Stocks bat­tered by trade, yield con­cerns

The Myanmar Times - - International Business -

US stocks plunged, with the Dow Jones In­dus­trial Av­er­age tum­bling al­most 800 points, as a litany of con­cerns wiped out the rally in risk as­sets.

Trade-sen­si­tive shares sank as angst mounted that the US and China made no mean­ing­ful progress on the trade front this week­end. Fi­nan­cial shares got ham­mered as the yield curve con­tin­ued to flat­ten, with the lat­est nudge from a hawk­ish com­ment by a Fed­eral Re­serve of­fi­cial.

Losses ac­cel­er­ated and trad­ing vol­umes in S&P 500 fu­tures spiked af­ter con­tracts for broke be­low their 200-day mov­ing av­er­age. Adding to the risk aver­sion was news that UK Prime Min­is­ter Theresa May’s push to avoid a so-called “hard Brexit” may be at risk.

“To­day’s move feels like the mar­ket is a scorned lover. It had be­lieved, for what­ever rea­son, that progress was be­ing made at the G-20 and that turns out to be murky -- it feels lied to,” said Michael An­tonelli, a man­ag­ing di­rec­tor at Robert W Baird & Co. “Then a pile of neg­a­tive Brexit news, Wil­liams starts to ramp up hawk­ish talk, then we have our yield curve act­ing like it got run over and boom, we puke.”

Pres­i­dent Don­ald Trump sug­gested Tues­day that he could ex­tend a 90-day truce in his trade war with China, while his top White House eco­nomic ad­viser back­tracked from the pres­i­dent’s an­nounce­ment that Beijing had agreed to re­duce tar­iffs on U.S.-made cars. The de­vel­op­ments again called into ques­tion the ex­tent of a trade agree­ment the White House said Trump had struck with Chi­nese Pres­i­dent Xi Jin­ping over din­ner at the Group of 20 sum­mit on Satur­day.

“Yes, there is a halt in tar­iffs,” said Delores Ru­bin, se­nior eq­ui­ties trader at Deutsche Bank Wealth Man­age­ment. But “we haven’t re­solved any­thing yet.”

In the Trea­sury mar­ket, all eyes re­main on the yield curve af­ter three­year yields climbed above those of their five-year peers on Mon­day, po­ten­tially fore­shad­ow­ing the end of the Fed’s tight­en­ing cam­paign. The more closely watched part of the curve -the gap be­tween two-year and 10-year yields -- re­mains up­wardly sloped.

Traders are even start­ing to bet that the Fed will cut in­ter­est rates as soon as 2020. The swaps mar­ket has moved up the tim­ing for when it sees the hik­ing cy­cle peak­ing, to­ward the end of 2019 or early 2020, a pe­riod when the Fed’s own pro­jec­tions in­di­cate tight­en­ing will still be un­der way. Swaps in­di­cate about 5 ba­sis points of a cut priced in by mid-2020.

“Any break­throughs on trade also brings the Fed back into the pic­ture,” Dan Skelly, Mor­gan Stan­ley eq­uity model portfolio so­lu­tions head, said on Bloomberg TV. “If you look at the mar­ket the last week or so you saw the mar­ket pop on both the dovish Fed -or a per­ceived dovish Fed, if you will -- as well as the trade head­lines. And it’s hard to have both, in our opin­ion. And so these pos­i­tive up­dates po­ten­tially on trade just bring the Fed back even faster.”

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