Global stocks are declining with the IMF’s warning about slowing growth dampening investor sentiment into 3Q earnings season

by QuantalyticsResearch

US Stocks

  • Global stocks are declining this morning following yesterday’s positive start to the month as investors shift their focus to a slowing global growth outlook and the start of 3Q earnings season
  • US stocks index futures are pointing to a negative open in NY with the Dow Jones minis -0.27% S&P500 minis –0.21% and Nasdaq 100 minis –0.36%
  • While 3Q earnings season for the S&P500 is expected to be one of the best in recent years, with forecasted growth of +21.5% Y/Y, investors will be focused on company guidance as most of this growth is already priced into valuations
  • IMF Managing Director Christine Lagarde, during a speech in Washington DC yesterday, warned that the organization may lower its global growth forecasts as a result of escalating US-China trade tensions, rising interest rates and a stronger USD$ — the IMF’s updated forecast is expected next week; previously was projecting +3.9% global growth for CY2019
  • Goldman Sachs is reporting that 50 stocks in the S&P 500 with the strongest balance sheets outperformed stocks with the worst balances sheets for 6 straight quarters – Goldman defines a “strong” balance sheet as one which is not highly levered and suggesting rising interest rates are the main driver behind the outperformance of this “factor”
  • The VIX is little changed this morning and is currently at 11.78 after closing at 12 yesterday
  • Fortive Corp (FTV) October 19 OTM Calls & Puts; General Electric (GE) October 05, November 02 & November 16 OTM Puts; and VXX January 2019 OTM Calls are the most heavily traded options contracts in the US pre-market
  • US 10-Year Treasury Bonds are higher with yields down 2.61 basis points to 3.05%
  • The US Treasury 2s-10s Spread has narrowed 0.58 basis points to 0.26%
  • WTI Crude is currently up 2.8% to USD$75.3/bbl with the Brent-WTI spread down USD$-3.32 to USD$9.36/bbl
  • Gold is currently little changed 0.12% to USD$1190.46/oz
  • Citigroup is forecasting that the Brent-WTI spread will widen to CY2013-levels with bottlenecks in domestic US pipelines will prevent new output from reach Gulf Coast refiners and ports, causing US inventories to rise

Stocks Trending in the News

  • Akzo Nobel NV (AKZN NV) will distribute USD$6.4bn to shareholders from the sale of its specialty chemicals business.  The funds will be distributed using a capital consolidation of 2 billion euros, a 1 billion euros dividend will be paid and a 2.5 billion share buyback program will be undertaken.  Akzo Nobel is trading 0.25% lower at 79.32 euros.  Akzo Nobel is rated ‘Neutral’ in our European Large-Cap Global Top Picks
  • China Gas Distributors (384 HK) closed 8.8% lower at 20.20 in the wake of reports that the government may cut connection fees.  The company may see its profit margin limited for these connections according to a note published by Citi.  China Gas Distributors is rated ‘Attractive’ in our China All-Cap Global Top Picks
  • Fast Retailing (9983 JP) said Uniqlo September same store sales in Japan rose 6% y/y, including online sales.  The cooler weather since mid-month has driven the sale of autumn apparel.  Fast Retailing fell 0.99% to close at 58,250 yen.  Fast Retailing is rated ‘Top Buy’ in our Japan Large-Cap Global Top Picks
  • Ferguson (FERG LN) shares are falling 4.9% at 6217 pence after reporting slower revenue growth slowed a bit in September.   FY2018 growth of 7.6% has been hampered by slower growth in the UK though Ferguson expects “continued growth in the months ahead.”  Ferguson is rated ‘Neutral’ in both our European Large-Cap Global Top Picks and our United Kingdom Global Top Picks
  • Pepsi (PEP) saw growth return to it North American beverage unit which powered an estimate beat.  Core earnings were $1.59 per share, beating consensus; revenue of USD$16.5bn also beat expectations.   Pepsi is rated ‘Attractive’ in our US Large-Cap Global Top Picks and ‘Neutral’ in our US Consumer Staples Global Top Picks
  • Royal Dutch Shell (RDSA NA) confirmed the USD$31bn price tag for the project it is leading with partners to build an LNG export facility in western Canada.  The project, called LNG Canada, is designed to give LNG exports the shortest route to Asia from Canada.  It will be the largest infrastructure project in Canada ever.   Royal Dutch Shell is trading 0.23% lower at 29.757 euros.  Royal Dutch Shell is rated ‘Attractive’ in both our European Large-Cap Global Top Picks and our United Kingdom Global Top Picks
  • Royal Mail (RMG LN) is trading down 10.2% at 351.60 pence in the wake of a wave of downgrades since its profit warning Monday.   Analysts were surprised by the size of the cut to its outlook with one writing it was “shocking in its scale and timing.  Royal Mail has lost most of its post-IPO gains, having come public at 330 pence.  Royal Main is rated ‘Neutral’ in our United Kingdom Global Top Picks
  • Ryanair (RYA ID) reported its slowest monthly growth in September amid labor strife.  Ryanair posted 6% y/y growth as it was forced to cancel 400 flights, its slowest growth since 2014.  Ryanair is trading 2.2% lower at 11.22 euros.  Ryanair is rated ‘Top Short’ in our United Kingdom Global Top Picks
  • Siemens (SIE GR) was downgraded at HSBC to hold from buy.  Its price target was cut to 123 euros from 140.  Siemens is falling 2.7%, trading at 107.24 euros.  A weaker outlook for growth was cited in the note.  Siemens is rated ‘Unattractive’ in our European Large-Cap Global Top Picks
  • Tencent (700 HK) plans to file for an IPO for Tencent Music today according to press reports.  The news was reported by IFR Asia.  Tencent closed 1.9% lower at HKD$317.  Tencent is rated ‘Top Buy’ in our China All-Cap Global Top Picks.

European Stocks

  • European stocks are in the red with Italian deficit politics driving negative investor sentiment again this morning
  • The Euro Stoxx 600 is currently down -0.69%, the FTSE 100 has declined -0.52%, the DAX has fallen -0.72%, and the CAC 40 is lower by -0.96%
  • European investors have been spooked this AM following comments by the head of the Italian lower house budget committee who said that Italy could have solved its fiscal situation if it still had the Lira
  • The Euro continues its weakness with its fifth straight day of declines, currently down 0.44% to 1.1527
  • Investor sentiment for European stocks is negative with the advance/decline ratio for the Euro Stoxx 600 currently at 0.2x
  • Utilities (-0.08%), Food & Beverage (-0.17%), and Automobiles & Parts (-0.17%) stocks are the top performers in the Euro Stoxx 600 today
  • Industrial Goods & Services (-1.48%), Retail (-1.26%), and Technology (-1.14%) stocks are the worst performers in the Euro Stoxx 600 today
  • 83 stocks in the Euro Stoxx 600 are at 4-week highs while 46 stocks are at 4-week lows
  • 33 stocks in the Euro Stoxx 600 are overbought while 28 stocks are oversold according to the 16-day RSI Measure
  • VSTOXX, the European stocks equivalent of the VIX, is little changed this morning and is currently at 14.23 after closing at 14.23 yesterday
  • EUR€ is currently down -0.553% against the USD$ to 1.1514
  • GBP£ is currently down -0.728% against the USD$ to 1.2947
  • CHF is currently little changed against the USD$ at 1.0156
  • German 10-Year Bunds are higher with yields down -4.2 basis points to 0.429%
  • UK 10-Year GILTs are higher with yields down -4.6 basis points to 1.542%

Asian Stocks

  • Asian stocks were mixed overnight, with Hong Kong stocks declining after being closed yesterday for the National Day holiday
  • Stocks strategists speculate China’s weaker than expected Manufacturing PMI for September (released over the weekend) weighed on investor sentiment in Hong Kong and reinforced investment fears of slowing growth in China
  • Japanese stocks continue to climb, booking another day of gains after making a 27-year high in Monday’s trading session
  • The Nikkei 225 finished up +0.1%, the Hang Seng ended down -2.38%, the Hang Seng China Enterprise declined -2.39%, and the CSI 300 was +1.04%
  • Investor sentiment for Japanese stocks finished positive with the advance/decline ratio for the Nikkei 225 closing at 2.21x
  • 62 stocks in the Nikkei 225 hit 4-week highs while 1 stocks reached 4-week lows
  • 62 stocks in the Nikkei 225 closed overbought while 0 stocks closed oversold according to the 16-day RSI Measure
  • Investor sentiment for Hong Kong stocks finished negative with the advance/decline ratio for the Hang Seng closing at 0.04x
  • 8 stocks in the Hang Seng hit 4-week highs while 2 stocks reached 4-week lows
  • 1 stock in the Hang Seng closed overbought while 0 stocks closed oversold according to the 16-day RSI Measure
  • Japan 10-Year Government Bonds are higher with yields down -0.6 basis points to 0.13%
  • JGBs 2s-10s Spread has narrowed 0.6 basis points to 0.24%
  • JPY¥ is currently down -0.184% against the USD$ to 113.72
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