Kudlow’s comments, made in an interview to Fox Business Network, added to worries over a global slowdown which was rekindled after the European Union cut its economic growth forecasts.

The latest trade development cast a shadow across Wall Street, which has rallied strongly to start the year on solid corporate results.

More than half the S&P 500 companies have reported fourth-quarter results, with about 71 per cent beating profit estimates, according to IBES data from Refinitiv. However, current-quarter earnings growth estimates have shrunk to 0.1 per cent, from 5.3 per cent at the start of the year.

“Earnings weren’t as bad as expected, but are not nearly enough to get markets back to the highs. Investors also think earnings are going to slow in the next few quarters,” said Michael Antonelli, managing director, institutional sales trading at Robert W. Baird in Milwaukee.

Today’s Agenda

Local data: RBA’s Statement on Monetary Policy

Overseas data: Japan current account December; US consumer credit December

Market Highlights

SPI futures down 43 points or 0.7% to 6003 about 6.30am AEDT

AUD flat at 71.00 US cents

On Wall St at 2.38pm: Dow -1.1% S&P 500 -1.4% Nasdaq -1.4%

In New York, BHP -1.2% Rio -1.3% Atlassian -1.7%

In Europe: Stoxx 50 -1.9% FTSE -1.1% CAC -1.8% DAX -2.7%

Spot gold +0.3% to $US1310.85 an ounce at 1.02pm New York time

Brent crude -2.8% to $US60.94 a barrel

US oil -3.5% to $US52.12 a barrel

Iron ore n/a

Dalian iron ore n/a

LME aluminium -0.7% to $US1894 a tonne

LME copper -0.5% to $US6246 a tonne

2-year yield: US 2.48% Australia 1.69%

5-year yield: US 2.46% Australia 1.75%

10-year yield: US 2.66% Australia 2.15% Germany 0.11%

US-Australia 10-year yield gap at 6.40am AEDT: 51 basis points

From Today’s Financial Review

NAB governance fails again: NAB has been the worst performing big four bank for a good reason. It has had a succession of chief executives who have failed to deliver what was promised.

Advice ‘more challenging’ post Hayne: Westpac: Westpac CEO Brian Hartzer says Commissioner Hayne’s final report will drive profound change but the rising cost of financial advice may price some consumers out of the market.

What’s ahead for private equity in 2019?: Australia has been more reluctant than the US and Europe to embrace private equity. Is that about to change?

United States

US stocks sank on fears that the United States and China would not be able to reach a trade deal with less than a month left in their fragile truce, adding to worries about a slowdown in global growth.

“Any concern that the stalemate won’t be overcome by China and US is going to create negative sentiment for the markets just because trade is the single largest overhang,” said Mike Loewengart, vice-president of investment strategy at E*Trade Financial in New York.

Nine of the 11 major S&P sectors fell. The technology sector slid 1.6 per cent, with chipmakers tumbling 2.2 per cent. Chipmakers get a large chunk of their revenue from Chinese customers.

The trade-sensitive industrials sector fell 1 per cent.

Twitter forecast that revenue in the first quarter would be weaker than expected while full-year operating costs would rise. It shares plunged. Monthly active users on the social media platform fell to its lowest in two years and for a third consecutive quarter. Twitter said it would no longer disclose monthly active users, a statistic internet companies have routinely reported over the past decade, and would, instead, provide the number of monetisable daily active users.

Why stock buybacks do so little for Americans: Ritholtz: Stock buybacks don’t benefit the vast majority of Americans because so few people have little or no stake in US equity markets.

Europe

UK faces weakest growth in 10 years: The Bank of England said Britain faced its weakest economic growth in 10 years in 2019, blaming mounting Brexit uncertainty and the global slowdown.

European shares fell sharply on Thursday ending a seven-session run of gains as a batch of worrying trading updates in a wide range of sectors combined with the European Union cutting its growth forecasts to weigh on markets.

Europe’s STOXX 600 ended the day down 1.5 per cent, its biggest retreat since December 27, while Germany’s DAX sank 2.7 per cent as disappointing December industrial data reinforced worries about the euro zone’s economic powerhouse.

“Eurozone stocks are suffering greatly as investors are fearful the region could be in for an economic downturn”, wrote David Madden from CMC Markets, adding that should the UK leave the EU without a deal, the deteriorating economic conditions could not come at a worse time.

London’s FTSE was down 1.1 per cent after the Bank of England said Britain faces its weakest economic growth in a decade this year as uncertainty over Brexit mounts and the global economy slows.

Societe Generale was down 6.8 per cent after the French bank slashed its profitability targets, hit by the market downturn last year and following its profit warning in January.

Norsk Hydro hit by restricted Brazil output: Norsk Hydro warned it would miss its 2019 savings targets due to restricted output in Brazil and higher material costs.

Asia

Huawei wants cybersecurity to be viewed as a technical rather than ideological issue and is open to supervision by European governments to prove the point, a senior company executive is expected to say on Thursday evening.

The comments due to be delivered in a speech by Abraham Liu, Huawei’s chief representative to EU institutions, come as the company finds itself under fire over ties with the Chinese government and suspicion that Beijing could use its technology for spying, which the company denies.

Liu will reiterate that Huawei has not and would never harm the interests of customers or countries.

Currencies

Oanda Craig Erlam on the sterling: “Despite that rocky start, the pound gradually recovered throughout the press conference to trade flat on the day against the dollar, having been down by more than half a percent at one point. Carney’s more upbeat tone on the country’s prospects in the event of a deal was likely an important factor in this, while he’ll no doubt also be pleased with his ability to dodge those questions that threatened to put him on the front pages for the wrong reasons, again.

“While it’s interesting to hear the central banks views on the outlook, despite the huge uncertainty that still exists – something he repeatedly referred to as “fog” – it’s clear that we’ll have to wait until May to get a better idea on the path of interest rates. Not only will the Brexit fog have cleared, we’ll also have a better idea of whether the global economic slowdown is progressing as is now widely expected.

“Carney was keen to stress that the economic fundamentals remain sound which means that assuming the backlog of investment and consumer spending exists, due to lower spending in the run up to Brexit, the economy could weather the global slowdown quite well. Whether the BoE would be brave enough to raise interest rates in that scenario though I’m not convinced.”

Commodities

Marex Spectron on LME session: “A mixed performance from base metals with ZINC outperforming having closed firmly in the red the past two sessions. Meanwhile ALI and COPPER settled lower, although holding relatively well in comparison to the decline in stock markets and crude today. Turnover was low across the complex and all metals traded in very tight ranges. The dollar extended gains although the index ran into some resis into the 24th Jan high.

“Earlier today the European Commission also downgraded its forecasts for 2019 EuroZone economic growth to 1.3% from the previous forecast of 1.9% announced in Nov. Also on the wires, press indicates that Trump and ZI are highly unlikely to meet before 1st Mar. Today’s performance sees Ali and Lead now lower than where it was trading when SHFE closed on Friday into the China New Year holiday.

“Also on the wires today, ArcelorMittal forecasted a slowdown in Chinese steel demand to 1.5% this year from 3.5% in 2018 (notes fairly stable demand from autos and construction offset by falling machinery output).”

Oxford Economics revises iron ore price forecast: “… we have increased our iron ore price forecast to average $75/t in Q1 from $67/t. However, we still expect prices to pull back this year, averaging $68/t in 2019. Although production has been impacted at the Feijão mine, we still expect strong supply this year due to Australian miners increasing output to make up for shortfalls in Brazilian production. Vale’s S11D mine is also expected to ramp up output this year and there is still spare capacity at some of Vale’s existing mines. We therefore expect a total reduction of 15 million tonnes from the global seaborne market. But more significantly, iron ore demand is expected to fall this year at a faster rate than supply due to slowing economic growth in China which will result in steel production growth slowing to 2.5% y/y in 2019.

“However, a court ruling in Brazil has recently suspended operations at the Brucutu mine with 30 million tonnes of capacity. Vale has argued the court ruling is unjust and is fighting to resume operations at this facility as soon as possible. If Vale is unsuccessful in its appeal, other producers will be hard-pressed to make up the shortfall. At the moment it is hard to tell what the outcome will be, but an extended closure of the Brucutu mine will certainly drive prices higher, and we expect iron ore will average $80/t in 2019 if Vale is forced to close the Brucutu mine for an extended period.”

LME nickel added 0.5 per cent to close at $US12,985 a tonne after touching $US13,350 on Wednesday, its highest since August 31, partly on worries about top producer Vale after last month’s collapse of a tailings dam controlled by the Brazilian mining company.

“This price action seems unjustified in our opinion, with the majority of Vale’s nickel supply outside of Brazil and none of their six nickel mines utilising the upstream tailings method,” Natixis analyst Bernard Dahdah said in a note.

“We remain bullish on nickel through 2019 … but believe a move lower is likely in the short term.”

Australian Sharemarket

Rate cut bets put a rocket under shares: Australian shares soared to a four-month high a day after the Reserve Bank of Australia indicated it is open to cutting interest rates, lifting shares of dividend-friendly property and bank stocks.

The Australian sharemarket closed at a four-month high on Thursday as better-than-expected results were rewarded with strong gains.

The S&P/ASX 200 Index rose 66.4 points, or 1.1 per cent, to 6092.5 while the broader All Ordinaries climbed 67.3 points, or 1.1 per cent, to 6159.1.

“We’re seeing companies that were sold off in the October and December period deliver some news that isn’t as bad as people think,” said Atlas Funds Management chief investment officer Hugh Dive. “It’s still pretty early day but we’re now getting concrete data points and some of those companies have done quite well.”

Street Talk

Macquarie Capital hired to find buyer for PEP’s oldest investment

PSP, Future Fund bail on stevedore DP World Australia

KPMG makes early strike on Ferrier Hodgson; poaches HR head

with Reuters, Bloomberg, AAP

Comments? Questions? Let us know what you think of Before the Bell: timothy.moore@fairfaxmedia.com.au

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