China economy fears outweigh earnings in early trading

European stocks and US equity futures declined as persistent worries over China’s economy weighed on global markets even as corporate news and earnings provided some bright spots.

The Stoxx Europe 600 index dipped, putting it on track to snap a four-day rising streak that took it to within two points of its January 2022 record high on Monday. European bonds gained, with Germany’s 10-year yield falling about three basis points. 

Miners Anglo American Plc and Rio Tinto Plc led basic-resources stocks lower after a slump in iron ore prices, with Bloomberg’s index of industrial metals down 0.7%. Sandoz Group AG tumbled more than 7% after Morgan Stanley downgraded the Swiss pharmaceutical company’s stock, citing near-term uncertainty.

The chemicals sub-sector outperformed, with Air Liquide SA jumping more than 4% after the French gas producer beat analysts’ expectations for margin expansion. Barclays Plc soared as much as 6% after announcing plans for capital returns. Evolution AB climbed almost 5% after US regulators terminated a probe into the Swedish online gambling firm.

Futures on the S&P 500 and Nasdaq 100 slipped, with US financial markets set to reopen after Monday’s public holiday. The 10-year Treasury yield was steady ahead of an auction of 40-year notes. A gauge of the dollar was little changed.

Earnings from bellwether Nvidia Corp. Wednesday may provide new impetus for equities as investors try to gauge the strength of the global economy. The chip giant has surpassed the market value of Amazon.com Inc on the expectation it will be a big winner from artificial intelligence developments.

“Nvidia results on Wednesday could be a turning point for the markets,” Charles-Henry Monchau, chief investment officer for Banque Syz, said on Bloomberg Television. “The market relies on very few large-cap growth stocks and if they disappoint for any reason there is a risk of a pullback.”

Elsewhere, Asian stocks fell after a reduction in China’s mortgage reference rate failed to dispel concerns about the world’s no. 2 economy. Benchmarks in Japan, Australia and South Korea were all in the red. Chinese stocks fluctuated.

The cut to the five-year loan prime rate was a “good gesture from the commercial banks but still now the property problem is not about the mortgage rate,” said Willer Chen, an analyst at Forsyth Barr Asia Ltd. The move may “slightly boost the property demand but I would not expect much.”

HEALTHY DEMAND

In Australia, BHP Group, the world’s largest miner, reported $6.57 billion in underlying profits, less than consensus estimates, and said demand from top customer China was healthy despite weakness in housing.

In other corporate news, Capital One Financial Corp. agreed to buy Discover Financial Services in a $35 billion all-stock deal that will form the largest US credit card company by loan volume.

Other potential catalysts for markets this week include the Fed's January meeting minutes to be released Wednesday and Eurozone inflation data due Thursday.

Elsewhere, gold was little changed after edging higher Monday to trade around $2,020 per ounce. West Texas Intermediate, the US oil price, edged higher against the backdrop of ongoing tensions in the Red Sea, a vital trade route. 

Some of the key events this week:

• European Central Bank publishes euro-area indicator of negotiated wage rates, Tuesday
• Rio Tinto Plc earnings, Wednesday
• Eurozone consumer confidence, Wednesday
• Nvidia Corp earnings, Wednesday
• Federal Reserve Jan. meeting minutes, Wednesday
• Atlanta Fed President Raphael Bostic speaks, Wednesday
• Eurozone CPI, PMI, Thursday
• European Central Bank issues account of Jan. 25 meeting, Thursday
• Fed Governor Lisa Cook, Minneapolis Fed President Neel Kashkar speak, Thursday
• China property prices, Friday
• European Central Bank executive board member Isabel Schnabel speaks, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 was little changed as of 9:18 a.m. London time
• S&P 500 futures fell 0.2%
• Nasdaq 100 futures fell 0.2%
• Futures on the Dow Jones Industrial Average fell 0.2%
• The MSCI Asia Pacific Index was little changed
• The MSCI Emerging Markets Index rose 0.1%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0784
• The Japanese yen fell 0.1% to 150.30 per dollar
• The offshore yuan was little changed at 7.2075 per dollar
• The British pound was little changed at $1.2603

Cryptocurrencies

• Bitcoin fell 0.5% to $51,641.32
• Ether fell 2.3% to $2,900.15

Bonds

• The yield on 10-year Treasuries was little changed at 4.28%
• Germany’s 10-year yield declined three basis points to 2.38%
• Britain’s 10-year yield declined three basis points to 4.07%

Commodities

• Brent crude fell 0.3% to $83.32 a barrel
• Spot gold rose 0.3% to $2,023.63 an ounce

This story was produced with the assistance of Bloomberg Automation.