The Thursday Market Minute

  • Global stocks weaken as tougher White House stance on China sparks renewed trade war concerns.
  • China shares fall sharply as tariff threats, slowing growth signals extend year-to-date declines.
  • European stocks clouded by trade concerns as autos continue to cite tariffs as near-term risk.
  • U.K stocks slide, in concert with pound, even as investors prep for Bank of England rate hike.
  • Benchmark 10-year Treasury yields nearing 3% as investors pre for Fed statement at 2:15 Eastern time.
  • Wall Street futures point to triple-digit decline for the Dow, with earnings from Cigna, Kellogg and CBS in focus.

Market Snapshot

Global stocks weakened Thursday as a sharp sell-off in China, sparked by confirmation of a tougher stance on tariffs from the White House, rattled investors in the region and suggested investors are ready to move on a from a strong earnings season and renew their focus on the potential for escalating trade wars to upend global economic growth.

U.S. Trade Representative Robert Lighthizer said late Wednesday that the government will look to boost tariffs on $200 billion worth of China-made goods to 25% -- from an initial proposal of 10% -- as informal talks between Washington and Beijing have failed to bridge the gap in what each consider to be a fair agreement on trade. 

"The increase in the possible rate of the additional duty is intended to provide the administration with additional options to encourage China to change its harmful policies and behavior and adopt policies that will lead to fairer markets and prosperity for all of our citizens," Lighthizer said in a statement. 

The formalisation of the Trump Administration's plan to tighten the screws on China, just as evidence begins to mount that the world's second-largest economy is slowing notably into the second half of the year, sent domestic shares into a tailspin Thursday, with the Shanghai Composite falling 2.03% to extend its year-to-date decline past 16%. The bluechip CSI 300 was marked 2.40% lower heading into the final hour of trading while the yuan hovered at a 13-month low of 6.8308 against the U.S. dollar.

"We would advise the United States to correct its attitude and not try to engage in blackmail. This won't work on China," said China's Foreign Ministry spokesman Geng Shuang. "Secondly, we would advise the U.S. side to return to reason, and not blindly let emotions affect their decisions, because in the end this will harm themselves."

The China sell-off pulled regional stocks firmly into the red, with the MSCI Asia ex-Japan index falling 1.73% and Japan's Nikkei 225 slumping 1.03% to end the session at 22,512.53 points.

European stocks were similarly affected, although a busy slate of corporate earnings and a pending rate hike from the Bank of England later today were also heavy influences at the opening bell. The Stoxx Europe 600, the broadest measure of share prices, was marked 0.86% lower by mid-day in Frankfurt, led to the downside by basic resource, industrial and auto stocks, three sectors that are most-sensitive to trade war concerns, while Germany's DAX performance index fell 1.76%.

Siemens AG  (SIEGY) was an early mover of note, with shares falling 3.8% in Frankfurt after the engineering group posted thirdd quarter earnings that were largely in-line with expectations, but unveiled a new business strategy that will reduce its number of business units.

Britain's FTSE 100 fell 1.64% even as the pound rose to 1.3090 against the U.S. dollar after the Bank of England raised its key lending rate for only the second time since the global financial crisis, even as the economy continues to lag its European peers amid uncertainly surrounding Brexit and the escalating risks linked to trade and tariff disputes with the United States.

U.S. equity futures also took a heavy hit from the trade-related weakness, with contracts tied to the Dow Jones Industrial Average suggesting a 196-point pullback at the opening bell while those linked to the S&P 500 are indicating an 21.1 point decline for the broader benchmark. Nasdaq Composite futures are indicating a 60.6 point decline for the tech-focused index.

Tesla (TSLA) shares surged in pre-market trading Thursday after the clean-energy carmaker said it burned through less cash over the past three months, and plans to double the pace of production for its key Model 3 sedan, even as it posted a wider-than-expected second quarter loss amid questions of the health of its overall finances.

Tesla shares were marked 8.47% higher in pre-market trading, indicating an opening bell price of $326.31 each, a move that would take the stock to its highest level since July 2 and value the Palo Alto, Calf.-based group at $55.4 billion, overtaking General Motors (GM) as America's biggest car company.

Watch the bear case on Tesla.

Last night's interest rate decision from the Federal Reserve, which made not changes to the central bank's lending rates nor its future tightening projections, had only a marginal impact on the U.S. dollar and bond yields, although a stronger-than-expected reading of private sector employment gains from payroll provider ADP, as well as safe-haven flows in overnight trading, took the dollar index to a ten-day high of 94.87.

Global oil prices, however, edged higher as traders snapped a three-day losing streak following data from the U.S. Energy Information Administration that crude inventories in the delivery hub of Cushing, Oklahoma, a key metric for calculation oil futures prices, fell by 1.3 million barrels last week. Investors were also spooked by reports that Iran is preparing military exercises in the Strait of Hormuz, a key delivery alley for regional crude the Tehran has threatened to block in retaliation for U.S. economic sanctions.

Brent crude contacts for September delivery, the global benchmark, were seen 24 cents higher at $72.63 in early European trading while WTI contracts for the same month were little-changed at $67.66 per barrel.

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