The Monday Market Minute

  • Global stocks extended declines Monday, as markets in China fell the most since February, as trade and diplomatic tensions between Washington and Beijing pressure investors around the world.
  • The U.S. dollar index remains elevated in foreign exchange markets following Friday's strong payroll data, keeping emerging market and Asia stocks on the back foot as risky asset re-pricing.
  • Bond yields continue to rise, with benchmark 10-year Treasuries trading at 3.23% ahead of $230 billion in fresh supply this week, including 3-year, 10-year and 30-year paper.
  • European stocks tumble amid China concern, weaker-than-expected German industrial data and the ongoing standoff between Italy and the EU over spending plans.
  • U.S. equity futures are weaker, with the Dow looking at a 70 point opening bell decline, but with bond markets closed for the Columbus Day holiday, volatility could increase.

Market Snapshot

Global equities trembled Monday as investors in China returned from their Golden Week celebrations and slashed prices for domestic stocks amid the ongoing trade and diplomatic tensions between Washington and Beijing, while markets in Europe were pinched by rising interest rates and slowing growth signals in most of the world's major economies.

U.S. equity futures, however, are attempting to hold their ground, although the Dow Jones Industrial Average is expected to open 70 points lower at the opening bell, while the broader S&P 500 is looking at a 9 point pullback, as the "risk-off" sentiment from Europe and China ripples through markets and investors brace for $230 billion in new Treasury bond sales just days after the biggest fixed income selloff in nearly two years.

Benchmark 10-year government bonds yields held steady at 3.23% in overnight trading, although bond markets in the U.S. will remain closed today owing the Columbus Day holiday, with investors prepping for one of the most active weeks of the year for new bond sales that includes $72 billion in 3-year, 10-year and 30-year paper.

China's Shanghai Composite fell 3.7% by the close of trading, while the tech-focused CSI 300 slumped 4.3% as investors dumped stocks following a series of headline risks last week, including allegations of China meddling in U.S. elections by President Donald Trump and the potential 'back door' hacking of servers linked to tech giants Amazon (AMZN) and Apple (AAPL) .

The People's Bank of China attempted to mitigate some of those concerns Sunday, when its cut the so-called Reserve Requirement Ratio for its domestic banks in a move that will free up around $110 billion in fresh liquidity, but the market's desire to "catch up" to last week's global equity declines was simply too powerful.

The impact was felt in Europe, as well, where investors were also unsettled by weaker-than-expected industrial output figures from Germany, the region's largest economy, which appear to suggest that trade tensions are starting to hit the export giant's engine room.

Further concern was also linked to the ongoing budget standoff between Rome and Brussels, which traded barbs over the weekend over the fact of Italy's 2019 budget plans, which must be formally submitted next week, and the spending ambitions of the region's third largest economy under a populist anti-European government.

Italy's FTSE MIB slumped 2.2%, taking the benchmark to the lowest level since April 2017, while 10-year government bond yields spiked to 3.58%, taking the extra yield, or spread, that investors demand to hold them instead of triple-A rated German bunds to 3.08%, the widest in more than five years.

Europe's Stoxx 600 index was seen 0.82% lower by mid-day in Frankfurt while Germany's DAX performance index was marked 0.81% to the downside at 12,013.66 points.

Global oil prices were also on the back foot Monday, with investors re-pricing oil in the wake of the China market selloff, and its implications for weaker demand from the world's second-largest economy, and the rising U.S. dollar.

Further downside pressure came from headline suggestions that Saudi Arabia would increase its own output in the months ahead in order to compensate for the loss of Iranian crude next month as U.S. sanctions kick-in. 

Brent crude contracts for December delivery, the global benchmark, were seen $1.41 lower from their Friday close in New York and changing hands at $82.77 per barrel while WTI contracts for November delivery, which are more tightly liked to U.S gas prices, were seen $1.09 lower at $72.35 per barrel.