FYI: A flight to safety that drove down bond yields globally sparked renewed volatility in the stock market Wednesday, highlighting continued uncertainty about how the trade and currency battle between the U.S. and China will play out.
Major U.S. stock indexes fell sharply before clawing back most of their losses at the close. The S&P 500 was up 0.8%. The Dow Jones Industrial Average recently fell 22 points, or 0.9%, after dropping 589 points in early trading. The Nasdaq Composite rose 0.38%. The large swings come a day after stocks rebounded to break a streak of declines amid trade tensions.
The prospect of lower interest rates around the world stoked investors’ anxiety about the economy after trade tensions between two of the world’s biggest economies have already rattled many. Policy makers in India, New Zealand and Thailand moved aggressively to support growth and inflation, all cutting interest rates by more than investors had expected.
That helped prompt investors to buy government bonds and gold—assets considered relatively safe—while selling U.S. stocks and oil. Gold prices topped $1,500 a troy ounce for the first time in six years. Meanwhile, U.S. crude futures dropped 4.7% to their lowest close since January.
The Federal Reserve trimmed rates last week, and investors have recently ramped up wagers that they will continue to cut rates. Investors are putting 60% odds that the Fed will lower rates another 0.75 percentage point this year, up from 8% last week, according to CME Group.
The yield on 10-year Treasurys dipped below 1.6% on Wednesday before settling at 1.675%. That is down from 1.740% on Tuesday, when it hit its second-lowest level in 2019. Bond yields and prices move in opposite directions.
Yields have retreated even as stocks have ascended, driven by a combination of growing concerns about the economic outlook and expectations that the world’s central banks were preparing to cut interest rates to sustain the economic expansion.
Some analysts said the Treasury rally could continue, driven by slowing economic activity in the U.S. and easing monetary policy globally. Government-bond rates have been negative in Japan off and on since 2016 and have hit record lows below zero in Germany.
Financials and energy stocks in the S&P 500 were some of the hardest hit on Wednesday. Shares of banks and financial companies tend to fare poorly when interest rates are declining.
Shares in Walt Disney fell about 4.9% after the company reported weaker-than-expected second-quarter earnings late Tuesday, dragging on the Dow industrials Wednesday.
Elsewhere, the Stoxx Europe 600 ticked higher. In Asia, the Shanghai Composite Index and Japan’s Nikkei both declined around 0.3% and Korea’s Kospi dropped 0.4%.
China’s central bank on Wednesday set its official yuan rate at the weakest since 2008, but still kept it below the symbolic seven-yuan-a-dollar level, at 6.9996. The offshore yuan Wednesday was recently down 0.4% against the U.S. dollar at 7.0784.
Regards,
Ted
Bloomberg Evening Briefing:
https://www.bloomberg.com/news/articles/2019-08-07/your-evening-briefingMarketWatch:
https://www.marketwatch.com/story/dow-looks-to-extend-gains-as-global-central-banks-ease-monetary-policy-2019-08-07/printWSJ:
https://www.wsj.com/articles/european-stocks-rise-while-gloom-lingers-in-asia-11565164273Bloomberg:
https://www.bloomberg.com/news/articles/2019-08-06/asia-stocks-to-start-mixed-u-s-shares-climb-markets-wrap?srnd=premiumIBD:
https://www.investors.com/market-trend/stock-market-today/stock-market-reverses-higher-indexes-bounce/CNBC:
https://www.cnbc.com/2019/08/07/stock-markets-wall-street-in-focus-amid-lingering-trade-war-concerns.htmlReuters:
https://uk.reuters.com/article/us-usa-stocks/wall-street-retreats-as-bond-market-fuels-recession-fears-idUKKCN1UX1A9U.K:
https://uk.reuters.com/article/uk-britain-stocks/ftse-ends-six-day-losing-run-though-earnings-disappoint-idUKKCN1UX0OIEurope:
https://www.reuters.com/article/us-europe-stocks/european-shares-end-trade-driven-losing-run-but-worries-linger-idUSKCN1UX0OKAsia:
https://www.cnbc.com/2019/08/07/asia-stocks-august-7-chinese-yuan-us-china-trade-war.htmlBonds:
https://www.cnbc.com/2019/08/07/us-treasury-bonds-china-sets-the-yuan-below-expectations.htmlCurrencies:
https://www.cnbc.com/2019/08/07/forex-markets-japanese-yen-us-china-trade-in-focus.htmlOil:
https://www.cnbc.com/2019/08/07/oil-markets-us-china-trade-in-focus.htmlGold:
https://www.cnbc.com/2019/08/07/gold-markets-us-china-trade-in-focus.htmlWSJ: Markets At A Glance:
https://markets.wsj.com/usMajor ETFs % Change:
https://www.barchart.com/etfs-funds/etf-monitorSPDR's Sector Tracker:
http://www.sectorspdr.com/sectorspdr/tools/sector-trackerSPDR's Bloomberg Sector Performance Pie Chart:
https://www.bloomberg.com/markets/sectorsCurrent Futures:
https://finviz.com/futures.ashx 
