Aug 15, 2019

U.S. I Markets: Dow set for strong open after China says it hopes to meet halfway on trade issues

Yun Li

Stock futures posted strong gains ahead of the open on Monday following indications that Chinese negotiators were hoping to meet halfway with the U.S. on trade issues.
Markets turned higher in a sudden move after Hua Chunying, spokesperson at China’s Ministry of Foreign Affairs, said China “hopes the U.S. will meet China halfway and implement the consensus reached by the two leaders during their meeting in Osaka.”
Futures on the Dow Jones Industrial Average erased earlier losses, now indicating a gain of about 108 points. S&P 500 futures and Nasdaq futures also turned higher.
Markets were lower earlier after shaken by a pair of reports out of Asia. China said it has to take necessary counter-measures to the latest U.S. tariffs on $300 billion of Chinese goods, adding the U.S. tariffs violate a consensus reached by leaders of two countries.
Separately, the Hong Kong government announced plans to implement stimulus measures to help its sagging economy. The government also cut its growth forecast to potentially flat for the rest of the year, down from the already anemic 0.5% growth it was expecting.
Stocks’ gains were also helped by Walmart which reported better-than-expected earnings and raised its outlook for the full year. Its stock jumped 6.2% in premarket Wednesday.
Thursday’s session follows the Dow’s worst day of the year on Wednesday amid a recession signal from the bond market. The stock market took a huge hit in the previous session with the Dow plunging 800 points in its fourth-largest point drop ever to a two-month low. The Dow’s 3% drop was the worst this year. The S&P 500 also fell nearly 3%.
Cisco shares plunged 9% in premarket trading after it said future earnings would be lighter than expected because of a “significant impact” from the U.S.-China trade war. The tech giant also said China revenue fell 25% last quarter on an annualized basis.
The massive sell-off Wednesday was triggered by a bond market phenomenon on Wednesday where the yield on the benchmark 10-year Treasury note briefly broke below the 2-year rate. The inversion of this key part of the yield curve has been a reliable indicator of economic recessions.
As of Thursday morning, the curve hovered around the inversion point. The yield on the 30-year Treasury bond also fell to a new historic low.
“The 2-10 inversion is sending a massively negative signal that stocks are having a difficult time ignoring,” Adam Crisafulli, a J.P. Morgan managing director, said in a note on Wednesday.
Bank stocks, which got pounded on Wednesday from the inverted yield curve, continued their slide on Thursday. Citigroup dropped 1.4% in premarket trading.
Investors remained on edge about the trade tensions between the U.S. and China. President Donald Trump in a tweet after the bell Wednesday linked the trade battle to the increasingly violent protests in Hong Kong, further complicating the trade issue. But he also proposed a personal meeting between him and Chinese President Xi Jinping.
China’s comments on Thursday dented hopes this new suggestion by Trump would ease tensions.
This week, Trump decided to delay tariffs on certain Chinese goods while outright removing some items from the tariff list, a move to avoid any negative impact on the holiday shopping season. The announcement sent the Dow rallying more than 300 points on Tuesday. Those gains were lost in the big sell-off Wednesday.
The deferral “helps China more than us, but will be reciprocated,” Trump said Wednesday.
It’s been a volatile and poor week for stock investors. The S&P 500 fell 1.2% on Monday, followed by a 1.5% rebound in the next session, and then came Wednesday’s brutal sell-off of 2.9%. This kind of consecutive whiplash — down 1%, up 1% and down 2% — is relatively rare, occurring only 19 times the last 30 years, Bespoke Investment Group said. This jarring action usually doesn’t lead to a positive longer term outcome, Bespoke found, with S&P 500 returns 6 months out averaging a decline of 2.9%.
—CNBC’s Brian Sullivan and Eustance Huang contributed to this report.

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