Following Wednesday's closure to mark the national day of mourning for President George H.W. Bush, the stock market is poised to pick up where it left off Tuesday.
The S&P futures are down 40 points and are trading 1.3% below fair value. The Nasdaq 100 futures are down 129 points and are trading 1.7% below fair value. The Dow Jones Industrial Average futures are down 422 points and are trading 1.7% below fair value.
There is a lot going on in terms of possible drivers, yet there is one news item in particular that is drawing most of the blame.
Reports have indicated that Huawei Technologies CFO, Meng Wanzhou, has been arrested in Canada amid allegations the company has violated U.S. trade sanctions on Iran. Ms. Meng is expected to be extradited to the U.S. to face the charges.
It should come as little surprise that this report has fueled a heightened sense of angst that it will potentially stand in the way of the U.S. and China reaching a trade deal within their prescribed 90-day window. Moreover, it has piqued worries that China could take some retaliatory action in the interim against U.S. companies doing business in China.
Early losses will be led by the information technology sector as companies integrated into the smartphone and telecom equipment supply chains are expected to encounter some heavy selling pressure.
Overall, though, the initial pullback looks set to be fairly broad-based and concentrated on cyclical sectors as growth concerns come back to the surface. That will pull the industrial and basic materials sectors into the fray; meanwhile, the continued strength in the Treasury market, which is driving rates down across the curve, should keep the pressure on the financial stocks.
Adding fuel to the selling fire so to speak should be the energy sector. It is expected to be on the defensive as it trades in sympathy with oil prices, which are down 2.9% to $51.39 per barrel.
The latter is an improvement from overnight when WTI crude futures skimmed $50.23 per barrel following reports that Saudi Arabia's oil minister floated the idea that oil production should be trimmed perhaps by 1 million barrels per day. That was regarded as a disappointment versus speculation that a production cut agreement would fall in the neighborhood of 1.3 million barrels per day.
No final agreement has been reached yet at the OPEC meeting in Vienna, yet these headlines -- and general growth concerns -- are the basis for why oil prices are weak this morning.
Separately, there is a good bit of economic data to get through today. The Factory Orders report for October and the ISM Non-Manufacturing Index for November will be released at 10:00 a.m. ET. The early batch of reports included the following:
- The ADP Employment Change Report for November showed an estimated 179,000 positions were added to private sector payrolls (Briefing.com consensus 192,000)
- Nonfarm business sector labor productivity for the third quarter was revised to 2.3% (Briefing.com consensus 2.2%) from 2.2%. Unit labor cost growth was revised to 0.9% (Briefing.com consensus 1.2%) from 1.2%.
- The key takeaway from the report is that it points to fairly subdued labor costs in the third quarter.
- The trade deficit for October widened to $55.5 billion (Briefing.com consensus -$54.7 billion) from a downwardly revised $54.6 billion (from -$54.0 billion) in September.
- The key takeaway from the report is that it doesn't reflect any improvement in the U.S. trade deficit despite the tariff actions. The goods and services deficit has increased by $51.3 billion year-to-date, or 11.4%, from the same period in 2017.
- Initial jobless claims for the week ending December 1 decreased by 4,000 to 231,000 (Briefing.com consensus 225,000). Continuing claims for the week ending Nov. 24 decreased by 74,000 to 1.631 million.
- The key takeaway from the report is that initial claims, while down in the latest week, are starting to pick up in a move that suggests the low for this cycle has been reached.
The early data didn't help turn the tide of negative sentiment in the futures market. The question is, will the negative open bring out the dip buyers or will it keep them sidelined as nervous Nellies worried about law and disorder in the trade universe and equity market.