U.S. stock futures dropped on Monday, after data showed China’s exports unexpectedly shrank the most in two years, raising fears of a sharper slowdown in global economic growth and its impact on corporate profits.
About 35 S&P 500 companies are expected to report quarterly results this week, kicking off the fourth-quarter earnings season. Citigroup Inc, which is due to report results before the bell, was trading flat.
If you ever need any evidence that how the trade spat can impact the country’s economic health then this number is clearly a major factor here
Sentiment took a hit as dismal December trade readings from China reinforced concerns that U.S. tariffs on Chinese goods are taking a toll on the world’s second-largest economy, prompting profit warning from companies such as Apple Inc.
Data also showed China posted its biggest trade surplus with the United States on record in 2018 that could prompt President Donald Trump to turn up the heat on Beijing in their bitter trade dispute.
“If you ever need any evidence that how the trade spat can impact the country’s economic health then this number is clearly a major factor here,” said Naeem Aslam, chief market analyst at Think Markets UK Ltd in London.
“Investors are once again on the back foot in relation to this and they do not feel comfortable about the risk on trade.”
U.S.-listed shares of Chinese companies fell in premarket trading, with JD.com Inc and Alibaba Group Holding down more than 1.5 per cent.
Chipmakers, which get a large portion of their revenue from China, also tumbled with Advanced Micro Devices Inc and Micron Technology Inc down more than 2 per cent each.
At 7:00 a.m. ET, S&P 500 e-minis were down 0.83 per cent.
Dow e-minis were down 0.8 per cent while Nasdaq 100 e-minis were down 1.08 per cent.
Members of the FAANG group of stocks slid between 1 per cent and 2 per cent, led by Netflix Inc, which is set to report its fourth-quarter numbers on Thursday.
Oil slipped to around US$60 a barrel on Monday after data showed weakening imports and exports in China, the world’s second-largest oil consumer, raising the prospect of a slowdown in fuel demand.
Analysts expect S&P 500 companies to post a 14.5 per cent growth in fourth-quarter earnings, according to IBES data from Refinitiv. Profit for 2019 is likely to increase by 6.4 per cent this year, much slower than 23.5 per cent growth in 2018.
Still, optimism over China-U.S trade and hopes of a slow pace of interest rate hikes from the U.S. Federal Reserve has fuelled a strong run in stocks recently, pulling the S&P 500 10 per cent higher from its 20-month low hit on Christmas Eve.
The benchmark index is 12.9 per cent away from its Sept 20 closing high.
© Thomson Reuters 2019