The Wednesday Market Minute

  • Global stocks weaken as China fixes yuan just inside the $7 mark and Germany posts the steepest year-on-year slump in industrial production since 2009.
  • Asia stocks slide for the eighth consecutive session, while gold hits a fresh six-year peak and Treasury bonds rally, as investors reprice risk in the face of weakening economic growth.
  • U.S. 10-year Treasury yields fall to 1.65%, putting the difference to 2-year notes at just 8 basis points, the lowest in 11 years.
  • Global oil prices drift back to seven months lows after Germany's grim June reading for industrial output and ahead of Energy Department data on U.S. stockpiles later in the session..
  • Wall Street futures suggests further opening bell declines Wednesday ahead of earnings from CVS Health, Wendy's and Teva Pharmaceuticals.

Market Snapshot

U.S. equity futures weakened again Wednesday, setting up Wall Street for its seventh decline of the past eight sessions, as investors continue to reprice risky assets amid concerns that the U.S.-China trade dispute could spiral into a currency war and tip the global economy into a near-term recession.

Following a decision earlier this week by the U.S. Treasury Department to label China a currency manipulator -- the first such distinction since 1994 -- officials in Beijing pegged the yuan at $6.9996 against the dollar Wednesday, the lowest mid-point setting in more than 11 years, and allowed the currency to drift below the $7 mark for the third consecutive session.

The move both indicates China's need to weaken it currency in order to mitigate the affects of tariffs put in place by the Trump administration as well as Beijing's insistence that it must be treated as an equal in trade talks with the world's biggest economy. 

Data from Germany early Wednesday, which showed the steepest year-on-year decline in industrial production from Europe's biggest economy since 2009, offered further evidence that the ongoing U.S.-China trade spat is taking its toll around the world, a condition St. Louis Federal Reserve President James Bullard said Tuesday he expected would remain "for the quarters and years ahead."

....proud to admit their mistake of acting too fast and tightening too much (and that I was right!). They must Cut Rates bigger and faster, and stop their ridiculous quantitative tightening NOW. Yield curve is at too wide a margin, and no inflation! Incompetence is a.....

— Donald J. Trump (@realDonaldTrump) August 7, 2019

U.S. equity futures suggest another session of losses on Wall Street Wednesday, with contracts tied to the Dow Jones Industrial Average indicating a 360 point decline and those linked to the S&P 500, which has fallen 3.31% so far this month, guiding to a 41.2 point decline for the broader benchmark. 

Walt Disney Co. (DIS - Get Report) shares were indicated lower after the media group posted weaker-than-expected third quarter earnings as last year's takeover of 21st Century Fox, as well as its move to challenge Netflix (NFLX - Get Report) in online streaming entertainment, ate into its bottom line.

Weight Watchers International (WW - Get Report) shares surged higher after the group boosted it full-year profit guidance as its Oprah Winfrey-backed marketing campaign lifted membership to a second quarter record of 4.6 million.

European stocks shot higher at the start of trading in Frankfurt as the euro slipped to 1.1180 on hopes of fresh stimulus from Berlin, as well as the European Central Bank, following the German June industrial production data. Benchmark 10-year bund yields were also active, falling to a record low -0.59%, and the bid for stocks faded, pulling the  Stoxx 600 benchmark to a small 0.1% gain by mid-afternoon.

Asia stocks fell for the eighth consecutive session overnight, although comments from White House economic adviser Larry Kudlow that a Chinese trade delegation will visit Washington for talks in September kept losses in check as the MSCI Asia ex-Japan benchmark slipped 0.07% and Japan's Nikkei 225 closed 0.33% lower at 20,516.66 points.

Safe-haven assets were active again in overnight trading, with benchmark 10-year Treasury note yields falling to 1.628% ahead of a $27 billion auction of new paper later today, while spot gold prices scaled a fresh six-year peak of $1,487.76 per ounce and December futures topped $1,500 per ounce.

"Risk appetite is expected to remain soft amid intensifying concerns over the global economic landscape that has already been weighed down by the protracted US-China trade impasse," said FXTM analyst Han Tan.

"Despite the next round of US-China trade talks slated for next month, the looming additional US tariffs on Chinese goods set for September 1, coupled with China's pledged "necessary countermeasures", have only caused investors' shoulders to slump further. Market participants are growing increasingly fretful that the prospect of a US-China compromise is at risk of being snuffed out completely," he added.

Global oil prices entered bear market territory Wednesday as investors continue to reprice assets linked to world economic growth as the U.S.-China trade dispute threatens to evolve into a more-damaging currency war.

Brent crude slipped below the $58 per barrel mark in overnight trading, marking a 20% decline for the global benchmark from its April peak of $74.04 per barrel, as China allowed its yuan to trade through the $7 mark against the U.S. dollar for a third consecutive session despite being labeled as a currency manipulator by the Treasury Department earlier this week.

Brent crude contracts for October delivery, the global benchmark, were seen $1.03 cents lower from their Tuesday close and changing hands at $57.91 per barrel while WTI contracts for September, which are more tightly linked to U.S. gas prices, were marked $1.23 lower at $52.40 per barrel.