Stocks seen drifting lower ahead of signing of U.S.-China trade pact

By Mark DeCambre

Target Corp.’s shares tumble in premarket trade after reporting disappointing holiday sales

U.S. stock-index futures were edging mostly lower on Wednesday as investors awaited the signing of a partial Sino-American trade pact later in the session, amid a rollout of quarterly corporate earnings results.

The hoped for improvement in U.S. – China trade relations might not be immediately achieved though, with key issues left unresolved, including existing tariffs and efforts to impose restrictions on China’s Huawei Technologies Co.

How are benchmarks performing?

Futures for the Dow Jones Industrial Average YMH20, -0.12% were down 33 points, or 0.1%, at 28,901, those for the S&P 500 index ESH20, -0.09% are off less than 0.1% at 3,286.50, a decline of 1.4 points, while Nasdaq-100 futures NQH20, +0.01% were up 1.75 points, or less than 0.1% to 9,065.

On Tuesday, the Dow DJIA, +0.11% closed up 32.62 points, or 0.1%, at 28,939.67 while the S&P 500 index SPX, -0.15% lost 4.98 points, or 0.2%, to finish at 3,283.15. The Nasdaq Composite Index COMP, -0.24% ended with a loss of 22.60 points, or 0.2%, at 9,251.33.

What’s drove the market?

U.S. and Chinese delegates are expected to sign a long-awaited preliminary trade pact at 11:30 a.m. Eastern Time at the White House, but doubts remain about the substance of the deal and whether it can lead to a genuine detente between the global superpowers. According to the Wall Street Journal, the first phase of the trade deal will include roughly $200 billion in Chinese purchases of American goods and services over the next two years.

However, tariffs on some $360 billion of annual Chinese goods will remain in place, with reports by Bloomberg News of that development on Tuesday causing markets to trim strong gains and turn negative.

The text of the trade deal is expected to be released later Wednesday morning, which will also be pored over by investors, who view a preliminary pact as necessary for markets and the economy to remain healthy in 2020.

Another source of friction is the Trump administration’s efforts to restrict Chinese purchases of U.S. technology, with a focus on limitations of Chinese telecom company Huawei Technologies Co., which is viewed as a national-security threat by the U.S.

Meanwhile, U.S. Treasury Secretary Steven Mnuchin said Wednesday that a future phase two trade deal with China would ease U.S. tariffs on goods purchased from Beijing. “Just as in this deal there were certain rollbacks, in ‘Phase Two’ there will be additional rollbacks,” he told CNBC. “And we’ve said before — Phase Two may be 2A, 2B, 2C.” Mnuchin added that U.S. concerns of forced technology transfers and intellectual property theft are addressed in the first phase deal.

Read: Phase one trade deal won’t end the uncertainty in markets, HSBC strategist says

Meanwhile, U.S. fourth-quarter corporate results are being digested by Wall Street.

“In summary, despite the signing of the trade deal, which we reiterate has already been factored in investors key focus remain on earnings, we see a mixed to positive trading session as earnings overshadow,” said Peter Cardillo, chief market economist at Spartan Capital Securities, in a Wednesday research note.

Looking ahead, investors also are watching for a report on U.S. producer prices, with the producer-price index for December from the Labor Department due at 8:30 a.m. ET. At the same time, a report on New York-area manufacturing activity, the Empire State Manufacturing survey, for December is due.

An account of business conditions in the Fed’s regional districts, known as the Beige Book, is due at 2 p.m. ET.

Which stocks are in focus?

Target Corp. shares TGT, -6.87% were down 2.3% in premarket trade after the retailer said sales rose 1.4% between Nov. 1 and Dec. 31 in stores and through digital channels operating for at least 12 months, but warned that growth for the full quarter, which includes January, would likely come in less than half the 3% to 4% growth it had predicted.

UnitedHealth Group Inc. UNH, +0.26% said Wednesday that revenue rose 4.25% in the latest quarter as the number of people it served in Medicare Advantage and commercial benefits programs rose. Still, shares of the Dow constituent declined about 2% in premarket action.

Fellow Dow component Goldman Sachs Group Inc. GS, -1.52%  reported earnings that fell more than analysts expected, Wednesday morning. The investment and consumer bank’s stock was down 0.7% before the start of trade.

BlackRock Inc.’s BLK, -0.92% stock was up 0.7% before the opening bell after it reported quarterly net profits rose 40% to $1.3 billion. The company’s fourth-quarter earnings of $8.29 a share exceeded analysts’ consensus forecasts. Expectations were for net profits of $1.2 billion, or $7.75 a share. The asset manager ended 2019 with $7.43 trillion in assets under management, an increase from $5.98 trillion exactly a year ago.

Bank of America Corp. BAC, -0.68% reported quarterly earnings of $6.99 billion in the fourth quarter, down from $7.28 billion a year earlier. Per-share earnings were 74 cents, more than the 68 cents predicted by analysts polled by FactSet. The bank had revenue of $22.35 billion, down from $22.68 billion. Analysts had expected $22.22 billion. Shares were down 0.3% in premarket trade.

Apple Inc. AAPL, -0.03%  shares were in focus after President Trump called on the company to “step up to the plate” and help U.S. authorities by unlocking phones used by “killers, drug dealers and other violent criminal elements, in a Tuesday-evening tweet. The request echoes one made by Attorney General Bill Barr on Monday to unlock phones used by the gunman in a deadly shooting last month at a naval air station in Pensacola, Florida. Apple has said that it is cooperating with investigators, and it is unclear whether the company posses the ability to unlock these phones.

How are other markets trading?

The yield curve flattened for a second day, with the yield on the 10-year Treasury note TMUBMUSD10Y, -1.30%  falling 2.4 basis points to 1.795% and that of the 3-month Treasury bill TMUBMUSD03M, +0.16%  rising about 1 basis point to 1.564%.

Oil prices were edging higher Wednesday, as West Texas Intermediate Crude for February CLG20, +0.02%  rose 4 cents, or 0.1% to $58.27 a barrel. In precious metals, the price of an ounce of gold for February delivery GCG20, +0.39%  advanced $7.90, or 0.5%, to $1,552.50.

The U.S. dollar fell 0.1% relative to a basket of its rival currencies, according to the U.S. Dollar DXY, -0.09%.

In Europe stocks were trading mostly lower, with the Stoxx Europe 600 SXXP, -0.10%  down 0.1%, though the United Kingdom’s FTSE 100 UKX, +0.14%  was up 0.2%.

In Asia overnight, stocks sold off, as the China CSI 300 000300, -0.55%  fell 0.6%, Japan’s Nikkei 225 NIK, -0.45%  declined 0.5% and Hong Kong’s Hang Seng index HSI, -0.39%  .