Opening Bell: Stocks Drop On China Trade Retaliation Fears; Yields Plunge

  • U.S. futures, European shares tumble on China’s threats to cut metal supply
  • Key U.S. yield curve inversion deepens to widest level since 2007
  • Oil plummets on Trump’s softening cues on Iran

Key Events

Global stocks and futures on the , and tracked plunging yields this morning, as safe haven assets from Treasurys to and the Japanese leaped higher.

The was down 1.45% by late European morning, with miners and banks taking a hit on reports that China is ready to cut back the supply of rare metals in retaliation for the latest U.S. trade salvos.

In the earlier Asian session, regional stocks posted some heavy losses on U.S. President Donald Trump’s threats of a trade tariff escalation. After local investors had brushed off Trump’s comments on Tuesday, they seemed to catch up with the wider market sentiment as a lull in economic data gave them nothing to cling to.

South Korea’s underperformed, suffering the largest drop in two weeks (-1.25%), followed closely by Japan’s (-1.22%). Conversely, China’s (+0.16%) outperformed, continuing to disregard trade risk and resuming its congestion since May 7 after topping out.

Global Financial Affairs

Yesterday, U.S. equities tumbled to the lowest level since March, as falling yields exacerbated concerns about an economic slowdown, with the to curve inversion deepening to the widest level since 2007.

The (-0.84%) dropped with all sectors but (+0.44%). However, the fact that (-1.64%) underperformed is noteworthy. According to the recent market narrative, equities dropped due to an increasing outlook for a recession, which means defensive shares should have sealed the best performance—not the worst.

S&P 500 Daily Chart

S&P 500 Daily Chart

Technically, the index extended a downside breakout of a pennant—a continuation pattern, reaching the lowest closing price since March 25. However, it may find support at 2,800, a level we expected to be a resistance after the December bottom. This level has attracted a lot of interested parties since mid-October. We also find the 100 and 200 DMAs right below.

The (-0.93%) underperformed its peers, as stocks of multinational companies stand to lose the most from trade jitters. Technically, the price closed below the 200 DMA, as it develops the right shoulder of a H&S top.

NASDAQ Composite Daily Chart

NASDAQ Composite Daily Chart

The (-0.39%) outperformed, suggesting some investors are taking advantage of the recent sharp selloff. Technically, however, the tech-heavy index may have completed a H&S top, though the 100 and 200 DMAs provide support above the key 7,500 level.

The slid 0.57%. It found support by the Feb. 7 and March 25 lows. However, it completed a pennant, bearish within a drop—with the 100 DMA drawing the lower boundary of the pattern. If the small-cap benchmark slips below the 1,494 level, it would complete a double-top pattern.

UST 10-Year VS 3-Months Weekly Chart

UST 10-Year VS 3-Months Weekly Chart

Ten-year yields reached the lowest level since Sep. 25, 2017, pushing the curve with 3-month yields to the widest inversion since 2007. This is the most watched yield ratio as it provides the closest proxy of a recession—which it historically precedes by 18 months.

Government bond yields also suffered globally, with benchmark yields sliding to the lowest level since 2016 , to a record low and below the central bank’s policy rate .

In commodities, tumbled as signals, from Trump, of an opening on possible negotiations with Iran added to trade and growth concerns to drag prices lower, outweighing the effect of production cuts and supply headwinds.

Up Ahead

  • Revised first-quarter numbers are due in the U.S. on Thursday.
  • Also on Thursday, U.S. data including and and will provide more clues on the outlook for the world’s biggest economy and the Fed’s monetary policy path.
  • China provides figures on its May economic performance on Friday, with economists anticipating the official will tick down to 49.9 and signal a contraction amid the worsening trade war with the U.S.

Market Moves


  • The fell 0.7%.
  • The dropped 0.5%, to the lowest in almost 20 weeks.


  • The advanced 0.06% bouncing from a similar move into negative territory.
  • The slid 0.1% to $1.1153.
  • The lost 0.1% to $1.2643.
  • The weakened 0.1% to 6.916 per dollar.


  • The yield on 10-year Treasurys slipped four basis points to 2.23%, the lowest in 20 months.
  • The yield on Treasurys declined four basis points to 2.08%, the lowest in more than 15 months.
  • Italy’s yield climbed one basis point to 2.703%, the highest in a week.
  • Australia’s yield fell five basis points to 1.4855%, the lowest on record.


  • West Texas Intermediate crude declined 1.3% to $58.37 a barrel.
  • edged less than 0.05% lower to $12,120 per metric ton.
  • Gold increased 0.3% to $1,283.94 an ounce.
  • advanced 3.5% to $4.35 a bushel, the highest in a year.

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