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Canadian and U.S. stocks are set for a dismal opening Thursday after Apple shocked markets with its first warning about sales figures in more than a decade, increasing investors' fears that a slowdown in China will have a huge impact on the coming earnings season.

The Dow was set for a triple-digit loss at the open after see-sawing on Wednesday, the first trading day of 2019, and eventually ending up slightly.

The TSX was also set to open lower as oil prices slid after gaining in trading late Wednesday.

Apple’s shares tumbled 8.4 per cent in premarket trading after the iPhone maker slashed its holiday-quarter revenue outlook due to slowing iPhone sales in China, sparking fresh concerns over the fallout from the Sino-U.S. trade war ahead of the U.S. earnings season.

“We did not foresee the magnitude of the economic deceleration, particularly in Greater China,” Apple chief executive office Tim Cook said.

“This provides solid evidence of how slowing economic growth and a trade war make the best death cocktail for sentiment,” said Naeem Aslam, chief market analyst at Think Markets UK Ltd. in London.

The warning from Apple, whose stock is a member of all the three major indexes, is a gloomy omen for Wall Street bulls hoping for an early gift in 2019 following December’s steep selloff.

Though the recent sell-off has lowered the S&P 500’s valuation, to 14 times expected earnings from 18 times a year earlier, earnings estimates have also been sharply lowered.

Analysts on average expect S&P 500 companies to increase their earnings per share by nearly 7 per cent this year, down from a forecast of 10 per cent growth at the start of October and far below their expectations of 24 per cent EPS growth for 2018, according to the most recent estimate from Refinitiv’s IBES.

Apple’s warning on China has the potential to weigh heavily on an array of companies. Chip makers, which count both Apple and China as major revenue generators, led the decliners in early premarket trading, while trade bellwethers Boeing Co. and Caterpillar Inc. dropped nearly 2 per cent.

Apple’s announcement also jolted currency markets and German government bond yields held close to their lowest in over two years.

“For the moment, investors have reacted by going into non-risky assets,” said Philippe Waechter, chief economist at Ostrum Asset Management, in Paris.

“No one wants to take any risk because none of the uncertainties we are facing have been lifted, whether it’s Brexit, this trade war, or growth. Investors are putting their heads in the sand and waiting.”

The news sparked a ‘flash crash’ in holiday-thinned currency markets as growing concerns about the health of the global economy, particularly in China, sent investors scurrying into the safe-haven of the Japanese yen, which was poised for its biggest daily rise in 20 months.

Currency markets saw a wild spike in volatility in early Asian trade, with the yen moving sharply higher against the U.S. dollar, breaking key technical levels and triggering stop-loss sales of U.S. and Australian dollars.

The U.S. dollar was last 1 per cent weaker against the yen at 107.77, having earlier fallen as low as 104.96, its lowest level since March 2018. The Australian dollar at one point hit levels against the Japanese yen not seen since 2011.

The United States and China are about one month into a 90-day tariff ceasefire, and U.S. President Donald Trump said on Wednesday that negotiations “are coming along very well.”

Trump also called the stock market’s drop at the end of 2018 a “glitch” and said the market would again go up once various trade deals are settled.

Apple’s warning follows data earlier this week that showed a deceleration in factory activity in China and the euro zone, indicating the ongoing trade dispute was taking a toll on global manufacturing.

The impact on U.S. activity will be clear later on Thursday. The Institute of Supply Management is expected to report a fall in its index of national factory activity to a reading of 57.9 for December, from a reading of 59.3 in November.

Also on tap is the ADP National Employment Report, which is expected to show private payrolls rose by 178,000 jobs in December. The report comes ahead of the more comprehensive non-farm payrolls report on Friday.

Overseas, shares in China and Hong Kong see-sawed between gains and losses as investors braced for Beijing to roll out fresh support measures for the cooling Chinese economy. China’s Shanghai index was off 0.04 per cent and Hong Kong’s Hang Seng fell 0.3 per cent.

“Chinese authorities have got the luxury of having control not just of the fiscal parts of the government tool case, but also the monetary parts ... and I suspect the Chinese authorities will use that,” said Jim McCafferty, head of equity research, Asia ex-Japan, at Nomura.

China’s central bank said late on Wednesday it was adjusting policy to benefit more small firms that are having trouble obtaining financing, in its latest move to ease strains on the private sector, a key job creator.

While more fiscal and monetary policy support had been expected in coming months on top of modest measures last year, some analysts wonder if more forceful stimulus will be needed to stabilize the world’s second-largest economy.

In Europe, Britain’s FTSE was down 0.3 per cent, Germany’s DAX fell 1.3 per cent and France’s CAC declined 1.1 per cent.

Commodities

Oil prices fell slightly on Thursday amid volatile currency and stock markets, coupled with concerns that an economic slowdown in 2019 will curb fuel demand just as crude supplies are surging.

U.S. West Texas Intermediate crude oil futures dropped 35 cents to US$46.19 a barrel. International Brent crude futures were down 7 cents at US$54.84 a barrel.

The slowdown in China and turmoil in stock and currency markets appears to be making investors nervous, including in oil markets.

“This is a continuation of the volatility afflicting commodities and oil with the last 24 hours marked by the release of various weak economic data points, particularly manufacturing PMIs, for major economies,” consultancy JBC Energy said.

In physical oil markets, top exporter Saudi Arabia is expected to cut February prices for heavier crude grades sold to Asia by up to 50 cents a barrel due to weaker fuel oil margins, respondents to a Reuters survey said on Thursday.

“Fears of future economic and earnings growth continue to be the main driver in causing market jitters,” Singapore-based brokerage Phillip Futures said.

Oil markets are also under pressure from a surge in supply just as demand growth is expected to slow.

Gold prices scaled a more than six-month peak on Thursday as fears of a global economic slowdown embellished safe-haven demand for bullion, with a weaker dollar adding further support.

Spot gold was up 0.3 per cent at US$1,287.97 per ounce, having touched its highest since June 15 at US$1,292.32. U.S. gold futures traded up 0.5 per cent at US$1,289.90.

“Fears of an economic slowdown are one source of the equity market volatility, thus contributing to the covering of short positions in the futures market and investors’ renewed interest in gold,” Julius Baer analyst Carsten Menke said.

Currencies and bonds

The Canadian dollar was up slightly, trading near 73.4 US cents but was held back as oil prices slipped.

The U.S. dollar collapsed to as low as 104.10 yen in early Asian trading when liquidity is thin, a drop of 4.4 per cent from the opening level of 108.87 and the lowest reading since March 2018. The dollar was down 0.3 per cent against a basket of its rivals at 96.559.

The yen surged on Thursday as investors scrambled into the perceived safety of the Japanese currency after Apple’s shock revenue warning exacerbated concerns about a Chinese and broader global economic slowdown.

The yen at one point was 4.4 per cent stronger versus the dollar after a flurry of automated orders triggered a ‘flash crash’ in thin Asian markets. It later stabilized but the yen remains on course for its biggest one-day rise in 20 months.

Such big moves in foreign exchange markets reflect deep and growing angst about the global economy - the yen has traditionally been the go-to currency in times of stress because traders believe the legions of Japanese investors holding money overseas will rush back into Japan when markets are in flux.

The yen, up 5.3 percent in five weeks, is the best performing major currency since early December, when worries about the direction of the global economy intensified.

U.S. Treasury yields moved lower after Apple’s warning, with the 10-year at 2.6362 per cent. The Canadian 10-year bond yield was up slightly at 1.926 per cent.

Stocks to watch

Bristol-Myers Squibb Co. said on Thursday it would buy Celgene Corp. for about $74-billion in a cash-and-stock deal, creating a powerhouse that will have several blockbuster cancer drugs. The combined company will have nine products with more than $1-billion in annual sales and significant potential for growth in oncology, immunology and inflammation and cardiovascular disease. Bristol’s shares were down nearly 15 per cent in premarket trading while Celgene’s stock soared nearly 32 per cent.

Barrick Gold Corp.’s new CEO defended head-office job cuts as its Randgold acquisition closes. Barrick’s new chief executive officer defended the company’s decision to lay off more than half of the staff at its Toronto head office before Christmas, saying it was a necessary move in a difficult market. Barrick issued layoff notices to about 95 people at its headquarters in December, bringing its headcount down to about 65 people, The Globe and Mail reported on Dec. 21. In an interview, CEO Mark Bristow said there are no plans to shut the office entirely, adding that a continuing staff is needed to carry out treasury services, human resources and accounting.

Also, Barrick Gold is considering options for its stake in Acacia Mining including possible sale, as Barrick works to end a nearly two-year-long tax dispute in Tanzania that has effectively shuttered operations there, said Mr. Bristow on Wednesday in an interview with Reuters.

Canada’s Syncrude has been directed to pay $2.75-million after it pleaded guilty over the death of 31 blue herons at its oil sands site in northern Alberta, the Canadian province’s energy regulator said.

Economic news

(8:15 a.m. ET) U.S. ADP National Employment Report for December. Consensus is a rise of 175,000 jobs.

(8:30 a.m. ET) U.S. initial jobless claims for week of Dec. 29.

(10 a.m. ET) U.S. manufacturing PMI for December. Consensus is 58.0, down from 59.3 in November.

(10 a.m. ET) U.S. construction spending for November. The Street expects an increase of 0.3 per cent from October.

Also: Canadian and U.S. auto sales for December.

With files from Reuters

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 22/11/24 4:00pm EST.

SymbolName% changeLast
AAPL-Q
Apple Inc
+0.59%229.87

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