Monday August 12th

12-08-2019

Dow futures drop more than 150 points as US-China trade, Hong Kong protest tensions rise

U.S. stock index futures dropped Monday morning, pressured by worries that an ongoing trade dispute between Washington and Beijing could tip the world and U.S. economies into recession. Losses accelerated in early trading after Hong Kong International Airport cancelled all departures for the remainder of the day, citing serious disruptions due to intensifying protests. The increasingly violent protests since June have plunged the Asian financial hub into its most serious crisis in decades and are one of the biggest popular challenges to Chinese leader Xi Jinping since he came to power in 2012. Futures on the Dow Jones Industrial Average dropped about 170 points, indicating a negative open of about 160 points. Futures on the S&P and Nasdaq were both lower. “The bear is alive and kicking. We think the failed breakout last week for the S&P 500 confirms we are still mired in a cyclical bear market,” Mike Wilson, Morgan Stanley’s chief U.S. equity strategist, said in a note on Monday. The escalated U.S.-China trade war rattled the markets last week with the Dow posting a loss of 0.75%. Major stock averages suffered their worst days of the year on Aug. 5 after China allowed its currency to drop against the dollar below a key level unseen since 2008. The intensified tensions caused Goldman Sachs to lower its fourth-quarter growth forecast by 20 basis points to 1.8% as the firm no longer expects a trade deal before the 2020 election. The People’s Bank of China (PBOC) on Monday set its daily midpoint for yuan trading at 7.0211 per dollar, the third consecutive session below the psychological level of 7 per dollar. It was also weaker than Friday’s session, but beat market expectations. Market participants have been monitoring the dollar/yuan exchange rate closely following an escalation in trade tensions between Washington and Beijing. The U.S. Treasury Department designated China as a currency manipulator following the yuan’s move below 7 against the greenback. A weaker currency makes a country’s exports cheaper and President Donald Trump’s administration has consistently complained that a cheaper yuan would give China a trade advantage. The U.S. president said Friday that the U.S. would continue to hold trade talks with Beijing, but that Washington was not prepared to make a deal for now. The Hong Kong protests have gained steam with about 600 people arrested in total since the unrest began. Steve Eisman, the investor of “Big Short” fame, said last week the protests are his biggest worry with the global economy, calling them a possible “black swan.” On the data front, the federal budget for July is expected to be published at around 2 p.m. ET. In corporate news, Sysco and Barrick Gold are both expected to publish quarterly earnings before the opening bell. Bloom Energy and Tencent Music will report their latest results after market close. Major markets in Asia Pacific closed higher on Monday, following a volatile week for global markets as growing trade war fears dented investor sentiment. Mainland Chinese markets bounced back from the previous week’s losses to close higher Monday. The Shanghai composite traded up 1.45% to close at 2,814.99 while the Shenzhen composite added 1.92% to 1,508.21. Hong Kong’s Hang Seng index was fractionally higher at 25,962.42. Markets in rest of the region rose, with major indexes in Japan, India and Singapore closed for public holidays. In South Korea, the Kospi clawed back losses to rise 0.23% to close at 1,942,29. Oil prices fell on Monday amid worries about a global economic slowdown and the ongoing U.S.-China trade war, which has reduced demand for commodities such as oil. International benchmark Brent crude futures were at $58.07 a barrel, down 47 cents from their previous settlement. U.S. West Texas Intermediate (WTI) futures were at $53.74 per barrel, down 76 cents from their last close. Both benchmarks fell last week, with Brent losing more than 5% and WTI falling about 2%. Gold edged up on Monday, holding above the psychological $1,500 level, amid concerns over slowing global economic growth as the trade war between Washington and Beijing drags on. Spot gold was up 0.57% at $1,505.69 per ounce, while U.S. gold futures were also up 0.55% at $1,516.8 an ounce.