23Oct2018 Pre-Market Commentary: Wall Street Pointing For A 1.5% Lower Opening, DOW Futures Plunge 400 Points, Dragged Down After Caterpillar, 3M Report, WTI Falls To 67.95, Gold Climbs To 1242

Here is the current market situation from CNN Money

Biting bears sink world shares to 1-year low

World shares slid towards their lowest level in a year on Tuesday, as negative drivers from fatigued earnings and Saudi Arabia’s diplomatic isolation to a brewing spat over Italy’s finances piled on the pressure.

Lockheed Martin profit rises 17 percent in third quarter

Lockheed Martin Corp , the Pentagon’s No. 1 weapons supplier, reported a 17 percent rise in quarterly profit on Tuesday, driven by more production of F-35 fighter jets.

McDonald’s U.S. same-store sales misses estimates

McDonald’s Corp quarterly sales at comparable U.S. restaurants fell short of expectations on Tuesday as fierce competition in its home fast food market undermined rise in global revenue.

Saudi sees deals worth $50 billion at investment conference despite boycotts

Saudi Arabia was set to sign deals worth $50 billion on Tuesday at the opening of an investment conference despite being overshadowed by the killing of journalist Jamal Khashoggi which prompted a boycott by Western politicians, top world bankers and company executives.

SoftBank CEO Son won’t speak at Saudi conference: source

SoftBank Group Corp Chief Executive Masayoshi Son, whose $93 billion Vision Fund drew nearly half its money from Saudi Arabia, canceled a speaking engagement at the kingdom’s investment conference this week, a person close to the matter told Reuters.

Russian fund CEO says Saudi economic drive important for world

Saudi Arabia’s economic transformation plan is important for the world, the chief executive of the Russian sovereign wealth fund Russian Direct Investment Fund (RDIF) said on Tuesday.

Saudi’s PIF invested in 50-60 firms via SoftBank fund: director

The Public Investment Fund, Saudi Arabia’s sovereign wealth fund, has invested in 50 or 60 companies via SoftBank Group’s Vision Fund and will bring most of those firms to the kingdom, managing director Yasir al-Rumayyan said on Tuesday.

Saudi Aramco CEO says bankers have not raised concerns about funding costs on SABIC deal

The chief executive of oil giant Saudi Aramco said on Tuesday that bankers had not expressed any concerns about a recent rise in Saudi funding costs ahead of the company’s potential acquisition of a stake in petrochemical firm Saudi Basic Industries Corp (SABIC) .

Saudi signs deals worth $50 billion in oil, gas and infrastructure

Saudi Arabia signed deals worth more than $50 billion in oil, gas, infrastructure and other sectors at an investment conference in Riyadh on Tuesday, officials there said.

Blain: “We Are Finally Approaching The End Phase Of The 2008 Global Financial Crisis”

Blain’s Morning Porridge, Submitted by Bill Blain

“I found Rome a City of Bricks and left it a City of Marble.”

In the Headlights this morning – see www.morningporridge.com for some of the stories I’m watching:

Debt Leverage: Interesting quote I came across y’day. Which country are we talking about? A) Germany, B) Italy, C) China or D) US? 10 points for the first correct answer. (And remember points mean prizes): “local credit rating agencies have applied absurdly optimistic standards, giving top ratings to companies that rank among the most highly leveraged in the world.”

Global Markets?

Null Entrophy sums up the market’s current energy. Stocks seem to have lost their mojo. Even a major boost from the Chinese government expressing its love for the market failed to restore the mood. Indices have stalled. Funnily enough – a number of portfolio managers tell me we seem to be getting to equity price levels where dividend yields make sense for traditional economy names.

Meanwhile, I’m being told by some fixed income managers they see value in current yields in the face of potential global slowdown. Whether they are right or wrong depends on where the global economy goes and if central banks hold their tightening course. (That said, I’ve got to giggle when certain commentators are calling for central banks to ease to save stock markets – FFS! that would be an absolute abrogation of the Invisible Hand, and a far greater offense than bailing out banks… markets need creative destruction to evolve and function!)

What’s really happening? There is a very serious reassessment of trends and expectations underway in both bonds and stocks which could spell trouble all round! It feels like we are finally approaching the end …

Dow Tumbles 400 Points After 3M, Caterpillar Crash After Earnings

The earnings disappointments continue with CAT and 3M the latest to add to fears about “peak earnings” after 3M not only missed Q3 earnings but slashed its full year EPS guidance, while CAT warned about rising material and freight costs.

Starting with 3M, the multinational conglomerate reported 3Q EPS $2.58, which while a 10.7% increase Y/Y, missed estimates of $2.70 on net sales $8.15 billion, also missing estimates of $8.40 billion.

3M reported operating cash flow of $2.1 billion, almost was almost entirely handed over to shareholders, with $794 million paid in cash dividends and $1.1 billion in stock repurchases. On a geographic basis, core results were ok with sales growing 1.6% in Asia Pacific and 1.3% in the U.S.; however, total sales declined 3.9% in EMEA (Europe, Middle East and Africa) and 5.5 percent in Latin America/Canada.

The top-line was ugly: industrial net sales were $3.02 billion, increasing 2.2% in local currency terms but down 2.1% after the foreign currency translation. Operating income was $667 million, a decrease of 0.7 percent year-on-year; operating margins were 22.1 percent.

The revenue pain continued:

Healthcare revenues of $1.45 billion were even worse, down 2.8% in U.S. dollars.

Electronics and energy sales were $1.4 billion, down 4.8% in U.S. dollars.

Consumer sales were $1.2 billion, down 3.4% in U.S. dollars.

But the biggest disappointment was the company’s guidance, which now sees full year adjusted EPS of $9.90 to $10.00, below the consensus est. $10.28, and down versus the prior expectation of $10.20 to $10.45. The cut reflects an estimated full-year earnings headwind of $0.05 per share from foreign currency versus a prior expectation of a benefit of $0.10 per share.

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Separately, Caterpillar reported Q3 results which beat on adj EPS $2.86, vs the es …

Erdogan: “Savage” Khashoggi Murder Was Planned

Turkish President Erdogan’s didn’t quite deliver on his promise to reveal “the naked truth” in the killing of Saudi journalist Jamal Khashoggi during a speech on Tuesday before the Turkish parliament, though he did raise important questions while providing the most detailed public statement yet on the killing, which corroborated several anonymously sourced reports that surfaced in recent days.

Though it was conspicuously timed to overlap with the opening of Crown Prince Mohammad bin Salman’s “Davos in the Desert,” Erdogan’s speech didn’t include any previously unreported bombshell allegations, nor the “smoking gun” to connect the killing directly to MbS, Erdogan did assert that the “savage” killing had been pre-planned by the Saudi government, contradicting the Saudi government’s official story that Khashoggi’s death was the result of a botched interrogation, and that he died after a brief struggle…with 15 Saudi intelligence operatives, as the Financial Times pointed out. Though his statement was the most aggressive yet from the Turkish government, it notably stopped short of directly accusing the Saudi leadership of murder.

“Drowning In A Sea Of Red”: Global Markets Plunge As European Tech Stocks Crash; Chinese Rout Returns

Yesterday morning, Morgan Stanley declared that the “dead cat bounce is over. One day later, the bank’s thesis was confirmed with global markets a sea of red on Tuesday, as a violent rout in Asia carried over into Europe, slamming tech and industrial stocks, and crossing the Atlantic, sending US equity futures retesting the lowest level hit during the October 10/11 two-day rout.

An ugly start to European trading pushed world shares towards their lowest level in a year on Tuesday, as negative drivers from Saudi Arabia’s diplomatic isolation to worries about Italy’s finances, trade wars and a slew of ugly earnings piled on the pressure.

Selling escalated from Wall Street into a heavy selloff in Asia before hitting Europe, which was facing a fifth day of uninterrupted declines.

One day after relentless Chinese jawboning sent the Shanghai Composite surging 4.1%, its biggest gain in two years, Chinese stocks resumed their slide as traders overpowered Beijing much to the surprise of professional traders, especially after Beijing announced fresh measures to ease the funding strains of private companies, as …

Need to Know: China’s stock selloff could wreak a lot more havoc before it’s over: Merrill Lynch

It is an ugly day for risk assets, which means stocks are down. Our call of the day zeroes in on a nagging worry for U.S. stocks—China.

Currencies: Turkish lira weakens anew; Haven currencies gain on rising political tensions

Haven currencies like the Japanese yen gain on Tuesday in response to geopolitical headlines troubling investors.

Market Snapshot: Dow futures down more than 350 points as China sparks global equity selloff

Stock futures point to a punishing session Tuesday as a two-day rally for China’s stock market begins to unravel.