Thursday August 15th

15-08-2019

Stocks set for strong open after China says it hopes to meet halfway on trade issues

U.S. stock index futures posted strong gains ahead of the open Monday following indications that Chinese negotiators may be willing to compromise with the U.S. on trade issues. Markets turned higher in a sudden move after Hua Chunying, a spokesperson at China’s Ministry of Foreign Affairs, said China “hopes the U.S. will meet China halfway and implement the consensus reached by the two leaders during their meeting in Osaka.” Futures on the Dow Jones Industrial Average erased earlier losses, now indicating a gain of about 140 points. S&P 500 futures and Nasdaq futures also turned higher. Markets were lower earlier after China said it has to take necessary counter-measures to the latest U.S. tariffs on $300 billion of Chinese goods, adding the U.S. tariffs violated a consensus reached by leaders of two countries. Investors also digested a slew of economic data on Thursday that showed a relatively strong U.S. economy. Retail sales rose solidly in July, a sign of consumer optimism. The Labor Department said the U.S. productivity grew a healthy 2.3% rate in the second quarter. U.S. jobless claims rose more than expected last week, but the trend continued to point to a strong labor market. Stocks gains were helped by Walmart which reported better-than-expected earnings and raised its outlook for the full year. Its stock jumped 6.2% in premarket Wednesday. Thursday’s session follows the Dow’s worst day of the year on Wednesday amid a recession signal from the bond market. The stock market took a huge hit in the previous session with the Dow plunging 800 points in its fourth-largest point drop ever to a two-month low. The Dow’s 3% drop was the worst this year. The S&P 500 also fell nearly 3%. Cisco shares plunged 9% in premarket trading after it said future earnings would be lighter than expected because of a “significant impact” from the U.S.-China trade war. The tech giant also said China revenue fell 25% last quarter on an annualized basis. The massive sell-off Wednesday was triggered by a bond market phenomenon where the yield on the benchmark 10-year Treasury note briefly broke below the 2-year rate. The inversion of this key part of the yield curve has been a reliable indicator of economic recessions. As of Thursday morning, the curve hovered around the inversion point. The yield on the 30-year Treasury bond also fell to a new historic low. “The 2-10 inversion is sending a massively negative signal that stocks are having a difficult time ignoring,” Adam Crisafulli, a J.P. Morgan managing director, said in a note on Wednesday. Bank stocks, which got pounded on Wednesday from the inverted yield curve, continued their slide on Thursday. Citigroup dropped 1.4% in premarket trading. Investors remained on edge about the trade tensions between the U.S. and China. President Donald Trump in a tweet after the bell Wednesday linked the trade battle to the increasingly violent protests in Hong Kong, further complicating the trade issue. But he also proposed a personal meeting between him and Chinese President Xi Jinping. The Hong Kong government announced plans to implement stimulus measures to help its sagging economy. The government also cut its growth forecast to potentially flat for the rest of the year, down from the already anemic 0.5% growth it was expecting. This week, Trump decided to delay tariffs on certain Chinese goods while outright removing some items from the tariff list, a move to avoid any negative impact on the holiday shopping season. The announcement sent the Dow rallying more than 300 points on Tuesday. Those gains were lost in the big sell-off Wednesday. The deferral “helps China more than us, but will be reciprocated,” Trump said Wednesday. It’s been a volatile and poor week for stock investors. The S&P 500 fell 1.2% on Monday, followed by a 1.5% rebound in the next session, and then came Wednesday’s brutal sell-off of 2.9%. This kind of consecutive whiplash — down 1%, up 1% and down 2% — is relatively rare, occurring only 19 times the last 30 years, Bespoke Investment Group said. This jarring action usually doesn’t lead to a positive longer term outcome, Bespoke found, with S&P 500 returns 6 months out averaging a decline of 2.9%. Shares in Asia were mixed Thursday afternoon as the main yield curve in U.S. Treasurys inverted, triggering fears over the state of the U.S. economy. In mainland China, stocks rose on the day following an earlier slip. The Shanghai composite gained 0.25% to 2,815.80, while the Shenzhen component added 0.48% to 9,009.68 and the Shenzhen composite advanced 0.535% to 1,517.07. Hong Kong’s Hang Seng index also rose 0.72%, as of its final hour of trading. Elsewhere, however, stocks largely saw losses. In Japan, the Nikkei 225 fell 1.21% to close at 20,405.65, while the Topix index dropped 1.04% to end its trading day at 1,483.85. Markets in South Korea and India were closed on Thursday for holidays. Oil fell 2% toward $58 a barrel on Thursday, extending the previous session’s 3% drop, pressured by mounting recession concerns and a surprise boost in U.S. crude inventories. In a sign of investor concern that the world’s biggest economy could be heading for recession, weighing on oil demand, the U.S. Treasury bond yield curve inverted on Wednesday for the first time since 2007. Global benchmark Brent crude was down 2%, at $58.28 a barrel, after a 3% slide on Wednesday. U.S. crude fell $1.02 to $54.21. Gold steadied on Thursday after climbing 1% in the previous session, as concerns that an inversion in the U.S. government bond yield curve was signalling recession fuelled interest in the metal as a haven from risk. At the day’s peak of $1,523.91, gold was back to within $11 of Tuesday’s six-year high, hit on fears of a global downturn as investors fretted over a U.S.-China trade war, unrest in Hong Kong and a slide in emerging-market assets. Spot gold was down 0.2% at $1,512.71 per ounce, while U.S. gold futureswere down 0.26% at $1,523.60.