Dow Futures Higher as China Currency Steadies; German Data Sparks Stimulus Bets
Frankfurt (Aug 7) U.S. equity futures flipped higher Wednesday, setting up Wall Street for second consecutive session gain, even as investors continue to reprice risky assets amid concerns that the U.S.-China trade dispute could spiral into a currency war and tip the global economy into a near-term recession.
Following a decision earlier this week by the U.S. Treasury Department to label China a currency manipulator -- the first such distinction since 1994 -- officials in Beijing pegged the yuan at $6.9996 against the dollar Wednesday, the lowest mid-point setting in more than 11 years, and allowed the currency to drift below the $7 mark for the third consecutive session.
The move both indicates China's need to weaken it currency in order to mitigate the affects of tariffs put in place by the Trump administration as well as Beijing's insistence that it must be treated as an equal in trade talks with the world's biggest economy.
Data from Germany early Wednesday, which showed the steepest year-on-year decline in industrial production from Europe's biggest economy since 2009, offered further evidence that the ongoing U.S.-China trade spat is taking its toll around the world, a condition St. Louis Federal Reserve President James Bullard said Tuesday he expected would remain "for the quarters and years ahead."
U.S. equity futures, however, another session of modest gains on Wall Street Wednesday, with contracts tied to the Dow Jones Industrial Average indicating a 45 point advance and those linked to the S&P 500, which has fallen 3.31% so far this month, guiding to a 6 point bump for the broader benchmark.
Walt Disney Co. (DIS - Get Report) shares were indicated lower after the media group posted weaker-than-expected third quarter earnings as last year's takeover of 21st Century Fox, as well as its move to challenge Netflix (NFLX - Get Report) in online streaming entertainment, ate into its bottom line.
Weight Watchers International (WW - Get Report) shares surged higher after the group boosted it full-year profit guidance as its Oprah Winfrey-backed marketing campaign lifted membership to a second quarter record of 4.6 million.
European stocks shot higher at the start of trading in Frankfurt, however, as the euro slipped to 1.1180 on hopes of fresh stimulus from Berlin, as well as the European Central Bank, following the German June industrial production data. Benchmark 10-year bund yields were also active, falling to a record low -0.582%.
The Stoxx 600 benchmark added 1% by mid-morning, while London's FTSE 100 was seen 0.8% higher from its Tuesday close as the pound drifted to 1.2137 against a modestly stronger U.S. dollar.
Asia stocks fell for the eighth consecutive session overnight, although comments from White House economic adviser Larry Kudlow that a Chinese trade delegation will visit Washington for talks in September kept losses in check as the MSCI Asia ex-Japan benchmark slipped 0.07% and Japan's Nikkei 225 closed 0.33% lower at 20,516.66 points.
Safe-haven assets were active again in overnight trading, with benchmark 10-year Treasury note yields falling to 1.675% ahead of a $27 billion auction of new paper later today, while spot gold prices scaled a fresh six-year peak of $1,487.76 per ounce.
"Risk appetite is expected to remain soft amid intensifying concerns over the global economic landscape that has already been weighed down by the protracted US-China trade impasse," said FXTM analyst Han Tan.
"Despite the next round of US-China trade talks slated for next month, the looming additional US tariffs on Chinese goods set for September 1, coupled with China's pledged "necessary countermeasures", have only caused investors' shoulders to slump further. Market participants are growing increasingly fretful that the prospect of a US-China compromise is at risk of being snuffed out completely," he added.
Global oil prices entered bear market territory Wednesday as investors continue to reprice assets linked to world economic growth as the U.S.-China trade dispute threatens to evolve into a more-damaging currency war.
Brent crude slipped below the $58 per barrel mark in overnight trading, marking a 20% decline for the global benchmark from its April peak of $74.04 per barrel, as China allowed its yuan to trade through the $7 mark against the U.S. dollar for a third consecutive session despite being labeled as a currency manipulator by the Treasury Department earlier this week.
Brent crude contracts for October delivery, the global benchmark, were seen 38 cents lower from their Tuesday close and changing hands at $58.68 per barrel while WTI contracts for September, which are more tightly linked to U.S. gas prices, were marked 18 cents lower at $53.48 per barrel.
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