- St. Louis Fed’s says he has one more interest-rate hike “penciled in” for 2019
- China fixes yuan at a stronger level than Wall Street feared, at 6.9683 yuan
- Late Monday, the U.S. Treasury Department labeled China a currency manipulator
U.S. stocks midday Tuesday were off their best levels of the session, and the Dow briefly turned negative, as investors digested the latest development in an intensifying trade spat.
Investors took fright Monday as the Chinese yuan slumped to its lowest levels in a decade after President Trump’s threat last Thursday to impose 10% tariffs against an additional $300 billion of imported Chinese goods, effective Sept. 1.
How are benchmarks performing?
The Dow Jones Industrial Average DJIA, +0.64% rose 124 points, or 0.5%, to 25,840, but off its intraday high at 25,946.74, the S&P 500 index SPX, +0.73% climbed 15 points, or 0.5%, at 2.859, weighed by a 0.8% decline in the energy sector XLE, -0.72% and materials XLB, -0.78%, while the Nasdaq Composite Index COMP, +0.92% advanced 55 points, or 0.7%, at 7,780, off its intrasession peak at 7,835.42.
On Monday, stocks had their worst day of the year, with the Dow shedding more than 767 points. The Dow ended the day down 2.9%, at 25,717.74, while the S&P 500 declined 87.31 points, or 3%, to close at 2,844.74. The Nasdaq Composite shed 278.03 points to finish at 7,726.04, a decline of 3.5%.
What’s driving the market?
Traders were encouraged by China’s central bank moving in Asian trading hours to set, or fix, its currency midpoint reference stronger than expected early Tuesday, at 6.9683 yuan. A breach of the 7-to-the dollar level on Monday, interpreted by some as an intentional weakening of its currency, helped to ignite a global stock market selloff and slump in bond yields.
“A more market-friendly China fix provided the first signal that the [People’s Bank of China] is having a second thought about weaponizing the yuan,” said Stephen Innes of VM Markets in Singapore. “However, the fix is ambiguous enough to keep two-sided interest alive while still conveying a message to U.S. trade hawks that in no uncertain terms will China be a pushover if trade talks ever resume.”
Read: Why a falling Chinese yuan crushed the stock market and intensified the trade war
China’s move overnight to restrain the fall in its currency came despite the decision late Monday by the U.S. Treasury Department to label China a currency manipulator for the first time since 1994, opening the door to new sanctions and ratcheting up already high trade tensions into a possible currency war also.
China’s yuan traded Tuesday at 7.0695 to the dollar in offshore trade USDCNH, -0.6057%. In mainland trade USDCNY, -0.3446%, the yuan traded at more than 7.0316 per dollar, holding around its lowest level in about a 10 years. The People’s Bank of China allows the onshore yuan currency to trade in a band within 2% of its midpoint against the dollar.
“In pulling the yuan higher it is not only looking to manage any decline, but also looking to contain any damage in terms of confidence in their stewardship of the Chinese currency and economy,” wrote Michael Hewson, chief market analyst at CMC Markets UK, in a daily research note.
However, doubts remain about the durability of the more optimistic complexion to the Tuesday’s trade.
“This move by China may have brought investors a brief respite after several days of selling but it remains to be seen whether today’s move is emblematic of a short term base, or just merely the precursor to a dead cat bounce.,” Hewson wrote.
In a CNBC interview Tuesday morning, chief White House economic adviser, Larry Kudlow, said Trump still wants a trade deal and the U.S. plans to host Chinese negotiators in September, but China has to make concessions. Kudlow claimed the U.S. has the upper hand in the trade dispute with China because “the U.S. economy is very strong, theirs is not.”
In economic news, job vacancies fell slightly to 7.35 million in June according to the U.S. Labor Dept’s JOLTS report Tuesday morning.
St. Louis Federal Reserve President James Bullard said he has one more interest-rate hike “penciled in” for 2019, speaking at National Economic Club in Washington.
Before that statement, Bullard separately told Agence France Press on Tuesday in an interview that the Fed “can’t realistically move monetary policy in a tit-for-tat trade war.” Bullard is a member of the rate-setting Federal Open Market Committee.
Read: Former Fed chiefs make case for independence
Which stocks are in focus?
SeaWorld Entertainment Inc. SEAS, -1.08% reported Tuesday a second-quarter profit that beat expectations although revenue came up short, while revenue per guest rose above analyst projections. Shares of SeaWorld were up 4.1%.
Icahn Enterprises L.P. IEP, +1.14%, activist investor Carl Icahn’s firm, on Tuesday reported $2.19 billion in revenue in the second quarter, down from $3.42 billion in revenue a year earlier. Shares gained 1.1%.
Shares of Regeneron Pharmaceuticals Inc. REGN, -0.19% rose 0.7% after the company reported second-quarter earnings that beat analysts’ expectations.
Shares of Dean Foods Co. DF, -27.25% plummeted 28% after the milk-and-dairy products seller reported a wider-than-expected second-quarter loss and sales that rose less than analyst projections, amid volume pressure and an “accelerated decline” in the conventional white milk category.
What other assets are in focus?
U.S. 10-year Treasury note yield TMUBMUSD10Y, +1.22% was trading at 1.742% early Tuesday after hitting 1.738% late Monday, marking its lowest close Oct. 7, 2016, according to Dow Jones Market Data.
Read: September rate cut ‘fully priced’, with Trump tariff tweets seen pushing Fed to take more action
Gold for December delivery GCZ19, +0.53% on Comex edged lower, off less than 0.1%, after settling at $1,476.50 an ounce, extending its climb to the highest level since 2013, according to FactSet data.
U.S. oil futures CLU19, -0.60% climbed modestly higher to $54.88 a barrel.
Overnight Thursday, Asian and European stocks had followed U.S. equities lower. Japan’s Nikkei 225 Index NIK, -0.65% fell 0.7%, Hong Kong’s Hang Seng Index HSI, -0.67% HSI, -0.67% fell 0.7%, while the CS1 300 index 000300, -1.07% dropped 1.1%. The pan-European Stoxx 600 SXXP, -0.47% headed 0.6% higher.