The Market Today
China Trade Risks Weigh on Markets Again
by Craig Dismuke, Dudley Carter
Quiet Calendar… But Not-So-Quiet Markets: Today’s economic calendar is very quiet with some Fedspeak and one regional Fed report. At 9:00 a.m. CT, the Richmond Fed’s Manufacturing Activity Index is expected to pull back from September’s report which was the highest level on record. Speaking today are Minneapolis Fed Bank President Kashkari, Atlanta’s Bostic, Dallas’ Kaplan, and Kansas City’s George. These officials are unlikely to say anything to take the focus away from the markets’ other concerns right now (more below).
Yesterday – Stocks Gave Up Overnight Positivity, Leaving Treasury Yields Little Changed: An overnight rise in U.S. equity futures trading, built on big gains for Chinese stocks and calming signs from Italian political officials, proved misleading for most sectors on Monday. After a joint jump overnight by the big three U.S. indices, stocks diverged and finished mixed on the day. The Nasdaq rode strength in tech companies to a modest 0.3% daily gain while the Dow was hit hard by losses in materials and financials to close 0.5% lower. The S&P 500 slipped 0.4% as the financials sector sank more than 2% and real estate and energy companies lost more than 1%. Early in the session the S&P 500 had moved up as much as 0.4% and fallen as far as 0.7%. Treasury yields also moved above and below last Friday’s close, albeit more modestly, but ended the day mostly unchanged. The 2-year yield added 0.4 bps while the 10-year yield rose 0.6 bps.
Overnight – Stock Sell-off Drives Treasury Yields Lower as Risk-off Looms: After standing out Monday as an upside anomaly, Chinese stocks sank early Tuesday to start a sharply weaker overnight session for global equities. After rising more than 7% combined on Friday and Monday, China’s CSI 300 relinquished 2.7% of that improvement. The rest of Asia was similarly weak with losses between 1.5% and 2.5% not uncommon amid the larger indices there. There have been no signs of a let up in the selling in Europe, where the Stoxx 600 was down around 1% earlier, or in U.S. equity futures trading. The Dow and Nasdaq were roughly 1.7% lower while the S&P 500 had slumped 1.5%. Tech companies continued to be one of the weakest performing sectors, a trend that has helped push the Nasdaq down more than 7% so far in October. Tuesday’s overnight decline for Dow contracts was made worse after 3M (-7.1% pre-market) reported quarterly earnings results that disappointed estimates and Caterpillar (-6.5%) signaled concerns about rising input costs, “primarily due to increases in steel prices and tariffs”. A building up of risks has been steep this month as investors eyed higher interest rates, a more confident sounding Fed, renewed concerns about U.S.-China trade, and geopolitical risks. On top of that foundation, this week is scheduled to be the busiest of the quarterly corporate earnings season. As equities sank globally overnight, Treasurys led a pullback in major global sovereign yields. The 2-year yield was down 3.1 bps earlier at 2.88% with the 5-year (3.00%) and 10-year (3.15%) both down around 5 bps. Those moves shaved 2 bps off the spread between 2s and 10s to 26.7 bps, the lowest since October 7.