FlASH: The implied likelihood for a 50-bpts rate cut at the September FOMC meeting climbed to 23.5% Vs 1.5%. Friday, according to the CME FedWatch Tool. Expectations for the Fed to step up its easing efforts amid increased risks to the economic outlook expounded the flight-to-safety in gold and US Treasuries.
Wall Street’s major indexes posted their biggest percentage fall of the year Monday as a fall in China’s RMB Yuan following President Trump’s vow to impose additional tariffs on Chinese goods sparked fears of further escalation of the US-China trade dispute.
While stocks pared losses in the last hour of trading to finish off their session lows, the benchmark S&P 500 fell about 3% to notch its biggest 1-day percentage decliner since 4 December. The index has fallen for 6 sessions running and is now about 6% below its record closing high on 26 July.
The RMB Yuan weakened past the 7-per-dollar level, its lowest in 11 years, after the People’s Bank of Chin set its daily midpoint at the weakest mark in 8 months.
President Trump called the action a “major violation” and “currency manipulation.”
Monday, the US Treasury Department labeled China a currency manipulator Monday after Beijing pushed down the value of its RMB Yuan in an escalation of the trade conflict between the world’s 2 biggest economies.
Global equities erased $2-T+ in value Friday and Monday after the White House announced a 10% tariff on a further $300-B in Chinese goods and China struck back by letting its RMB Yuan fall asking state-owned companies to suspend imports of US agricultural products.
Despite these negative headlines, JPMorgan strategists recommend focusing on the supportive macro-economic environment instead. The Fed is easing policy and it’s “premature” to expect a recession in the near future due to strong economic data, while equity valuations do not look “demanding” as investors remain defensive in their positioning, according to JPMorgan.
As for allocations by country, the strategists recommend staying overweight US stocks and neutral the Eurozone because of stronger earnings growth among American companies.
The Stoxx Europe 600 Index tumbled 2% today with miners and tech leading the declines.
Monday, the major US stock market indexes finished at: DJIA -767.27 at 25717.74, NAS Comp -278.03 at 7726.05, S&P 500 -87.31 at 2844.74
Volume: Trade on the NYSE came in at 1.1-B shares exchanged
- NAS Comp +16.4% YTD
- S&P 500 +13.5% YTD
- Russell 2000 +10.3% YTD
- DJIA +10.3% YTD
The Cboe Volatility Index, an options-based gauge of investor fear, rose 6.98 points to 24.59, its highest in about 7 months.
HeffX-LTN’s overall technical outlook for the major US stock market indexes is Bearish, noting that it is off 6% and very oversold in here.