Stocks Fall as Hong Kong Unrest Fuels Investor Concerns

By Anna Isaac and Steven Russolillo 

-- Hong Kong's benchmark stock index shed 2%

-- Stocks in Europe dropped, led by banks and autos

-- Gold rose 1% while U.S. Treasury yields slipped

Stocks dropped across 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.

This week's selloff in Hong Kong stocks accelerated, with the Hang Seng Index falling 2.1% Tuesday amid continued unrest. The gauge -- which has lost 11% since the beginning of July, when the protests turned more violent -- joined Korea's Kospi as the second major world benchmark in negative territory this year.

Separately, 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 Europe, the benchmark Europe Stoxx 600 index declined 0.4%, led lower by banks and auto companies. German consumer-goods company Henkel was among the worst performers, dropping 6.8% after it cut its full-year growth forecast.

Futures tied to the Dow Jones Industrial Average were largely flat, following the index's sharp drop Monday. 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.

Yields on European government bonds ticked lower across the board, a reflection of investor nerves over the economic outlook. The German benchmark 10-year bund yield fell to minus 0.610%, while the U.K. 10-year gilt rate slipped to 0.467%. Bond yields fall as prices rise.

"Yields are likely to say 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.

Gold, a traditional haven commodity, rose 1.2%, while the yields on U.S. 10-year Treasurys dipped to as low as 1.62% from Monday's 1.64% before edging back up.

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.

Shares in Reliance Industries rose 12% after Saudi Arabia's state oil company, Aramco, agreed to buy a 20% stake in the Indian company's oil-and-chemicals business.

Write to Steven Russolillo at [e-mail]

(END) Dow Jones Newswires

August 13, 2019 05:34 ET (09:34 GMT)

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