U.S. Stock Futures Point Lower Amid Trade Standoff
May 09 2019 - 08:36AM
Dow Jones News
By Paul J. Davies
U.S. stocks were set to open lower Thursday after China hardened
its line going into trade talks set to start later in
Washington.
The S&P 500 and the Dow Jones Industrial were both priced to
fall about 0.7% in futures markets, following European and Asian
shares lower. The Stoxx Europe 600 slipped 0.8%, while the FTSE 100
in London was down 0.3%. Share indexes in China, Hong Kong and
Korea all fell earlier Thursday.
The Wall Street Journal reported late Wednesday that Beijing has
threatened unspecified retaliation if the White House pushes
through tariff increases. It also said the Chinese leadership has
apparently taken President Trump's hectoring of the Federal Reserve
chairman as a sign he thinks the U.S. economy is more fragile than
he has publicly claimed.
"Equities have had one of the strongest starts to a year in 30
years, but most of the good news is now in the price," said Graham
Secker, European equity strategist at Morgan Stanley. "The latest
twist in the U.S.-China trade negotiations adds another layer of
uncertainty and it's tricky to work out what's true versus what's
rumor and speculation."
The trade-related uncertainty has pushed down shares all week in
the U.S. and brought a spike in volatility with the Cboe Volatility
Index, a measure of stock-market turbulence known as the VIX,
shooting higher early in the week and staying elevated into
Thursday at levels not seen since early January.
This adds another level of pain to many fund managers who have
gotten into the business of effectively selling insurance against
large market moves in order to earn premiums that boost their
returns, according to Helen Thomas, founder of independent research
firm, Blonde Money.
But this volatility-selling activity is also undermining the
usefulness of the VIX as an indicator of what might happen, which
she said leaves the prices of stocks as well as currencies
vulnerable to sudden, sharp moves.
"You end up with a world that looks like it is ignoring any risk
-- political or economic -- until it becomes so patently obvious
that it's going to happen that you then get really big moves," Ms.
Thomas said.
As trade tensions rose, the Chinese currency also fell to its
weakest level since early January, hitting 6.85 yuan to the dollar
in offshore futures markets. The dollar rose against a broad basket
of currencies, with the WSJ Dollar Index up 0.04%.
Investors sought the safety of government bonds, pushing up
their prices and cutting their yields. U.S. 10-year Treasury yields
dropped to 2.441%, their lowest levels since the end of March,
while German 10-year bund yields also slipped to their lowest since
late March, hitting -0.059%.
That hit stocks of European banks as falling government bond
yields signaled ongoing pressure on profitability. Deutsche Bank
fell 2% to EUR6.90, not far above its record low closing price of
EUR6.75 in late December last year.
In another sign of haven-seeking, gold was up 0.05% at $1,281.90
an ounce, while oil slid 0.1% to $70.31 a barrel.
Write to Paul J. Davies at paul.davies@wsj.com
(END) Dow Jones Newswires
May 09, 2019 09:21 ET (13:21 GMT)
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