Dow Futures Dip Ahead of Q4 Earnings Kick-Off; US-China Deal Signing in Focus

Dow futures suggest a modest opening bell gain ahead of the first set of major earnings for the fourth quarter reporting season, with updates from JPMorgan Chase, Citigroup and Wells Fargo expected before the start of trading.

The Tuesday Market Minute

  • Global stocks steady as investors await the start of the fourth quarter U.S. earnings season and eye Wednesday’s trade agreement signing between Washington and Beijing.
  • Reuters reports the phase one trade agreement sees China increasing manufacturing, services, energy and agricultural purchases by $200 billion over the next two years.
  • China data shows December exports rose for the first time in five months in December, while its U.S. trade surplus narrowed to $23.18 billion.
  • S&P 500 earnings are likely to fall 0.6% from the fourth quarter of 2018, according to Refinitiv data, with 26 companies — including major Wall Street banks — set to report this week.
  • U.S. equity futures suggest modest opening bell declines on Wall Street ahead of December inflation data at 8:30 am Eastern time and earnings from JPMorgan Chase, Citigroup and Wells Fargo before the start of trading.

U.S. equity futures suggest a modestly weaker open on Wall Street Tuesday, with investors awaiting the first major earnings of the fourth quarter reporting season and eyeing the signing of the phase one trade agreement tomorrow between Washington and Beijing.

Reuters reported Tuesday that the agreement, which seeks to rollback tariffs on China-made goods while allowing for a notable increase in U.S. exports into the world’s second-largest economy, details increased purchases of manufactured goods, services, energy and agricultural products worth around $200 billion over the next two years, compared to a baseline set prior to the trade war in 2017.

U.S. officials offered a goodwill gesture last night ahead of tomorrow’s ceremony in Washington by removing the “currency manipulator” label it had slapped on China earlier this year, but noted it hoped Beijing would “decisive” steps to strengthen its yuan in the coming years. 

With deal specifics starting to leak, and Trump administration official softening previous stances on U.S.-China relations, investors are now likely to focus on the start of the fourth quarter earnings season, which kicks off this morning with updates from JPMorgan Chase (JPM) – Get Report, Citigroup (C) – Get Report and Wells Fargo (WFC) – Get Report.

S&P 500 companies are expected to see collective earnings slip by 0.6% over the fourth quarter, when compared to the same period last year, a figure that translates to share-weighted earnings of £333.3 billion. Revenues, however, will likely edge higher, by 4.2%, suggesting broader consumer health in the world’s biggest economy.

However, upcoming earnings are poised for a big rebound from the previous year, according to current Refinitiv forecasts, with gains estimated from 6% in the first quarter to as high at 14.4% by the fourth quarter of 2020.

Futures contracts tied to the Dow Jones Industrial Average suggest a 50 point pullback for the 30-stock average while those linked to the S&P 500 are indicating a 4 point slip for the broader benchmark. 

European stocks were also firmer in the opening hours of trading in Frankfurt with a 0.12% gain for the Stoxx 600 and a 0.35% slip for the FTSE 100 in London, which continues to benefit from a weaker pound sterling.

Overnight in Asia, improving China exports, which rose for the first time in five months in December even as it U.S. trade surplus narrowed to $23.18 billion, supported regional stocks, which held near 19-month highs, while Japan’s Nikkei 225 returned from yesterday’s market holiday to record a 0.73% gain on the session to close at 24,025.17 points.

Global oil prices were also modestly higher into the start of the European session, with a stronger U.S. dollar and bets on increased stockpiles in the U.S. holding down gains and offsetting concerns over the potential for renewed flares of tension in the Gulf region.

Brent crude futures contracts for March delivery, the global benchmark for pricing, were last see seen 12 cents higher from their Monday close in New York and trading at $64.32 per barrel, while WTI contracts for February, which are more tightly-linked to U.S gasoline prices, were marked 2 cents higher at $58.10 per barrel.