Stocks drop as trade tensions threaten earnings

Stocks drop as trade tensions threaten earnings

NEW YORK (Reuters) – Stock markets around the world broadly fell on Tuesday as trade tensions weighed on the outlook for corporate earnings and as hopes dwindled over a hefty U.S. interest rate cut this month.

FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., July 1, 2019. REUTERS/Brendan McDermid/File Photo

European and U.S. equities dropped after German chemicals giant BASF warned of a 30% fall in its adjusted annual profit, citing trade friction and a global slowdown in growth.

On Wall Street, an analyst downgrade of 3M Co contributed to a drop in industrial shares. 3M was the biggest drag on the Dow Jones Industrial Average, which fell 0.32%. The U.S. benchmark S&P 500 index, however, was little changed, while the Nasdaq shed losses to gain 0.22% as tech shares edged higher.

The effect of trade tensions will be a major theme in the U.S. corporate earnings season, set to begin later this month.

“Trade is going to be a drag on earnings, and it remains to be seen if it’s been fully reflected in (stock) valuations,” said Chad Morganlander, senior portfolio manager at Washington Crossing Advisors in Florham Park, New Jersey.

Yet some encouraging news on trade came on Tuesday as the United States and China were set to relaunch talks this week after a two-month hiatus. White House economic adviser Larry Kudlow said talks with the European Union to move forward on a trade agreement were also in progress.

U.S. Treasury yields rose on those developments. Benchmark 10-year notes last fell 5/32 in price to yield 2.0509%, from 2.034% late on Monday.

Among European equities, shares of Deutsche Bank extended their fall following news of the bank’s reorganization plans, including the elimination of 18,000 jobs worldwide. The broad STOXX 600 fell 0.5%.

MSCI’s gauge of stocks across the globe shed 0.18%.

In the currency markets, Britain’s sterling dropped to a six-month low and was last 0.4% lower against the dollar at $1.2459 amid a worsening economic outlook and rising fears about a no-deal exit for Britain from the European Union.

The broader focus, though, remained the potential reaction to a weaker global outlook from the world’s top central banks, especially what U.S. Federal Reserve Chairman Jerome Powell will say during testimony before Congress on Wednesday.

Money market futures <0#FF:> are still fully pricing in a 25 basis-point cut at the Fed’s July 30-31 meeting, but have almost priced out a larger 50 bps move that had been seen as a real possibility just a couple of weeks ago.

The dollar index, which measures the greenback against a basket of six major currencies, rose 0.10%, while the euro dipped 0.06% to $1.1207.

“It would be pretty disruptive at this stage for Powell to rule out a cut in July or dampen expectations of a cut in July,” said Michael Metcalfe, head of global macro strategy at State Street Global Markets.

(For a graphic on ‘U.S. government debt yield curve’ click

Oil prices firmed after a dip in Asia as OPEC supply cuts and Middle East tensions outweighed the U.S.-China trade dispute that has been dragging down the global economy and oil demand.

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Brent crude futures rose 11 cents to $64.22 a barrel, a 0.2% gain. U.S. crude futures rose 10 cents to $57.76 a barrel, a 0.2% gain.

Spot gold ticked 0.2% higher to $1,397.51 an ounce.

(For a graphic on ‘Dot plot, Fed funds futures July 9’ click

Additional reporting by Kate Duguid, Stephanie Kelly and Richard Leong in New York and Marc Jones, Bozorgmehr Sharafedin and Alex Lawler in London; Editing by Bernadette Baum

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