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Global Stocks Pause as Trade Tensions Hit Earnings Forecasts

Global stocks were subdued Tuesday amid fresh concerns about potential spillover effects from trade tensions and slowing growth in China.

The Stoxx Europe 600 was flat in morning trading following its biggest daily decline in about a month, weighed down by falls in the auto and tech sectors. Markets in Asia pared their declines in late trading, while futures pointed to small opening losses for the S&P 500 after its closed lower on Monday.

Worries about China’s trade and economic position were widely cited as a catalyst for the pause in January’s stock-market rally. In the U.S., shares of Caterpillar dropped sharply Monday after setting lower-than-expected profit targets for 2019, citing slowing growth in China, while Nvidia also fell after the chip maker cut its guidance in part due to a faltering Chinese economy.

Adding to investor concerns, the Trump administration unveiled a sweeping set of criminal charges against China’s Huawei Technologies. In the cases unsealed Monday, federal prosecutors accused Huawei of violating U.S. sanctions on Iran and of stealing trade secrets from a U.S. business partner.

Asian stocks mostly recovered Tuesday from steeper earlier losses. Hong Kong’s Hang Seng Index fell 0.2%, while the Shenzhen All Share Index fell 1.1% following the Huawei report and weak local earnings results. Japan’s Nikkei Stock Average edged up less than 0.1%.

Delegations from the U.S. and China will resume trade negotiations on Wednesday, but early indications suggest the two sides remain sharply divided ahead of a March 1 deadline to cut a deal.

Investors this week are also expected to watch for an update on Brexit plans, a Federal Reserve meeting, the U.S. monthly jobs report and a slew of corporate earnings.

The British parliament is scheduled to vote on U.K. Prime Minister Theresa May’s “Plan B” for Brexit on Tuesday after lawmakers earlier this month soundly rejected her initial deal with the European Union.

The pound edged down 0.1% to $1.3146 Tuesday but remained up over 3% this month on building expectations the U.K. will be able to exit from the EU with some form of deal.

The Federal Reserve also begins its two-day meeting on Tuesday, after comments from Fed Chairman Jerome Powell earlier this month about the bank’s flexibility on rate rises and bondholdings helped support the market’s January rally.

Investors now see just a 23% chance of another interest-rate increase in the U.S. by the end of the year, according to Fed-fund futures tracked by CME Group.

“The market is feeling much more comfortable with the Fed right now, and that’s a big deal,” said Mike Thompson, head of S&P Investment Advisory Services. “I think the market narrative is starting to get more positive, ” he said, noting he views analysts’ expectations for 2019 earnings to be far too low.

Later Tuesday, Apple is slated to report earnings after the market closes. Its results are expected to be closely watched after a rare cut to its quarterly revenue forecast sent stocks sharply lower in early January.

In Europe, shares of SAP also fell 2.6% after the German software company reported fourth-quarter results that met its targets.

Source: Dow Jones

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