The Tuesday Market Minute
- Global stocks turn lower as China said to ask WTO for permission to sanction U.S. over anti-dumping ruling from 2013.
- Hang Seng slips to withing touching distance of 'bear market' as Asia stocks fall for the ninth consecutive session.
- U.S. dollar weakens modestly, but Treasury yields rise ahead of $38 billion in 10-year and 30-year bond sales later this week.
- CME Group's FedWatch tool has December rate hike chances at 75% as investors re-set expectations after last week's payroll and wage data.
- Oil prices rise as markets brace for U.S. sanctions on Iranian crude; WTI-Brent discount widens past $10 a barrel.
- U.S. equity futures point to 70-point opening bell slide for the Dow Jones Industrial Average.
Global stocks weakened Tuesday as investors remained acutely concerned over developments in the ongoing trade war between Washington and Beijing amid news that China would seek permission from the World Trade Organisation to impose tariffs on U.S. goods based on a five-year old anti-dumping dispute.
The move reversed earlier gains for U.S equity futures, which had traded higher in the early European session, and swung contracts linked to the Dow Jones Industrial Average
China won a WTO case, first brought in late 2013, two years ago when the body's dispute panel agreed that certain methods the U.S. uses to apply duties on goods it deems have been "dumped", or sold in the U.S. at a price that undercuts the sellers' home market, were unfairly applied.
Returning to the WTO panel, just as the U.S. is preparing to impose fresh tariffs on $200 billion worth of China-made goods, while President Donald Trump threatens to take that total past $500 billion, suggests China will use myriad tools in its arsenal to hit back at the U.S. should the current trade war escalate.
Here in Europe, the Stoxx 600 index edged modestly higher in the opening minutes of trading in Frankfurt, as benchmarks around the region booked cautious gains despite a stronger euro, which traded at 1.1616 against the greenback, before reversing that advance and falling 0.5% by the early afternoon.
Britain's FTSE 100 extended its slide to to 0.7% as the pound rose to 1.3033 following comments from Michel Barnier, the European Union' chief Brexit negotiators, which suggested the two sides could come to an agreement in the next six to eight weeks assuming both were "realistic" in their demands and data showing domestic wages rose at the fastest pace since March.
Most Asia markets were closed by the time the China news hit the tape, but stocks in the region had been broadly weaker as investors keyed on the strength of the U.S. economy, and rising Treasury bond yields, that pushed the yen and the yuan lower.
That U.S. growth, evidenced not only by the Atlanta Federal Reserve's GDPNow forecast of a 4.4% third quarter advance but also in last week's non-farm payroll data which showed domestic wages rising at the fastest pace in nine years, has U.S. Treasury yields on the rise ahead of two key bond auctions later this week that appear to be attracting billions in foreign investment interest and weakening currencies in Aisa.
With the yen backing up to 111.43 against the dollar as a result, Japan's Nikkei 225 scorched a 1.3% gain Tuesday to take the benchmark to 22,664.69 points, even as most other benchmark in the region slipped into the red amid lingering concerns over trade-related growth. Hong Kong Hang Seng index was the standout decliner, falling 0.51% to trade within a few points of 'bear market' territory, a term investors use to describe an asset that has fallen at least 20% from its recent peak.
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The Asia weakness pulled the MSCI ex-Japan index 0.49% lower into the final hours of trading, ensure a ninth consecutive day of weakness for the regional benchmark. Perhaps more worryingly, the Chinese yuan slipped to a two-week low of 6.8741, suggesting officials may be preparing to use the currency weakness as a retaliatory tool in their battle with President Trump over trade and tariffs.
A similar dynamic is likely to define negotiations between the United States and Canada today in Washington when Chrystia Feeland meets U.S. Trade Representative Robert Lightheizer in an effort to re-start talks aimed a reaching a trade deal before the end of September.
Even with that question mark hanging over the fate of a NAFTA agreement that underpins $1.2 billion in annual trade, and the President's warning to take the value of China-made goods targeted for U.S. tariffs past $500 billion, however, the U.S. dollar was marked modestly lower in overnight trading, and changing hands at 95.07 against a basket of its global peers before turning positive on the session to trade at 95.11 as market sentiment changed abruptly in the wake of the China WTO headlines.
A key test of that sentiment will come tomorrow and Thursday in the form of benchmark 10-year and 30-year Treasury bond auctions, which could kick yields another leg higher as investors take down the $38 billion in new bonds on offer as they fret over the specter of faster inflation -- and Federal Reserve rate hikes -- following last week's payroll data.
Benchmark 10-year notes traded at 2.941% in overnight trading while 2-year notes changed hands at 2.719%, the highest since July 2008, as investors re-set rate hike expectations. The CME Group's FedWatch tool is now pricing in a 75% chance of a December rate increase, the highest probability to date and up from 59.7% just one month ago. A 25 basis point rate hike at the Fed's September 25-26 meeting in Washington is now a 98.4% certainty.
Global oil prices were active again Tuesday, with Brent crude driving higher towards the $80 a barrel mark as investors begin to fully factor-in the implications of impending U.S. sanctions that would limit the sale of Iranian oil to international customers. At the same time, however, U.S. officials are reportedly attempting to not only boost domestic production, but also seek support for more supply from key OPEC producers such as Saudi Arabia and Russia, with Energy Secretary Rick Reilly meeting with Saudi minister Khalid al-Falih in Washington yesterday ahead of a Thursday visit to Moscow to sit down with energy minister Alexander Novak.
Brent crude contracts for November delivery, the global benchmark, were seen 42 cents higher from their Monday close in New York and changing hands at $77.79 while WTI contracts for the same month were marked 12 cents higher at $67.53.
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