Wednesday August 7th

7-08-2019

Stock futures losses accelerate, Dow now set to open 250 points lower

U.S. stock index futures dropped on Wednesday, giving up earlier gains, as a drop in global bond yields raised concerns about a slowing global economy. Investors moved back into safe havens like gold, just as they did on Monday when stocks dropped the most they have in a single day all year. Gold reached a more than six-year high. At around 8:40 a.m. ET, Dow Jones Industrial Average futures indicated a drop of 250 points. S&P 500 and Nasdaq 100 futures also pointed to a drop at the open. Futures were trading higher earlier on Wednesday morning. It was unclear of the exact reason for the sliding stock futures but the move coincided with the 10-year Treasury yield sliding to its lowest level since 2016. The benchmark 10-year Treasury yield traded at 1.63% after staring August above 2%. The move further narrowed the yield curve, a widely watched recession indicator. The spread between the 10-year rate and the 2-year yield fell to its lowest level since 2007 at less than 8 basis points. Other possible catalysts for drop included China once again setting a weaker yuan level than expected overnight. That is what caused the market to sell-off on Monday. Equities rebounded on Tuesday when China stabilized the currency. Gold futures broke above $1,500 per ounce for the first time since April 2013. The metal’s returns are now higher than the S&P 500′s for the year. Tensions between China and the U.S. have been rising since last week, when President Donald Trump announced a 10% tariff on an additional $300 billion worth of Chinese goods. On Monday, China let its currency fall to its lowest level in more than a decade against the U.S. dollar, with the yuan breaking below 7 per U.S. dollar and triggering the worst sell-off of the year on Wall Street. China insists, however, the move was not in response to the newly announced tariff. “This looks more like a warning shot than active devaluation, with the yuan’s fall a reflection of worsening economic fundamentals and rising trade tariff risks,” said Mark Haefele, global chief investment officer at UBS GWM. “For policymakers in China, arbitrarily defending the 7.0 mark amid these pressures represents a moral hazard, and one which only worsens the longer it is left to build up.” The trade war between China and the U.S. has been going on for more than a year. Investors have been worried about its ramifications in terms of global growth and corporate profits. Some central banks have even started cutting interest rates amid these pressures. Overnight, New Zealand, India and Thailand all cut interest rates. The Federal Reserve had cut rates last week by 25 basis points. In corporate news, Disney shares slid on weaker-than-expected results for the previous quarter. Disney’s results were weighed down by increasing losses in streaming services such as Hulu, ESPN+ and Disney+. The media giant also blamed the integration of Fox’s entertainment assets for the weak numbers. Disney shares traded down more than 3% in the premarket. Asia Pacific stocks traded mixed on Wednesday as investors kept a close watch on the Chinese yuan amid an escalating trade dispute between the U.S. and China. The People’s Bank of China (PBOC) set the the official midpoint reference for the yuan at 6.9996 per dollar, which was slightly weaker than market expectations. China’s central bank allows the exchange rate to rise or fall 2% from that number. Mainland Chinese shares declined on the day: The Shanghai composite shed 0.32% to about 2,768.68, the Shenzhen component fell 0.5% to 8,814.74 and the Shenzhen composite fell 0.427% to around 1,483.95. The Japanese benchmark Nikkei 225 slipped 0.33% to close at 20,516.56. The Topix index, on the other hand, finished the trading day in Tokyo slightly higher at 1,499.93. South Korea’s Kospi closed 0.41% lower at 1,909.71. In Hong Kong, the Hang Seng index fell 0.14%, as of its final hour of trading. Oil prices slipped further on Wednesday, extending recent heavy losses as deepening Sino-U.S. trade tensions weighed on the outlook for the global economy and energy demand. Brent crude futures were down 1.3% at $58.22. Prices have lost more than 20% since hitting their 2019 peak in April. U.S. West Texas Intermediate (WTI) crude futures were down 1.3% at $52.92. Brent prices have plunged more than 9% over the past week after U.S. President Donald Trump said he would slap a 10% tariff on a further $300 billion in Chinese imports from Sept. 1, sending global equity markets into a tailspin.