TLW Tullow Oil Plc

By Avantika Chilkoti 

-- U.S. stock futures slipped

-- Chinese stocks rose as the yuan's slow devaluation continued

-- Hong Kong equities dropped after flights were canceled

U.S. stock futures and European equities declined as escalating tensions between Chinese authorities and protesters in Hong Kong added to investors' concerns about global trade.

Hong Kong's Hang Seng Index closed 0.4% lower after protests at the city's airport prompted authorities to cancel more than 100 flights. Chinese authorities said the violent weekend demonstrations marked the emergence of " the first signs of terrorism" in the semiautonomous city, and vowed a merciless crackdown.

"Hong Kong is clearly an important bellwether for just how far China is willing to exert its influence," said Matthew Cairns, a senior rates strategist at Rabobank.

"This is a clear show of Chinese strength and I don't think, just as we are seeing in the trade war, that China will be willing to allow overt breaches of its authority within the region and that clearly is having pretty negative effect in terms of the Hang Seng," he added.

Futures tied to the S&P 500 fell 0.7%. Concerns about the fate of U.S.-China trade talks following Mr. Trump's comments on Friday that negotiations could break off -- which had left U.S. stocks lower for the week -- prompted investors to look to haven assets.

Yields on 10-year U.S. Treasurys fell to 1.690% Monday from 1.731% Friday, continuing the steep slide from last week. Yields fall when bond prices rise.

The gloomy outlook reflected in bond markets -- where yields across the globe have dropped in recent months -- could soon be reflected in stocks too, according to Neil Dwane, global strategist at Allianz Global Investors.

"If they [yields] keep edging down, the equity market is clearly wrong because the bond market will be telling you we have one mother of a recession coming," he said.

Meanwhile, the Shanghai Composite Index climbed 1.5% as the Chinese central bank continued to weaken the yuan, though at a slower pace than traders had expected. That eased concerns of a sharp devaluation after President Trump last week accused China of manipulating its currency.

"While the direction of travel is clear and that the yuan is likely to weaken further, it would appear that as long as the decline happens gradually, markets are more likely to be comfortable with it," Michael Hewson, chief market analyst at CMC Markets UK, said in a research note.

The benchmark Stoxx Europe 600 index slipped 0.2% after wavering between gains and losses.

Among the biggest gainers in the region was Tullow Oil, whose shares rose about 17% after the company said it had found more oil off the coast of Guyana. Shares in ams, a 3-D sensor maker that supplies to Apple, dropped 8.3% on reports that the Austrian company has put in a bid to take over German lighting company Osram Licht, creating a bidding war with private-equity buyers. Shares in Osram were up 9.5% on Monday.

In Asia, amid a day of light trading with a number of regional exchanges closed, Cathay Pacific fell 4.9%, putting the Hong Kong airline on course to close at its lowest level in more than a decade. China's aviation authority on Friday ordered the carrier to remove all employees involved in the protests in Hong Kong from flights to mainland China. The most closely watched class of shares in Swire Pacific, the Hong Kong conglomerate that is Cathay's largest shareholder, fell 6.2%.

In commodities, the price of Brent crude dropped 0.4%, while gold prices climbed 0.6%.

This week, investors will watch for new consumer price inflation estimates from the U.S. on Tuesday after the Federal Reserve cited subdued inflation as one reason for cutting rates last week. Consumer prices increased 0.1% between May and June.

"Given the low unemployment and strong consumer confidence in the U.S., it's unlikely we get a recession any time soon," said Patrick Spencer, managing director at U.S. investment firm Baird. "It's a muddle-along economy then with markets continuing to trade higher."

--William Horner, Steven Russolillo and Frances Yoon contributed to this article.

Write to Avantika Chilkoti at Avantika.Chilkoti@wsj.com

(END) Dow Jones Newswires

August 12, 2019 08:22 ET (12:22 GMT)

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