Dow Futures Plunge After 3M Plummets; Dollar Soars On Global Currency Carnage

www.zerohedge.com

It was shaping up as a relatively quiet session, with world equity markets slipping modestly on Thursday - despite blowout beats by Facebook and Microsoft which sent the latter's stock 5% higher, sending its market cap above $1 trillion and making it the most valuable company in the world - amid worries on global growth and as investors digested European earnings, while the Swedish crown slumped to its lowest in 17 years and the euro suffered after German data.

But it was Dow heavyweight 3M's disastrous earnings report and guidance cut that sent Dow futures sharply lower as the industrial conglomerate became the first stock to validate investor fears about growth challenges for the rest of the year.

In a nutshell, this is what 3M reported as it lamented a "disappointing start" to 2019: Q1 adjusted EPS $2.23, missing the estimate of $2.48, and revenue of $7.86BN, Exp. $8.02BN. But most concerning of all was its guidance, which was slashed to an adjusted EPS of $9.25 to $9.75, down from its prior guidance of $10.45-$10.90, and far below the consensus estimate of $10.53, suggesting sharp weakness for the rest of the year. And the cherry on top: 3M announced it would fire about 2,000 jobs as the broad slowdown hits its operations.

Elsewhere, Europe's STOXX 600 lost 0.3% in early trading, with concern over prospects for global growth underscored by weak economic data from South Korea which earlier in the session reported its weakest GDP print since the financial crisis.

Energy stocks and a 10% drop in Finnish telecoms equipment maker Nokia dragged down European shares, with a varied bag of earnings for the region’s banks.

Asian markets had fallen earlier in the day, losing 0.5% as South Korea’s economy unexpectedly contracted in the first quarter, a vivid reminder that the global economy continues to slowdown sharply. Chinese stocks also fell sharply late in the day, losing more than 2% following attempts by the central bank to temper expectations for further easing of monetary policy and another substantial liquidity withdrawal by the PBOC. Chinese officials also warned of protracted pressure on economic growth, casting a shadow over hopes for a sustained recovery in the world’s second biggest economy.

Those worries on growth also played out closer to home for European investors, with fears lingering over the state of the German economy after a survey on Wednesday showed German business morale falling.

As a result of this weakness in Asia and Europe, the MSCI world equity index also fell 0.3%.

Amid today's renewed risk weakness, central banks continued to pivot dovishly, with the Bank of Japan on Thursday pledging to keep interest rates very low at least until early 2020, even as it retained main policy targets. However in stark reversal to the market's prior response to central bank dovishness, Japan’s Nikkei barely responded, closing just 0.5% higher, while the Japanese yen also reacted little. The yen was last up about a third of a percent, at 111.85 yen per dollar.
Several hours later, the Swedish Krona plunged to its lowest since August 2002, after the central bank said weak inflationary pressures meant a forecast rate hike would come slighter later than planned, while the central bank announced it would resume QE until the end of 2020. The SEK sank 1.2 percent against the euro to 10.65 - on course for its biggest daily drop in more than six months.

Turkey’s lira also crashed against the dollar, tumbling after the central bank announced it was removing its tightening pledge, and confirming that Turkey would no longer defend the lira after the nation's reserves dropped to dangerously low levels.

“You certainly have a common response (from central banks) to a global growth slowdown in terms of monetary policy,” said Peter Schaffrik, head of European rates strategy at RBC Capital Markets. "We haven’t generally seen outright reduction, but it is easing relative to what was previously communicated to, and implied in, the markets.”

The currency carnage was not over, however, and the euro suffered its worst day in over six weeks, falling 0.6 percent to a 22-month following the further signs of flagging growth in Germany. It was last at $1.1141.  Also on the agenda for the single currency were Spanish elections on Sunday and economic concerns out of Italy.

China’s yuan also declined to a two-month-low against the dollar later Thursday, while the Bloomberg replica of the CFETS RMB Index, which tracks the yuan versus a basket of 24 trading partners’ currencies, was at the highest in ten months. While the People’s Bank of China actually weakened the yuan’s reference rate, that wasn’t enough to keep the yuan index from rising so much. "Periods of broad dollar strength, as we have seen overnight, will result in a higher CFETS Index as the yuan fixing is normally not as weak as the moves in the basket currencies," said Khoon Goh, head of Asia research at Australia and New Zealand Banking Group.  Overnight, Chinese state media reported that the PBoC will set up policy framework to implement relatively low RRR for small and medium banks, in which the extra funds will be used to support private and small companies. However, there were later comments from the PBoC that China's prudent monetary policy is overall appropriate and neither tight nor loose and that the use of repos and MLFs does not signal loosening bias.

With currencies around the globe tumbling, it's not surprising that the dollar extended its gains, rising sharply and touching on fresh 2019 highs.

“The Fed isn’t keen to hike rates, but they are the strongest of the bunch so money will gravitate toward the U.S. dollar,” said David Madden, an analyst at CMC Markets in London.

Meanwhile, despite the dollar strength, oil continued to rise, Brent crude rose above $75 per barrel for the first time in 2019 in the wake of tightening sanctions on Iran, while gains in U.S. prices were crimped by a surge in U.S. supply.

Durable goods orders, initial jobless claims are due, while the afternoon sees scheduled earnings from Amazon and Intel.