The Thursday Market Minute

  • Global stock extend declines, Wall Street futures weaken, as China vows to retaliate on trade following last month's move on tariffs from the White House.
  • U.S. futures give back gains, while Europe hits session-lows, following a statement from China's Finance Ministry.
  • U.S. Treasury bond yield curve holds positive slope following last night's inversion, but 10-year note yields continue to fall amid slowing growth signals and 2-year note yields ease as investors increase bets on a deeper near-term Fed rate cuts.
  • Global oil prices extend slide on growth and demand concerns, as well as EIA data showing a larger-than-expected 1.6 million build in domestic crude stocks.
  • Wall Street futures suggests modestly ahead of July retail data at 8:30 am Eastern time and earnings from Walmart, Nvidia and Applied Materials.

Market Snapshot

Wall Street futures steadied Thursday as China vowed to retaliate on last month's tariff move by the United States and Hong Kong's ambassador to the United Kingdom warned that Beijing would not "sit on its hands" as protests in the city head towards their eleventh week. 

China's Finance Ministry said Thursday that the country "has no choice but to take necessary measures to retaliate," to counter the U.S. decision to apply tariffs to $300 billion worth of China-made goods, some of which will go into effect on September 1. 

The statement snuffed out a sharp pre-market rally for U.S. stocks, and sent European markets into the red, following a rough session in Asia that trailed the first inversion in yields between 2-year and 10-year notes in more than 12 years last night in the U.S.. That move triggered the fourth largest point decline on record for the Dow Jones Industrial Average and sent investors running for cover amid concerns of a pending U.S. recession.

However, a stronger-than-expected quarterly earnings report from Walmart (WMT) - Get Report , which included a boost in its near-term sales forecasts, helped U.S. futures turn green again, as did a further statement from China's Ministry of Foreign Affairs, which hoped that the U.S. would "meet China halfway and implement the consensus reached by the two leaders during their meeting in Osaka" and stronger-than-expected July retail sales, the largest in four months.

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Contracts tied to the Dow Jones Industrial Average now indicating a 165 point gain and those linked to the S&P 500 are suggesting an 18 point advance for the broader S&P 500.

That said,  contracting GDP in Germany, the steepest factory output decline in 17 years in China, a seemingly intractable trade dispute between Washington and Beijing and a host of geo-political issues -- including the increasing potential of a disorderly exit from the European Union by the United Kingdom -- have hammered stock benchmarks this month and sparked a global fixed income rally that has more than 25% of the globe's bond market -- or some $13 trillion in securities -- trading with a negative yield.

European stocks, which had clawed their way into modest early-session gains, retreated on the China news, with the Stoxx 600 falling 1.14% to a six-month low of 361.98 points before paring much of that decline even as Germany's DAX index slid 0.66% to the lowest level since late March. 

Britain's FTSE 100 was also last seen 1.1% lower on the session, with stocks now at a 5-month low of 7,069.95 points, as the pound bounced from ts 3-year low against the U.S. dollar and traded at 1.2138.

Investors could be looking for near-term support from central banks, however, to stem the flow of pain in global markets, particularly after an angry series of messages on Twitter last night from President Donald Trump, who again accused the central bank of raising rates "too much and too fast".

The CME Group's FedWatch tool suggests a 28.1% chance of a 50 basis point rate cut from the Federal Reserve next month, up from just 3% a few days ago, and a 72% chance of a 25 basis point reduction. 

Away from equities, the U.S. Treasury bond curve held onto its modestly positive slope in overnight trading, but yields declined in the immediate wake of China's trade retaliation statement, with 2-year notes marked at 1.569% and 10-year notes trading at 1.583%. Benchmark 30-year notes, which dipped under 2% for the first time on record overnight, were last seen at 2.019%.

Global oil prices were also back in retreat Thursday, with investors citing both this week's grim economic data from Europe and China and last night's EIA report which showed a bigger-than-expected 1.6 million barrel buildup on domestic crude stocks.

Brent crude contracts for October delivery, the global benchmark, were seen $1.02 lower from their Wednesday close and changing hands at $58.46 per barrel while WTI contracts for September, which are more tightly linked to U.S. gas prices, were marked 64 cents lower at $54.59 per barrel.