Traders work on the floor at the New York Stock Exchange, August 13, 2019.
Eduardo Munoz | Reuters
Stock futures erased solid overnight gains early Thursday after reports out of China and Hong Kong rattled global equity markets.
Markets were shaken by a pair of reports out of Asia. China said it has to take necessary counter-measures to the latest U.S. tariffs on $300 billion of Chinese goods, the finance ministry said. The ministry also said the U.S. tariffs violate a consensus reached by leaders of two countries and get off the right track of resolving disputes via negotiation.
Separately, the Hong Kong government announced plans to implement stimulus measures to help its sagging economy. The government also cut its growth forecast to potentially flat for the rest of the year, down from the already anemic 0.5% growth is was expecting.
Around 5:30 a.m., Dow futures indicated a loss of about 5 points, after rallying more than 150 points earlier in the morning. S&P 500 and Nasdaq futures were also little changed.
That follows the Dow Jones Industrial Average’s worst day of the year on Wednesday amid a recession signal from the bond market.
The stock market took a huge hit in the previous session with the Dow plunging 800 points in its fourth-largest point drop ever to a two-month low. The Dow’s 3% drop was the worst this year. The S&P 500 also fell nearly 3%.
The massive sell-off was triggered by a bond market phenomenon on Wednesday where the yield on the benchmark 10-year Treasury note briefly broke below the 2-year rate. The inversion of this key part of the yield curve has been a reliable indicator of economic recessions.
As of Thursday morning, the curve hovered around the inversion point. The yield on the 30-year Treasury bond also fell to a new historic low.
“The 2-10 inversion is sending a massively negative signal that stocks are having a difficult time ignoring,” Adam Crisafulli, a J.P. Morgan managing director, said in a note on Wednesday.
The weak economic data around the world also fueled concerns that the global slowdown could tip the U.S. economy into a recession. Growth of China’s industrial output slowed to 4.8% in July from a year earlier, the weakest growth in 17 years. Germany also saw a negative GDP print, while the growth in euro zone also slowed at a faster pace than expected.
Investors remained on edge about the trade tensions between the U.S. and China. President Donald Trump in a tweet after the bell Wednesday linked the trade battle to the increasingly violent protests in Hong Kong, further complicating the trade issue. But he also proposed a personal meeting between him and Chinese President Xi Jinping.
This week, Trump decided to delay tariffs on certain Chinese goods while outright removing some items from the tariff list, a move to avoid any negative impact on the holiday shopping season. The announcement sent the Dow rallying more than 300 points on Tuesday. Those gains were lost in the big sell-off Wednesday.
The deferral “helps China more than us, but will be reciprocated,” Trump said Wednesday.
—CNBC’s Eustance Huang contributed to this report.
