 percent to $56.25 a barrel.
• Gold dropped 0.2 percent to $1,283.23 an ounce, the weakest in six weeks.