The Monday Market Minute
- Global stocks tumble to fresh multi-month lows as China hits back at U.S. Tariff moves with a weaker yuan and suspends agricultural purchases.
- PBOC allows the yuan to fall below the 7 mark against the dollar for the first time since May 2008, risking the ire of President Donald Trump as tensions between the world's two biggest economies escalate.
- Asia shares fall the most in nine months, while the yen hits a seven month high against the greenback and gold tops seven-year high $1,457.12 per ounce in safe-have trading.
- European stocks slide, pulling the DAX to a three month low, as investors fret that trade disputes will further erode global growth prospects.
- Wall Street futures, fresh off their worst week since December, suggest further heavy selling at the opening bell Monday, with the Dow poised to fall more than 250 points ahead of earnings from Tyson Foods and Services PMI data at 9:45 am Eastern time.
U.S. equity futures fell sharply Monday, while stocks in Asia suffered the biggest single-day decline in nine months, as Beijing hit back at President Donald Trump's move to accelerate tariffs on China-made goods by allowing the yuan to slip to the lowest levels against the dollar in more than a decade.
The People's Bank of China, the country's central bank, let the so-called on-shore yuan fall past the psychologically important threshold of 7 in early Monday trading, citing in a statement "unilateralism and protectionism", as well as the expectation of additional tariffs from the United States. The breach through 7, the first since May 2008, weakens the Chinese currency in international markets and theoretically makes exports more attractive by off-setting the impact of tariffs.
China's decision to allow the yuan to weaken to such a degree, while simultaneously instructing state-owned companies to suspend purchases of U.S. agricultural products, rattled markets overnight as investors braced for a reaction from the White House that could trigger even more protectionist measures on trade between the world's two biggest economies.
President Trump said Monday that China's move was a "major violation" that should warrant reaction from the Federal Reserve.
U.S. equity futures suggest heavy selling at the start of trading Monday, following the worst week on Wall Street since December, with contracts tied to the Dow Jones Industrial Average indicating a 362 point slump and those linked to the S&P 500, which touched the lowest levels since late June on Friday, poised for a further 46 point pullback. Nasdaq Composite futures suggest a 160 point slide for the tech-focused benchmark.
Flight-to-safety flows were evident in markets all over the world Monday, as well, with the Japanese yen rising to a nine-month high of 105.78 against the U.S. dollar and spot gold surging more than 1% to the session to change hands at $1,457.12 per ounce.
Benchmark 10-year U.S. Treasury yields slipped to a three-year low of 1.745% in overnight trade as investors accelerated bets on deeper interest rate cuts from the Federal Reserve in response to what is now seen as a dangerous escalation in the U.S.-China trade war, while all of the Germany government bond curve, including 30-year paper, traded with a negative yield in early Monday trading.
The CME Group's FedWatch tool, which assigns rate change probability, is pricing in an 83.5% chance of a September cut, up from just 54.8% last week, and an 85% chance of a further reduction between now and the end of the year.
Asia stocks suffered their biggest single-day decline in nine months, with the MSCI ex-Japan index falling 2.43% into the close of trading thanks to heavy losses on the Shanghai Composite, which closed at the lowest level since February, and Hong Kong's Hang Seng index falling 2.82%.
Japan's Nikkei 225 fell the most in four months, with a 1.74% decline that took the benchmark back to early June levels of 20,720.29 points.
In Europe, the benchmark Stoxx 600 index slumped more than 1.9% by mid-day of trading in Frankfurt, led to the downside by basic resource and technology stocks, while German's DAX notched a 1.6% decline that pushes the trade-sensitive index to a fresh 3-month low.
Britain's FTSE 100, which is heavily-weighted towards basic resource stocks, slumped 2.1% as the pound bounced from 30-months lows against the greenback to trade at 1.2157.
Global oil prices were also on the back foot, with investors hiving expectations for growth and demand following China's move to devalue the yuan and last week's rig count from Houston-based oil services provider Baker Hughes, which showed the number of U.S. drilling installations fell for a fifth consecutive week.
Brent crude contracts for october delivery, the global benchmark, were seen 70 cents lower from their Friday close and changing hands at $61.19 per barrel while WTI contracts for September, which are more tightly linked to U.S. gas prices, were marked 56 cents lower at $55.10 per barrel.
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