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The Wednesday Market Minute

  • Global stocks turn lower, fading last night's rally on Wall Street, after a trio of weak economic data readings from China and the potential for recession in Germany.
  • China's industrial output slumps 4.8% in July, for the weakest reading in 17 years, while Germany's economy contracts 0.1% over the second quarter amid a collapse in exports linked to the U.S.-China trade dispute.
  • U.S. Treasury bond yield curve nears inversion, as 10-year note yields fall amid slowing growth signals and 2-year note yields hold steady as investors pare bets on a near-term Fed rate cut.
  • Global oil prices ease on growth and demand concerns, as well as API data showing a larger-than-expected 3.7 million build in domestic crude stocks.
  • Wall Street futures suggests more opening bell declines ahead import price data at 8:30 am Eastern time and earnings from Agilent Technologies, Cisco and Macy's.

Market Snapshot

U.S. equity futures slumped lower Wednesday as investors faded yesterday's rally on Wall Street in the wake of worryingly weak economic data from two of the world's biggest exporters and domestic recession signals from the bond market.

Last night's 370-point rally for the Dow, sparked by a U.S. decision to delay tariffs on some China-made goods from September to December, gave Asia stocks and early boost Wednesday,  but a trio of softer-than-expected economic data releases from China, including the weakest industrial production figures in seventeen years, kept equity market bulls on the sidelines heading into the European session.

That caution proved to be valid after data from Germany indicated that Europe's biggest economy contracted -0.1% over the three months ending in June, thanks in part to a slump in exports linked to the U.S.-China trade dispute, and could dip into recession by the end of the current quarter.

The grim readings for two of the world's biggest economies, alongside the ongoing political turmoil in Italy and Argentina and the simmering protests in Hong Kong, snuffed out much of last night's rally on Wall Street and put investors on the defensive heading into the Wednesday session. China's move to fix its currency north of the $7 mark again Wednesday also suggests yesterday's trade detente may not signal a near-term breakthrough in negotiations between the world's two biggest economies.

Contracts tied to the Dow Jones Industrial Average, which has fallen around 2.2% this month, are indicating a 330 point decline while those linked to the S&P 500 are suggesting a 37 point pullback for the broader S&P 500. 

Investors are likely to keep close tabs on the U.S. Treasury market today, as well, as the spread between benchmark 2-year and 10-year note yields inverted for the first time since 2007.

The yield gap inverted by 0.12 basis point in overnight trading as 10-year notes fell to 1.576% on the back of the weakening German and China data, while 2-year note yields slipped held at 1.588% as investors pared bets on deeper near-term rate cuts from the Federal Reserve. 

The flattening has investors fretting over an an inversion of the yield curve, a condition where 2-year yields rise above 10-year yields and which has signaled nearly every U.S. recession for the past 60 years, according to multiple Fed studies.

European stocks slipped deeper into the red Wednesday, with Germany's DAX performance index falling 1.53% to extend its August slump past 5% following the weaker-than-expected GDP data -- and a host of forward-looking data points that suggest further slowing in the months ahead -- while Britain's FTSE 100 fell 1% lower in London as the pound held near a three-year low of 1.2080 against the U.S. dollar.

Global oil markets were also impacted by both the soft China data -- which included slowing retail sales linked to a slump in automobile purchases and a further erosion in fixed asset investment from the government -- and the American Petroleum Institute's reading of domestic crude stockpiles, which the private group said rose by a much larger-than-expected 3.7 million barrels last week.

Brent crude contracts for October delivery, the global benchmark, were seen 98 cents lower from their Monday close and changing hands at $60.32 per barrel while WTI contracts for September, which are more tightly linked to U.S. gas prices, were marked $1.07 lower at $56.03 per barrel.