Friday October 26th

26-10-2018

US stock futures pare decline after report shows strong GDP, tame inflation

U.S. stock-index futures pointed to a significantly lower open for Wall Street's major indexes on Friday after the release of disappointing quarterly results from key tech companies. Stocks pared losses, however, after the Commerce Department reported the U.S. economy grew at a 3.5 percent rate in the third quarter, faster than economists had expected. The government also said its personal consumption expenditures (PCE) index, a key measure of inflation, increased by 1.6 percent last quarter. Stock have suffered in recent weeks as fears of rising inflation — and rising interest rates — trim corporate profit expectations. Since the PCE index is the Federal Reserve's preferred inflation gauge, any sign that the measure may be slowing could stall the central bank in its plan to continue to raise the overnight rate. Consumer spending, which account for more than two-thirds of economic activity, surged by 4 percent in the third quarter, the fastest pace since the fourth quarter of 2014. Still, around 8:44 a.m. ET, Dow Jones Industrial Average futures implied a drop of more than 240 points at the open on Friday. Meanwhile, the S&P 500 and Nasdaq 100 futures also pointed to steep losses. One strategist said the move after-hours was driven by poorer-than-expected earnings from tech bellwethers Amazon and Google-parent company Alphabet. Their shares fell 9.2 percent and 5.9 percent, respectively, in the premarket. There were "high expectations" for this earnings season, King Lip, chief strategist at Baker Avenue Asset Management, told CNBC. "The earnings are not coming in as great as people had suspected," Lip said, adding that "for Amazon specifically, forward guidance was surprisingly light." Amazon said Thursday that it expected revenue to come in the range of $66.5 billion and $72.5 billion in the fourth quarter, well below the Street's estimate of $73.79 billion. Alphabet's results also disappointed, with the internet giant reporting revenues of $33.7 billion in the third quarter, versus an expected $34.04 billion. Vasu Menon of Singapore-based OCBC Bank, said earnings have been strong so far, but he added a note of caution. The vice president of OCBC's Group Wealth Management said investors already expected strong earnings, and they now fear the effects of the U.S.-China trade war, particularly going into next year. U.S. stocks had seen a recovery on Thursday from steep losses in the previous trading session. The Dow Jones Industrial Average jumped by 401.13 points to close at 24,984.55, snapping a three-day losing streak. The S&P 500 saw gains of 1.9 percent to close at 2,705.57. The gains sent the Dow and S&P 500 back into positive territory for 2018, but barely. Through Thursday's close, the Dow and S&P 500 were down 5.6 percent and 7.2 percent for October, respectively. The Nasdaq, meanwhile, had lost 9.1 percent. Some market observers had expressed skepticism in Wall Street's stock market bounce overnight. "Despite (yesterday's) rally in stocks, investors are still wary that further moves to the downside could be coming," said Rakuten Securities Australia in a morning note. "After hours announcements from Amazon and Alphabet of slowing growth have done nothing to spur investor confidence and traders will still be cautious as we move through the sessions into the weekend." "Liquidity may become an issue as we move towards the weekend after this (week's) excessive moves and traders will be preparing for sharp moves in the late New York session whilst hoping for a bit more consolidation," they said. Several factors have conspired to knock markets down this month — some earnings disappointment, fear of rising interest rates, a brewing conflict between Italy and the European Union over budget spending, criticism of oil power Saudi Arabia after the killing of a dissident journalist and finally, worries that world growth is losing steam. Traders will likely continue to monitor the latest batch of corporate earnings Friday, with a host of firms set to report before the bell — Charter Communications, Colgate-Palmolive and Autoliv, just to name a few. Asia markets were mostly lower on Friday as major indexes see-sawed between gains and losses, with analysts questioning if a potential rebound will last. In China, the Shanghai composite fell 0.19 percent to close at 2,598.85 while the Shenzhen composite slipped 0.169 percent to 1,290.62. Hong Kong's Hang Seng index declined 0.92 percent in late-afternoon trade. Japan's Nikkei 225 gave up gains to slip 0.4 percent by the closing bell to 21,184.6 while the Topix index declined by 0.31 percent to 1,596.01. South Korea's Kospi dropped 1.75 percent to close at 2,027.15. Oil prices headed for a third weekly loss on Friday after Saudi Arabia warned of oversupply, while a slump in stock markets and concerns about trade clouded the outlook for fuel demand. Brent crude oil fell $1.12 to a low of $75.77 per barrel and was trading around $76.47, down 42 cents, by 8:42 a.m. ET (1242 GMT). The contract is on course for a weekly loss of roughly 4 percent. It has fallen by more than $10 in the last three weeks. U.S. crude was 63 cents lower at $66.70, set for a 3.5 percent loss this week. Gold prices edged up on Friday and were on track to rise for the fourth straight week, the longest string of weekly gains since January, as Asian stocks slumped amid increasing worries over the outlook for U.S. corporate earnings and global economic slowdown. Asian shares skidded to 20-month lows, S&P futures fell sharply and China's yuan weakened at the end of a turbulent week for financial markets on Friday. Spot gold was up 0.3 percent at $1,234.92 an ounce at 0736 GMT. It was up 0.7 percent for the week. U.S. gold futures were up 0.4 percent at $1,237.40 an ounce.