U.S. stocks look set for another volatile session Monday as investors re-set prices in markets all over the world amid amid escalating tensions between Washington and Riyadh over the death of a prominent Saudi journalist in Turkey last month as well as renewed concerns for trade disputes between the U.S. and its major economic partners.
U.S. equity futures indicated a weak opening on Wall Street Monday, with contracts tied to the Dow Jones Industrial Average suggesting a 95 point decline, following last week's sell-off that clipped more than 1,100 points from the benchmark in one of the worst weeks of the year for domestic stocks, while linked to the broader S&P 500 were marked 18 points to the downside amid the 'risk-off' sentiment. Nasdaq Composite futures were indicated 55 points lower, after shedding more than 7% over the past two weeks.
Volatility and interest rates are likely to be key drivers for the market in the days ahead, and the CBOE's VIX (VIX.X) index is creeping higher again in after-hours trading, rising 4.4% to 22.26 points, amid the broader global market declines in Europe and Asia linked to the Saudi tensions. Benchmark 10-year U.S. Treasury yields, however, were holding firm at 3.156% in early European dealing, after hitting a 2011 high of 3.251% last week amid a $230 billion wave of supply from the Treasury as part of its funding commitment for last year's $1.5 billion tax cuts.
Bank of America (BAC) publishes its third quarter earnings before the bell, with analysts looking for a near 30% increase in earnings per share, to 64 cents, and a 7.3% rise in revenues that will take the bank's top line to $22.64 billion. The figures following a mixed picture for U.S. bank earnings last week, with JPMorgan (JPM) , Citigroup (C) and Wells Fargo (WFC) topping Street forecasts but signalling some potential concerns over growth and margins in the months ahead.
Retail stocks will also be active following the late Sunday Chapter 11 bankruptcy filing from Sears Holding (SHLD) , a move that caps the long, painful decline of the iconic American department store and is likely to trigger major questions over the health and prospects of its rivals, including JC Penney (JCP) , who's new CEO, Jill Soltau, kicks off her first week today.
Global markets, however, were more afflicted by the tensions linked the disappearance of Jamal Khashoggi last month, following a visit to the Saudi consulate in Istanbul on September 28, which has sparked both an international murder investigation and a sharp response from the White House, with President Donald Trump threatening "severe" consequences in the Saudi government were to be deemed responsible.
The tensions slammed shares in Riyadh Monday, with the benchmark Tadawul All Share Index falling more than 3.5% Sunday, sending ripples of concern through markets all around the world and pulling Brent crude prices higher following last week's sell-off amid the turmoil on Wall Street.
Saudi Arabia's vow to respond with "greater action" to any economic or political sanctions may also potentially added pressure to a host of U.S. stocks linked to the Kingdom's powerful sovereign wealth fund and its critical oil industry.
President Donald Trump told CBS's 60 Minutes that the Saudis would face "severe punishment" if the government were to be found responsible for the presumed murder of Khashoggi, a U.S. resident and Washington Post reporter who hasn't been seen since entering the Saudi consulate in Istanbul on September 28. but added that he wouldn't want to "hurt jobs" or "lose an order like that" when asked about the potential for sanctions on the sale of military equipment to Riyadh. The Saudi-controlled government news agency, meanwhile quoted a senior official who said the Kingdom would "respond with greater action" to any international sanctions, noting its "influential and vital role in the global economy".
The escalating dispute has some investors concerned that economic sanctions could affect investments linked to Saudi Arabia's Public Investment Fund (PIF), one of the largest in the world with more than $220 billion in stakes around the globe, including Japan's SoftBank Group and its tech-focused Vision Fund.
The Vision Fund, a brainchild of SoftBank's billionaire founder Masayoshi Son, gets nearly half of its $100 billion in funding from the Saudi PIF, which it has used to build stakes in companies such as ride-sharing start up Uber Technologies and Santa Clara, Calif.-based chipmaker Nvidia Corp (NVDA) .
SoftBank shares, in fact, slumped more than 7.4% in Tokyo Monday, closing at a two-month low of 9,251 yen each, as investors fled the stock amid concerns that its association with the Saudi PIF could affect its ability to grow Vision Fund investments.
Markets in Asia were also rattled by the tensions, as well as comments over the weekend from U.S. Treasury Secretary Steve Mnuchin, who told the IMF's annual meeting in Bali that his department would like to use language to prevent current manipulation into any new U.S. trade deals.
The comments hit markets in Japan, which is currently negotiating a new agreement with the U.S, with the Nikkei falling 1.87% to close at 22,271.30 points while the broader MSCI Asia ex-Japan index was marked 1.1% lower heading into the final hours of trading.
European stocks were softer at the open, as well, with the Stoxx 600 falling 0.6% and past a 22- month low by mid-day in Frankfurt as investors await the formal filing of Italy's 2019 budget to the European Commission and the ongoing uncertainty of Brexit negotiations, following a weekend of 11th-hour talks ahead of Wednesday's EU Summit that is expected to reach at least a partial conclusion on Britain' future relationship with the bloc.
Electrolux AB was an early mover of note, with shares in the home appliance manufacturer falling 2% in Stockholm after the Chapter 11 bankruptcy filing of Sears in the United States late Sunday. Electrolux said around 10% of its annual revenues are earned via its association with Sears, but noted that it's been making contingency plans since the retailer's financial concerns became apparent earlier this year.
Oil prices resumed their gains following last week's sell-off amid the tensions in Riyadh and the looming U.S. sanctions on the sale of Iranian crude, which come in to force in just over two weeks.