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US stocks seen lower after Japan enters recession

Katy Barnato
US stocks seen lower after Japan enters recession

U.S. stocks looked set to decline at the open on Monday, with global shares hit by the news that Japan had unexpectedly slipped into recession.

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Data out on Monday showed Japan's economy shrank in the third quarter by an annualized 1.6 percent, rather than the forecast 2.1 percent gain.

Japan's benchmark Nikkei 225 index posted its biggest one-day drop since August on the news and settled near a one-week low. The dollar-yen pair hit a seven-year high of 117.04 before retreating to 115.7 later on Monday.

"Japan's renewed weakness comes at a time when the global economy is already facing several other headwinds, such as the threat of deflation (especially in the euro zone), together with the pressures being seen in several emerging markets, such as Russia, Brazil and also China," said Simon Smith, chief economist at FxPro, in a note out Monday.

The day will be a fairly quiet one for U.S. data, with November's Empire Manufacturing out at 8:30 a.m. ET. This will be followed by industrial production and capacity utilization figures for October at 9:15 a.m.

In the corporate space, it was announced on Monday that Pfizer (PFE) has struck an alliance with Germany's Merck (MRK) to build cancer immunotherapy drugs . Pfizer will pay Merck $850 million upfront, with further payments of up to $2 billion.

Before trading starts, Actavis (ACT) will likely announce a cash-and-stock deal to buy Allergan (AGN) for more than $210 per share, people familiar with the situation told CNBC on Sunday.

Read More Actavis nears rescue bid for Allergan: Sources

The rest of the major retailers will report third-quarter earnings this week, with 23 S&P 500 (^GSPC) companies to post numbers. On Monday,JD.com (JD) will post numbers before Wall Street opens, followed by Urban Outfitters (URBN) afterwards.

U.S. stocks finished flat on Friday , with the S&P 500 rising a fraction of a point to notch up another record high.