Stock futures dip on weak Caterpillar forecast, China woes

January 28, 2019

By Sruthi Shankar

(Reuters) – U.S. stock index futures dipped on Monday, as weak forecast from Caterpillar added to nerves about Chinese economy, while optimism over the end to the longest U.S. government shutdown in history faded.

A packed week for markets got underway with investors bracing for large-cap tech earnings, U.S.-China trade talks and the Federal Reserve’s first policy meeting this year, as futures pointed to a 0.5 percent opening loss on the S&P 500.

Adding to the woes, China data showed earnings at industrial firms shrank for a second month in December, while President Donald Trump expressed skepticism on Sunday that U.S. lawmakers could reach a deal on border security that he would accept to avoid another shutdown.

As signs of a slowdown in the world’s second-largest economy become stark, investors are pinning their hopes for a compromise between Washington and Beijing on trade. Chinese Vice Premier Liu He will head to the United States on Wednesday and Thursday, for the next round of trade negotiations.

Caterpillar Inc shares fell 5.5 percent, reversing early premarket gains after the world’s largest heavy equipment maker on Monday forecast full-year profit below analysts’ estimates, indicating a slide in global demand stemming from China could worsen after the company reported revenue in line with expectations for the last three months of 2018.

Despite the hiccups, U.S. stocks have risen steadily since the start of 2019. The S&P 500 is up 13.6 percent from Christmas lows and the monthly performance so far has been the best since March 2016.

Supporting the climb were fourth-quarter earnings that largely exceeded Wall Street expectations. Of the 112 S&P 500 components that reported as of Friday, 72.3 percent had beaten profit estimates, according to IBES data from Refinitiv.

As the earnings kicks into high gear, Apple Inc, which has already cut its sales outlook blaming anemic Chinese demand for iPhones, will report on Tuesday. Other tech companies including Facebook Inc, Microsoft Corp and Inc are also slated to report this week.

The latest data from China kept the tech companies’ shares in the red in early trading, while chipmakers that have bigger exposure to China, were also trading lower. Micron Technology Inc fell 1 percent.

Fed policymakers meet between Jan. 29 and Jan. 30, and Chairman Jerome Powell is widely expected to acknowledge growing risks to the U.S. economy as global momentum weakens.

The U.S. central bank raised interest rates four times last year and has signaled it will probably lift borrowing costs twice in 2019. But policymakers are now in no rush, with some expecting the likely pause in terms of “months” that may be needed for risks to subside enough for them to approve the next two.

At 7:51 a.m. ET, Dow e-minis were down 164 points, or 0.66 percent. S&P 500 e-minis were down 13 points, or 0.49 percent and Nasdaq 100 e-minis were down 36.75 points, or 0.54 percent.

Oil prices fell nearly 2 percent after U.S. companies added rigs for the first time this year, a signal that crude output may rise further. Shares of Chevron Corp dropped 1.3 percent and Chesapeake Energy Corp fell 1.8 percent. [O/R]

GrubHub Inc rose 2.6 percent after brokerage Credit Suisse upgraded shares of the online food delivery platform, saying its recent investments will soon pay off.

(Reporting by Sruthi Shankar and Shreyashi Sanyal in Bengaluru; Editing by Shounak Dasgupta)