Stocks Slides As Trade Hopium Turns Into Hangover; Curve Inversion Accelerates
So much for the trade truce rally.
One day after it emerged that nobody in the Trump administration has any clue about what was actually agreed upon during Saturday's historic "dinner date" between Trump and Xi, Monday's market hopium fizzled and as we previewed yesterday, has turned into a vicious hangover, with US equity futures dropping and European shares tracking declines in Asia despite a modest recovery from Chinese stocks into the close as investors curbed their enthusiasm over any breakthrough in the trade war.
S&P 500 futures indicated U.S. shares would give up much of their Monday’s gains at the New York open, while the Stoxx Europe 600 Index slipped led by the same automakers which surged yesterday on a Trump tweet about China dropping car tariffs, which has since been largely disproven.
Markets slumped across the globe, with world stocks knocked off a three-week high as a result of dashed hopes of a swift resolution in the US-China trade war after media appearances from Trump administration officials shed little light on the specifics of any Sino-American trade agreement, while growing fears the U.S economy could be headed for recession sooner than expected weighed on the dollar.
As Bloomberg notes, the optimism that drove Monday's gains quickly dissipated as investors scrambled to figure out exactly what, if anything, was agreed between the U.S. and China on trade at the weekend. Treasury Secretary Steven Mnuchin and President Donald Trump’s top economic adviser, Larry Kudlow, dialed back expectations and added qualifiers when asked about the outcome of talks between Trump and Chinese President Xi Jinping. China’s government did not help the mood as it was unable to formulate its response to the trade summit - three days after its conclusion - as senior officials are still out of the country with President Xi Jinping. China has said nothing about the commitment to remove car tariffs flagged by the U.S., nor did its statement mention the 90-day timeline for talks the Americans have specified.
Following declines on Asian bourses, where Japan’s Nikkei stock index closed 2.4% lower, even as shares in Shanghai and Hong Kong fared better, fluctuating before ending higher as the yuan climbed, the mood was somber in Europe with the wider blue chip index slipping 0.3 percent. Frankfurt’s DAX and Paris’ CAC 40 fell 0.6 percent while MSCI’s index of world stocks declined 0.1 percent.
"The initial relief rally was never going to last. Investors need more detail now in order for that risk on sentiment to survive,” said Jasper Lawler, head of research at London Capital Group. “So far that detail has not been coming through and investors have more questions than answers."
Adding to market woes, was an inversion of the short end of the U.S. yield curve which foreshadowed the end of the Federal Reserve’s tightening campaign and raised the specter of a possible U.S. recession. The curve between U.S. three-year and five-year and between two-year and five-year paper inverted on Monday - the first parts of the Treasury yield curve to invert since the financial crisis, excluding very short-dated debt; meanwhile the closely watched 2s10s just 13 basis points from inversion.
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this was obvious last night as Asia opened up our 'hopium' did not carry-over. In fact, we had an over 400 point pop on the open and it was cut in half shortly after open and stayed the same throughout the day.
https://www.zerohedge.com/news/2018-12-04/stocks-slides-trade-hopium-turns-hangover-curve-inversion-accelerates