European stocks are expected to open high Monday, while U.S. equity futures suggest a positive start to the week on Wall Street even as investors question the fate of domestic tax reform and fret over signals from bond market yields for the broader economy.
Financial bookmakers IG are pricing in a 20 point, or 0.2% advance for Germany’s DAX performance index and a similar 0.16% gain for the CAC-40 in Paris. Britain’s FTSE 100 is slated for a larger 0.4% rise thanks in part to firming oil and basic materials prices and a softer pound, which slipped 0.6% during Asia trade to 1.3092 amid speculation that Prime Minister Theresa May could be pushed aside by members of her governing Conservative Party in a no confidence vote.
The Sunday Times newspaper reported that as many as 40 MPs, just 8 shy of the total needed to launch a formal leadership challenge, are prepared to sign a letter backing the removal of May over her perceived weakness as Prime Minister and the lack of progress in Brexit talks with European Union officials in Brussels.
On Wall Street, the Dow Jones Industrial Average could rise around 10 points at the opening bell, with a modestly small 0.01% bump priced in for the broader S&P 500. Both benchmarks ended the week in the red Friday, snapping an 8-week weekly winning streak for U.S. stocks amid market speculation that a Senate authored tax reform bill would likely delay corporate reductions until 2019 and could deeper resistance from lawmakers on both sides of the aisle given the offsets it has suggested.
Investors were also concerned by signals from domestic government bond markets, where the difference in yield between 2-year and 10-year Treasury notes held at a decade low of 74 basis points, or 0.74%. Traders generally grow concerned when the so-called yield curve flattens, narrowing the difference in long and short-term yields, as it can be an early indication of economic slowdown. When the curve becomes inverted, and short-term yields rise higher than longer-term ones, many experts suggest this is a potential signal of recession.
Overnight in Asia, stocks slipped across the board with the Nikkei 225 falling 1.3% to a two-week low of 22,380.99 while the broadest measure of regional shares, the MSCI Asia ex-Japan index, was marked 0.18% lower from Friday’s close.
Global oil prices were little-changed overnight, but holding above two-year highs even amid signs that U.S. producers are getting ready to ramp up output into the final months of the year. Last week, data from Houston-based oil services information provider Baker Hughes showed that U.S. drillers added 9 new rigs in the week ending Nov. 10, taking the total to 738, a 63% increase from the same period last years. Daily U.S. production also hit a record 9.62 million barrels per day last week, according to official figures from the Energy Information Administration.
Brent crude futures for January delivery, the global price benchmark, were seen 2 cents higher per barrel at $63.54 while WTI contracts for the same month, the basis for U.S. prices, added 3 cents from Friday’s close to trade at $56.77 per barrel in early European trading.