Wednesday, August 7, 2019

Stocks tumble amid fears about a slowing global economy

begin quote from:Stocks tumble amid fears about a slowing global economy
MARKET NEWS: Dow tumbles 400 points amid fears about a slowing global economy | Check indexes Stocks fell Wednesday, adding ...
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Dow falls more than 500 points as bond yields plummet
Stocks regained most of their earlier losses Wednesday, but sentiment remained subdued as a drop in global bond yields raised concerns about a slowing global economy.
The Nasdaq traded 0.1% higher, erasing a loss of more than 1%. The Dow was down just 100 points after falling more than 500 points. The S&P 500 was down 0.3%. Earlier in the day, the broad index had lost more than 1%.
Investors moved back into havens like gold, just as they did on Monday when stocks dropped the most they have in a single day all year. Gold reached a more than six-year high.
“Yields are collapsing and gold is soaring,” said Peter Cardillo, a chief market economist at Spartan Capital Securities. “That’s raising concern about the impact of the trade war on the economy.”
“Investors need to be prudent and cautious here,” he said.
The 10-year Treasury yield sliding to its lowest level since 2016. The benchmark 10-year Treasury yield dipped below 1.6% after starting August above 2%. The move further narrowed the yield curve, a widely watched recession indicator. The spread between the 10-year rate and the 2-year yield fell to its lowest level since 2007 before recovering to trade around 10 basis points.
“On top of that you’re seeing more and more money going into German bunds. . . . That’s going to scare people because they’re continuing to move money – at the end of last year there was $8 trillion in negative yields. Currently right now we’re at $15 trillion in negative yields,” said Jeff Kilburg, the CEO of KKM Financial.
The yield on the 10-year German bund briefly fell to negative 0.6%, a record low.
Bank stocks, including J.P. Morgan Chase and Bank of America, led the decline as they are the one sector with the most to lose from falling interest rates. J.P. Morgan shares slid 2.8% while Bank of America dropped 3.3%. Citigroup and Wells Fargo also trade around 3% lower.
China also set a weaker-than-expected yuan level overnight, adding to the investor concerns. That is what caused the market to sell-off on Monday.
China on Monday let its currency fall to its lowest level in more than a decade against the U.S. dollar, with the yuan breaking below 7 per U.S. dollar and triggering the worst sell-off of the year on Wall Street. China insists, however, the move was not in response to the newly announced tariff. Equities rebounded on Tuesday when China stabilized the currency.
“This looks more like a warning shot than active devaluation, with the yuan’s fall a reflection of worsening economic fundamentals and rising trade tariff risks,” said Mark Haefele, a global chief investment officer at UBS GWM. “For policymakers in China, arbitrarily defending the 7.0 mark amid these pressures represents a moral hazard, and one which only worsens the longer it is left to build up.”
The yuan traded around 7.06 per dollar on Wednesday. The currency bounced off its session low against the dollar around 9:45 a.m. ET, around the same time the major stock indexes started to pare losses.
Tensions between China and the U.S. have been rising since last week, when President Donald Trump announced a 10% tariff on an additional $300 billion worth of Chinese goods.
The trade war between China and the U.S. has been going on for more than a year. Investors have been worried about its ramifications in terms of global growth and corporate profits. Some central banks have even started cutting interest rates amid these pressures.
Overnight, New Zealand, India and Thailand all cut interest rates. The Federal Reserve had cut rates last week by 25 basis points.
In corporate news, Disney shares slid on weaker-than-expected results for the previous quarter. Disney’s results were weighed down by increasing losses in streaming services such as Hulu, ESPN+ and Disney+. The media giant also blamed the integration of Fox’s entertainment assets for the weak numbers. Disney shares traded down more than 5%.
CNBC’s Sam Meredith and Michael Sheetz contributed to this report.
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