Dow sinks 444 points at the low as fall in Treasury yields raises ‘fear factor’ of trade war

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August 6, 2019
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August 7, 2019

Dow sinks 444 points at the low as fall in Treasury yields raises ‘fear factor’ of trade war

China sets currency reference rate at 6.9996 yuan against the dollar

U.S. stocks tumbled sharply at the open Wednesday, relinquishing the previous session’s healthy rebound, as a number of global central banks adopted easy-money policies in the face of an intensifying trade conflict between Beijing and Washington.

How did benchmarks perform?

The Dow Jones Industrial Average DJIA, -2.18% fell nearly 424 points, or 1.6%, to 25,604, the S&P 500 index SPX, -1.89% lost 40 points, or 1.3%, at 2,845. Meanwhile, the Nasdaq Composite Index COMP, -1.62%  shed 1.2% to 7,738, a drop of 92 points.

On Tuesday, the Dow rose 311.78 points, or 1.2%, to end at 26,029.52, while the S&P 500 index climbed 37.03 points, or 1.3%, to close at 2.881.77, while the Nasdaq Composite Index COMP, -1.62% surged 107.23 points, or 1.4%, to finish at 7,833.27.

What’s driving the market?

Equity markets looked set to fall at the start of trade on Wednesday, with stocks giving up gains as U.S. Treasury and European government bonds plumbed fresh lows. The 10-year Treasury TMUBMUSD10Y, -6.30%  fell below 1.70%, falling to 1.62%, around the lowest since late 2016, while comparable German bondsTMBMKDE-10Y, -13.27%  hit a record low at negative 0.59%.

“A sharp decline in yields as the 10-year note falls under 1.65%. This is raising the ‘Fear Factor’ over the impact of the trade war on the economy,” Peter Cardillo, chief market economist at Spartan Capital Securities told MarketWatch.

Adding to market jitters is growing fears of a recession in the U.S. against a weaken economic backdrop throughout the globe.

Central bank’s in India and New Zealand (as well as the Thailand) lowered their domestic interest rates to levels that are lower than had been expected, highlighting anxieties centered on the health of the world-wide economy.

India’s central bank cut its key interest rate for the fourth consecutive time, reducing the repo rate by 0.35% to 5.40% to shore up the economy, while New Zealand’s central bank cut its benchmark interest rate to an all-time low of 1% on Wednesday.

For a second day in a row, the People’s Bank of China set the official midpoint reference for yuan at 6.9996 in Asian hours, but the level approaches the key level of 7, widely viewed as a line in the sand for the currency. The PBOC fixes the currency daily and allows it to move up to 2 percentage points on either side of its midpoint.

A breach of that level on Monday, interpreted by some as an intentional weakening of its currency, helped to ignite a global stock market selloff and slump in bond yields, but markets have so far stabilized, despite the prospect of an uncertain timeline for a Sino-American trade resolution.

Losses for the stock-index futures before the opening bell Wednesday accelerated after President Donald Trump tweeted that the U.S’s “problem is not China – We are stronger than ever, money is pouring into the U.S. while China is losing companies by the thousands to other countries, and their currency is under siege – Our problem is a Federal Reserve that is too….. proud to admit their mistake of acting too fast and tightening too much (and that I was right!).

The president said, the central bank “must cut rates bigger and faster, and stop their ridiculous quantitative tightening NOW,” he tweeted:

Which stocks are in focus?

The Walt Disney CoDIS, -6.32% on Tuesday said beginning Nov. 12, when the entertainment giant’s ambitious streaming service makes its debut, U.S. consumers will be able to subscribe to a streaming bundle of Disney+, ESPN+ and advertising-supported Hulu for $12.99 a month. Disney shares were down 6.5% l after missing estimates for earnings.

Lumber Liquidators Holdings IncLL, -16.14%  reduced its full-year comparable stores outlook to “approximately flat.” Lumber Liquidators shares were falling 14% at the open.

Shares of CVS Health CorpCVS, +5.77% rose 5.1% Wednesday after the drugstore chain reported earnings that topped Wall Street expectations.

Office Depot Inc.’s stock ODP, -6.29% rose 0.9% after the business supply retailer reported second-quarter earnings that beat expectations.

Read: September rate cut ‘fully priced’, with Trump tariff tweets seen pushing Fed to take more action

What other assets are in focus?

Gold for December delivery GCZ19, +1.85%  aimed for a fourth straight gain, breaching a psychological level above $1,500 per ounce.

Oil futures prices sank. U.S. oil futures CLU19, -3.49%  fell 2.9% at $52.08 a barrel, after gaining 1.9% on the New York Mercantile Exchange on Tuesday.

In Asia, Japan’s Nikkei 225 Index NIK, -0.33% fell 0.3%, Hong Kong’s Hang Seng Index HSI, +0.08% HSI, +0.08% ended virtually unchanged, adding less than 0.1%, while the CS1 300 index 000300, -0.41% dropped 0.4%.

The pan-European Stoxx 600 SXXP, -0.25%, meanwhile, headed 1% higher Wednesday.