Trade Worry Flares Up, Earnings Outlook Deteriorates, Economic Slowdown Continues

Trade Worry Drags On Sentiment, Futures Flat

The U.S. futures are trending flat on Wednesday morning after trade worries are renewed. A new push from China demands the U.S. remove the September tariffs before any deal is signed. The tariffs, 15% on $125 billion worth of goods, are only the latest stumbling block but many believe the Phase 1 deal will be signed soon. Regardless, the earnings growth outlook and economic situation continue to show slowing and weakness. The Dow Jones Industrial Average, S&P 500, and NASDAQ Composite are indicated to open with gains near 0.08%.

In stock news, shares of CVS are on the move in the early session. The healthcare megacorporation said revenue and EPS are better than expected and shares advanced 2.5%. Reports due out after the close of the session include Qualcomm, Expedia, TripAdvisor, Fox, and Papa John’s.

In economic news, U.S. 3rd quarter Unit Labor Costs rose 3.6%. This is more than 1.25% above consensus and points to tightening labor markets. Labor shortages are driving up the cost of employees through wages, incentives, and other compensations. On the industrial front, Industrial Production fell -0.3% versus an expected +0.9% as trade war conditions cut into activity.

European Markets Are Cautiously Higher

The EU markets are cautiously higher at midday on Wednesday. The CAC is in the lead with a gain of 0.40% while the DAX and FTSE trail with gains closer to 0.1%. The move is driven by a better than expected read on PMI which shows expansion and acceleration within the EU economy. The Markit PMI for the Eurozone came in at 50.6 and up 0.5 from the previous month. Locally, however, the news is less good. The German economy remains in contraction.

In stock news, shares of Societe Generale are up more than 5.5% after it reported earnings. The bank says revenue and earnings fell slightly short of estimates but its cash position is very healthy. Adidas shares are down -3.0% after the shoemaker beat consensus. The problem is that, despite the beat, Adidas provided weak guidance that failed to impress investors.

Asia Mixed, Trade Concerns Come To Fore

Asian markets are mixed at the end of Wednesday’s session. The Nikkei, Hang Seng, and Kospi are all modestly higher while the Shanghai and ASX are both down near -0.50%. The biggest cause for concern is the apparent stumbling block in trade negotiations. It is likely a deal will be signed, the question is when and what will it contain? In China, the PBOC set the midpoint for the yuan at its strongest level in three months. The decrease in yuan value is possibly a warning to the U.S., remove the September tariffs so we can make a deal or else.