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Friday, August 23, 2019

Market update: Trade slams stocks as Fed takes wait-and-see stance (23 August 2019)

Nasdaq Composite +16.8% YTD
S&P 500 +13.6% YTD
Dow Jones Industrial Average +9.9% YTD
Russell 2000 +8.2% YTD

The stock market sold off on Friday after President Trump ordered companies to find an alternative to China in response to Beijing announcing retaliatory tariffs against the U.S. The S&P 500 (-2.6%), Dow Jones Industrial Average (-2.4%) , the Nasdaq Composite (-3.0%) and Russell 2000 (-3.1%).

Worries about trade tensions with China following a combative tweet earlier in the day from President Trump, who was squawking back at China for its tariff announcement this morning and "ordering" U.S. companies to find alternatives to China, have catalyzed today's sell-off.

The day started with investors looking forward to Fed Chair Powell's speech from Jackson Hole, Wyoming. Attention quickly shifted to trade, however, after China announced tariffs on $75 billion of goods imported from the U.S on Sept. 1 and Dec. 15, which are the same dates the U.S. has planned for its tariffs on China. The tariff rate will range from 5-10%, including a separate 5-25% on autos and auto parts starting Dec. 15.

Modest selling ensued, but stocks quickly recouped losses after Mr. Powell reiterated comments that upheld the market's view for further economic stimulus. The day had barely begun, though, and President Trump took to Twitter to lash out against both the Fed Chair and China. Stocks fell noticeably on the president's declaration that companies find alternatives to China.

Amid the uncertainty and growth concerns, investors flocked to safe-haven assets like gold ($1537.25/oz, +$28.75, +1.9%), the Japanese yen, and U.S. Treasuries. In addition, expectations for further downside in equities contributed to a 17.8% spike in the CBOE Volatility Index (19.65, +2.97).

The 2-yr yield dropped seven basis points to 1.53%, and the 10-yr yield dropped eight basis points to 1.53%. The U.S. Dollar Index fell 0.5% to 97.73. WTI crude fell 2.0%, or $1.12, to $54.16/bbl.

President Trump also indicated he would officially respond to Beijing's actions in the afternoon. No response was announced by session's close, which may have contributed to some reservations to step into the action during the day.

U.S. Treasuries ended the week on a sharply higher note.
Yield Check:

  • 2-yr: -7 bps to 1.53%
  • 3-yr: -8 bps to 1.45%
  • 5-yr: -8 bps to 1.41%
  • 10-yr: -8 bps to 1.53%
  • 30-yr: -8 bps to 2.03%

  • WTI crude: -2.0% to $54.16/bbl
  • Gold: +1.9% to $1537.50/ozt
  • Copper: -1.2% to $2.53/lb
  • EUR/USD: +0.6% to 1.1146
  • GBP/USD: +0.3% to 1.2288
  • USD/CNH: +0.6% to 7.1337
  • USD/JPY: -1.0% to 105.31

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