The Wednesday Market Minute

  • Global stocks slide following last night's sharp selloff on Wall Street amid increasing question over the fate of U.S. China trade talks.
  • Bond markets steady after flashing recession signals Tuesday, with the spread between 2-year and 10-year yields rising to 10.5 basis points.
  • Global oil prices drift lower after a stronger-than-expected buildup in U.S. crude supplies and reports that OPEC members have yet to convince Russia on production cuts.
  • U.S. equity and bond markets will remain closed today to observe the passing of former President George Herbert Walker Bush.

Market Snapshot

Global stocks extended declines into a second session Wednesday, following on from last night's sharp selloff on Wall Street, as investors continue to question that fate of U.S.-China trade talks and re-set assumptions for growth and inflation as a key bond market signal flashes warning signs of recession.

President Donald Trump attempted to solidify investor sentiment late Tuesday through a series of Tweets that highlighted the strength of his relationship with President Xi Jinping, but added to market pressure by calling himself "Tariff Man" and threatening new levies on China-made goods if the 90-day talks fail to reach a consensus on trade between the world's two biggest economies.

"President Xi and I want this deal to happen, and it probably will," Trump Tweeted Tuesday. "But if not remember I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so." 

"It will always be the best way to max out our economic power.  We are right now taking in $billions in Tariffs," he added. 

China's Commerce Ministry issued a statement Wednesday that the G20 talks were "very successful" and that it was "confident" a deal could be reached "within 90 days in accordance with a clear timetable and road map".

Trump responded shortly after, Tweeting that China "does not want Tariffs" and thus will cut a deal either soon or in the near future.

Very strong signals being sent by China once they returned home from their long trip, including stops, from Argentina. Not to sound naive or anything, but I believe President Xi meant every word of what he said at our long and hopefully historic meeting. ALL subjects discussed!

— Donald J. Trump (@realDonaldTrump) December 5, 2018

The twin statements failed to arrest the market's bearish sentiment, however, and with U.S. markets closed in order to observe the passing of former President George H.W. Bush, investors were unwilling to alter their risk appetite in the wake of last night's 800-point slide for the Dow Jones Industrial Average and a near inversion of the U.S. bond yield curve.

With that in mind, and ahead of a key OPEC meeting tomorrow in Vienna and now-critical job market data from the United States on Friday, stocks in Asia drifted lower in thin volumes as the dollar found favor from defensive investors. 

The region-wide MSCI Asia ex-Japan index was marked 0.53% lower heading into the final hours of trading, led to the downside by a 0.6% slip for the Shanghai Composite and a 1.6% slump for the Hang Seng index in Hong Kong, while Japan's Nikkei 225 closed 0.53% lower at 21, 9191.33 points, the lowest level in nearly two weeks.

U.S. equity futures will trade until 9:30 am eastern time, and are indicating modestly rebounds for the three major benchmarks, with contracts tied to the Dow Jones Industrial Average indicating a 111 point gain, while those linked to the S&P 500 guiding to a 17 point bump for the broader benchmark. 

U.S. bond markets, which triggered much of the selling in stocks on Wall Street last night, steadied in European trading, with benchmark 10-year notes pegged at 2.915% and 2-year notes quoted at 2.799%, taking the gap between the pair to around 11.5 basis points, marginally higher than yesterday's 9.5 basis point low but still the smallest in more than a decade.

Trading in U.S. bonds will be suspended today, alongside equities, as part of a National Day of Mourning for the passing of President George H.W. Bush.

According to a study from the San Francisco Federal Reserve, an inverted yield curve -- where 2-year note yields rise higher than 10-year note yields -- has preceded all of the nine recessions the U.S. economy has suffered since 1955, making it an extremely accurate barometer of financial markets sentiment.

European stocks were weaker at the start of trading Wednesday, as well, with investors fretting over not only the wild swings in U.S. markets and the pullback in Treasury bond yields, but also the political chaos in the United Kingdom surrounding its impending exit from the European Union.

Prime Minister Theresa May's government became the first in history to be found in contempt of parliament for failing to publish the full legal advice it was given for the implementation of May's Brexit plan, which lawmakers will begin debating today and vote on next Tuesday in London.

The ongoing uncertainty, which could lead to a toppling of the government, fresh national elections, a new Brexit plan, or no Brexit at all, has left the pound vulnerable to unprecedented volatility, with sterling last marked a 1.2768 against the U.S. dollar.

The Stoxx 600 benchmark, the region's broadest measure of share prices, fell 0.7% by mid-day in Frankfurt with markets in Germany and France notching 0.8% declines. 

Global oil prices were active once again, as well, as investors reacted to data from the American Petroleum Institute Tuesday that showed domestic crude stockpiles rose by a much more-than-expected 5.4 million barrels last week, a figure that, if confirmed by the Energy Information Administration today, will mark the 11th consecutive increase, the longest in nearly four years.

The ever-increasing supply glut offset speculation that OPEC members are likely to agree some form of production cut at their meeting tomorrow in Vienna, although much will depend on discussions Friday with non-member Russia, which is being asked to trim output by as much as 300,000 barrels per day, a figure that is more than twice the level it is prepared to endure.

Brent crude contracts for January delivery, the global benchmark, were seen 7 cents lower from their Tuesday close in New York and changing hands at $62.01 per barrel while WTI contracts for the same month, which are more tightly liked to U.S gas prices, were marked 6 cents higher at $53.31 per barrel.

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