MARKET SNAPSHOT: Stock Futures Erase Gains After China Vows Retaliation For U.S. Tariffs

By William Watts and Chris Matthews, MarketWatch

Dow set to open lower after biggest one-day percentage drop of 2019

Stock-index futures point to further losses for Wall Street on Thursday after China said it would take unspecified steps in retaliation for U.S. tariffs.

Equities tumbled a day earlier, with the Dow Jones Industrial Average posting its worst session of the year, after the Treasury yield curve sent a recession warning signal.

Investors were also gearing up for a substantial round of economic data, including weekly jobless claims and July retail sales, while sifting through earnings from Dow components Cisco Systems Inc. and Walmart Inc.

How are the benchmarks performing?

Dow futures fell 38 points, or 0.2%, to 25,416, while S&P 500 futures were down 3.45 points, or 0.1%, at 2,836.75. Nasdaq-100 futures declined 33 points to 7,454.75, or 0.5%.

Futures had seen modest gains in early action Thursday but turned lower after China said it would take unspecified steps (http://www.marketwatch.com/story/china-threatens-countermeasures-if-us-tariff-hikes-go-ahead-2019-08-15) if the U.S. goes ahead with planned Sept. 1 tariff hikes on additional Chinese imports. President Donald Trump earlier this month said he plans to impose 10% duties on an additional $300 billion of Chinese imports on Sept. 1, but the administration announced this week it would delay implementation on some items until mid-December.

What's driving the market?

Stocks were slammed Wednesday after the yield on the 10-year U.S. Treasury note briefly traded below the 2-year Treasury note yield , marking an inversion of the yield curve. Such phenomena are viewed as an often reliable recession warning signal, albeit often with a lag of more than a year.

There is also debate over whether such signals are still relevant given a global hunt for yield and distortions created by quantitative easing efforts by major central banks that were aimed at lowering long-term yields. The 10-year yield has traded below the 3-month T-bill yield for several months.

See:5 things investors need to know about an inverted yield curve (http://www.marketwatch.com/story/5-things-investors-need-to-know-about-an-inverted-yield-curve-2019-08-14)

Nevertheless, the temporary move to inversion by the most widely followed measure of the yield curve appeared to trigger alarm bells Wednesday over recession, particularly coming in the wake of weak economic data out of China and the eurozone.

Read:Here's how the stock market tends to perform after the yield curve inverts (http://www.marketwatch.com/story/after-the-yield-curve-inverts-heres-how-the-stock-market-tends-to-perform-since-1978-2019-08-14)

"It would be easy to dismiss the signal from the yield curve if the global economy is doing well and brighter times lie ahead but that is not the case," said Kathy Lien, managing director of FX strategy at BK Asset Management, in a note. "Well before the yield curve inverted, central bankers across the global have been talking about weaker growth."

The intensifying U.S.-China trade war, the continued Brexit drama, protests in Hong Kong, and political trouble in Italy all give portfolio managers something worry about, she said. "Any one of these issues could tip one if not many countries into recession. So regardless of the durability of the yield curve inversion, the risk of recession this cycle is greater than its ever been."

The Dow on Wednesday fell 800.49 points, or 3.1%, to end at 25,479.42, its biggest one-day percentage decline since Dec. 4. The S&P 500 finished 85.72 points lower, down 2.9%, at 2,840.60, while the Nasdaq Composite tumbled 242.42 points to end at 7,773.94. Wednesday's fall was the second-biggest one-day percentage decline for the S&P and Nasdaq of the year, trailing only the Aug. 5 decline.

The drop marked the lowest close for the S&P 500 since June 5 and the lowest for the Dow since June 4.

On the economic calendar, data on weekly jobless claims, retail sales, second-quarter productivity and unit labor costs are due at 8:30 a.m. Eastern Time, along with the Philadelphia Federal Reserve Bank's regional index and the New York Fed's regional Empire State Index.

See:MarketWatch Economic Calendar (http://www.marketwatch.com/tools/calendars/economic)

Data on July industrial production and manufacturing output is set for release at 9:15 a.m., while figures on June business inventories and an August home builders index are on tap at 10 a.m.

Which stocks are in focus?

Shares of Dow component Cisco Systems Inc.(CSCO) were down 9.6% in premarket action, on track to shave around 33 points off the blue-chip gauge, after giving tepid guidance for the next quarter late Wednesday.

Opinion:Cisco's weak outlook stokes fears of slowdown in tech spending, but 5G may offer light at end of tunnel (http://www.marketwatch.com/story/ciscos-weak-outlook-stokes-fears-of-slowdown-in-tech-spending-but-5g-may-offer-light-at-end-of-the-tunnel-2019-08-14)

Fellow Dow component Walmart Inc. (WMT)stock rose 5% before the bell, after the nation's largest retailer reported better-than-expected, second-quarter earnings (http://www.marketwatch.com/story/walmart-shares-jump-after-earnings-beat-2019-08-15), though it fell short on revenue.

Shares of Chinese e-commerce giant Alibaba Group Holding Ltd. (BABA) were higher in premarket trade after reporting first-quarter results Thursday morning.

Retailer J.C. Penney Co. Inc. (JCP) is also set to issue earnings before the start of trade, along with

How are other markets trading?

Treasury yields fell across the curve, with the 30-year U.S. Treasury Bond yield falling about 6 basis points to 1.965%, the first time it has traded below 2%.

In commodities markets, the price of crude oil slipped 2.1% to about $54 per barrel, while gold prices edged 0.3% higher. The U.S. dollar ticked 0.1% lower versus its major trading partners.

Asian markets traded mixed overnight, with China's CSI 300 adding 0.3%, Japan's Nikkei 225 falling 1.2% and Hong Kong's Hang Seng Index rising 0.8%. European equities were trading lower, down 0.8%, according to the Stoxx Europe 600 .

(END) Dow Jones Newswires

August 15, 2019 07:29 ET (11:29 GMT)

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