Stocks Fall as Hong Kong Unrest Fuels Investor Concerns

By Anna Isaac and Steven Russolillo 

-- U.S. stock futures slipped

-- German 10-year bund yields hit a record low

-- Gold rose 1%

Stocks dropped around the world as protests in Hong Kong, a political shake-up in Argentina and global trade tensions continued to fuel investors' concerns about the global economy.

Futures tied to the Dow Jones Industrial Average slipped 0.4% Tuesday, after a sharp decline in the index Monday extended a recent bout of stock volatility. A selloff in Hong Kong stocks accelerated, with the Hang Seng Index falling 2.1% amid continued unrest.

In Europe, the benchmark Europe Stoxx 600 index declined 0.7%, led lower by banks and auto companies. German consumer-goods company Henkel was among the worst performers, dropping 7% after cutting its full-year growth forecast.

The yield on the German 10-year bund fell to minus 0.617%, a record intraday low, after a key survey of business expectations showed a sharp drop in sentiment. Bond yields fall as prices rise.

Political turmoil in Italy, where lawmakers are looking to schedule a date for a no-confidence vote in Prime Minister Giuseppe Conte's government, added to worsening sentiment across Europe, driving Italian government 10-year bond yields down to 1.677%.

"Yields are likely to stay low for a while," said Oliver Jones, market economist at Capital Economics. While short-term factors such as the protests and political shifts are clearly having an impact on investor sentiment, the long-term outlook determining bond prices is "a slowing global economy and a trade war which continues to run," he said.

This week's selloff in Hong Kong stocks meant the Hang Seng Index -- which has lost 11% since the beginning of July, when the protests turned more violent -- has joined Korea's Kospi as the second major global benchmark in negative territory this year.

Cathay Pacific shares fell another 3% after declining 4.9% on Monday, their steepest drop in three years. They slid after the Hong Kong airline threatened to fire staff for supporting the protests. In India, shares in Reliance Industries rose 12% after Saudi Arabia's state oil company, Aramco, agreed to buy a 20% stake in the company's oil-and-chemicals business.

Gold, a traditional haven commodity, rose 1.5%, while the yields on U.S. 10-year Treasurys dipped to as low as 1.62% from Monday's 1.64%.

Investors have been caught out by the worsening trade tensions, said Fahad Kamal, chief market strategist at Kleinwort Hambros, Société Générale's U.K. private bank.

"The market sentiment a few months ago was for trade-war resolution by the end of the year," he said. "Now they face a downside surprise."

Later in the day, investors will pay close attention to the Labor Department's July consumer-price index for signs of strengthening inflation, to gauge what impact it may have on the Federal Reserve's interest-rate decisions. In the previous month, core prices rose 0.1%.

Weakening price pressure was one of the factors behind the Fed's decision to cut its benchmark rate last month.

The Argentine peso, which fell more than 30% briefly Monday amid political upheaval in the Latin American country, was largely flat against the U.S. dollar.

Write to Steven Russolillo at [e-mail]

(END) Dow Jones Newswires

August 13, 2019 06:50 ET (10:50 GMT)

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