Tuesday August 13th

13-08-2019

Stocks set to drop for a third day as the bond market gets close to sending recession signal

U.S. stock index futures fell Tuesday morning, pointing to a third straight day of losses, as the bond market inched closer to flashing its biggest recession signal yet. Futures on the Dow Jones Industrial Average indicated a negative open of about 85 points. Futures on the S&P 500 and Nasdaq were both lower, as well. The widely watched 2-year to 10-year yield spread narrowed to just 3 basis points on Tuesday, according to FactSet, with the curve at its flattest level since 2007. A yield-curve inversion has been a reliable recession indicator watched by the Federal Reserve as well as many market experts. The Labor Department’s consumer price index report showed inflation came in as expected last month. The yield curve continued to narrow after the report. The Dow slumped nearly 400 points on Monday to fall back below 26,000, while the benchmark 10-year Treasury yield dipped to 1.63%. The market seems to be tracking bond yields lower. Despite concerns about the yield-curve inversion, history shows stocks have another year-and-a-half to run typically before doom hits, based on data going back to 1978, according to Credit Suisse. Data show a recession comes in about 22 months on average after the curve inverts. The increasingly violent protests in Hong Kong and a crash in the Argentine peso also drove investors to perceived “safe haven” assets such as U.S. bonds, gold, and the Japanese yen. Market sentiment was already fragile due to increasing signs that the world’s two largest economies — the U.S. and China — are unlikely to quickly resolve their protracted trade war. The two countries will resume trade negotiations in Washington in early September. China once again fixed its yuan midpoint at 7.0326 per dollar on Tuesday, the fourth consecutive session where the People’s Bank of China set the figure at a level weaker than the psychologically 7-yuan-per-dollar level. In corporate news, JD.com, Advance Auto Parts, and Elanco Animal Health are among some of the companies scheduled to report their latest quarterly results before the opening bell. CDK Global, Adaptive Biotech, and Change Healthcare are among some of the companies set to report earnings after market close. U.S. consumer prices rose broadly in July, but the increase in inflation will likely do little to change expectations that the Federal Reserve will cut interest rates again next month amid worsening trade tensions. The Labor Department said on Tuesday its consumer price index increased 0.3% last month, lifted by gains in the cost of energy products and a range of other goods. The CPI had edged up 0.1% for two straight months. In the 12 months through July, the CPI increased 1.8% after advancing 1.6% in June. Economists polled by Reuters had forecast the CPI would accelerate 0.3% in July and rise 1.7% on a year-on-year basis. Stocks in Asia slipped on Tuesday as tensions remained high in Hong Kong amid increasingly violent protests. The Hang Seng index fell 1.88%, as of its final hour of trading. The city’s airport reopened on Tuesday after operations were crippled on Monday due to demonstrators staging a sit-in at the airport. One economist described the situation in Hong Kong as “very disconcerting.” n mainland China, shares slipped on the day. The Shanghai composite slipped 0.63% to 2,797.26, while the Shenzhen component declined 0.85% to 8,902.63. The Shenzhen composite shed 0.687% to 1,498.63. Elsewhere, the Nikkei 225 in Japan dropped 1.11% to close at 20,455.44 following its return from a holiday, while the Topix index shed 1.15% to end its trading day at 1,486.57 — falling below its last close of 2018. South Korea’s Kospi slipped 0.85% to close at 1,925.83. Oil prices dropped on Tuesday after see-sawing throughout the session as lingering concerns over global demand and rising U.S. output offset expectations for major producers to further curtail supply. Brent crude futures were down 45 cents, or 0.7%, from the previous settlement at $58.12 a barrel at 1150 GMT. The international benchmark has lost more than 20% since hitting its 2019 high in April. U.S. West Texas Intermediate (WTI) futures were at $54.34 per barrel, down 59 cents, or about 1%. Gold hit a more than six-year high on Tuesday as unrest in Hong Kong and a rout in the Argentine peso drove investors already spooked by the U.S.-China trade war into havens like bullion at the expense of riskier assets such as stocks. Spot gold was up 1% at $1,526.61 per ounce as of 0916 GMT, having earlier touched its highest since April 2013. U.S. gold futures rose 1.4% to $1,538 an ounce.