Stocks Edge Lower Amid Hong Kong Protests, Trade Woes
By Avantika Chilkoti
-- U.S. stock futures slipped
-- Chinese stocks rose as the yuan's slow devaluation
-- 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
"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
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
--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)
Copyright (c) 2019 Dow Jones & Company, Inc.
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