Tuesday January 21st

21-01-2020

Stocks are set to fall from record highs at the open

U.S. stock index futures dipped on Tuesday as Wall Street was set to pull back from record levels set in the previous session. Dow Jones Industrial Average futures slid 46 points, indicating a loss of 75 points at the open. S&P 500 and Nasdaq 100 futures also posted slight declines. Stocks notched all-time highs on Friday as the market carries its momentum from a strong performance in 2019. The S&P 500 surged more than 28% last year, its biggest annual gain since 2013. This year, continued optimism around U.S.-China trade relations along with dissipating fears of a global economic recession have built on the 2019 gains. However, concerns over a new strain of pneumonia in China drove some risk-off sentiment Tuesday. The outbreak of the new coronavirus in China has killed four people with confirmed cases exceeding 200 ahead of the Lunar New Year holiday, during which hundreds of millions of people are expected to travel. Late on Monday, Chinese authorities confirmed that the virus is contagious. Experts called back the economic fallout from the deadly Severe Acute Respiratory Syndrome (SARS) crisis in 2003, and the news sent investors fleeing from risk assets in Asia overnight, a trend that looks set to continue into the open on Wall Street. Futures were also under pressure after Treasury Secretary Steven Mnuchin told The Wall Street Journal that a phase two trade deal between China and the U.S. may not remove all existing tariffs. “We may do 2A and some of the tariffs come off. We can do this sequentially along the way,” he said. Meanwhile, the International Monetary Fund (IMF) on Monday downgraded its global economic growth forecast from 3.4% to 3.3% for 2020. The U.S. economy is projected to grow by 2.0% this year, a downward revision of 0.1 percentage points compared with the IMF’s October 2019 forecast. In corporate news, Boeing is in talks with banks to borrow $10 billion amid the spiraling costs of two crashes involving its beleaguered 737 Max aircraft. Stocks in Hong Kong led losses regionally among major Asian markets on Tuesday after ratings agency Moody’s cut its rating for the city to Aa3 from Aa2 on Monday. The Hang Seng index in the city fell 2.67%, as of its final hour of trading. Meanwhile, mainland Chinese stocks also declined on the day. The Shanghai composite shed 1.41% to about 3,052.14 while the Shenzhen component fell 1.46% to 10,953.41. The Shenzhen composite shed 1.28% to approximately 1,806.54. Elsewhere, the Nikkei 225 in Japan closed 0.91% lower at 23,864.56 while the Topix index declined 0.53% to end its trading day at 1,734.97. In South Korea, the Kospi was 1.01% lower to close at 2,239.69. The Bank of Japan (BoJ) kept its short-term policy rate unchanged at -0.1% while keeping its 10-year Japanese government bonds yield target around 0%, largely in line with expectations. Oil prices fell more than 1% on Tuesday on expectations that a well-supplied market would be able to absorb disruptions that have cut Libya’s crude production to a trickle. Brent crude fell 98 cents, or 1.5%, to $64.22 per barrel, having earlier touched $66 a barrel, the highest since Jan. 9. The West Texas Intermediate contract fell 75 cents, or 1.3%, after previously rising to $59.73, the highest since Jan. 10. Gold fell on Tuesday, easing off a two-week peak, as the dollar steadied near a one-month high, although concerns of the economic fallout from the coronavirus in China kept prices above the $1,550 an ounce level. Spot gold was down 0.3% to $1,556.49 per ounce, after hitting its highest since Jan. 8 at $1,568.35 earlier in the session. U.S. gold futures fell 0.2% to $1,556.60 per ounce.