U.S. Opening Bell: VIX Spikes, Global Stocks Slump; USD, Yields, WTI Drop

Key Events

This morning, European and Asian shares joined yesterday's US selloff—the deepest in eight months, amid escalation of US-China trade tensions. Expectations of lower corporate earnings from heightened trade tariff pressures, compounded by tightening monetary policy, is driving the rout and pushing futures on the S&P 500, Dow and NASDAQ 100 lower as well. The dollar slipped alongside Treasury yields, against a strengthening yen.

The VIX volatility index is extending yesterday's huge 43.95 percent jump. At near 24, the so-called 'fear gauge', which tracks options trading on the S&P 500, is set to close at its highest level since late March.

US Treasurys, which helped trigger the equity slide when the yield on 10-year bonds hit the highest level since 2011, extended the gains posted on Wednesday, pushing yields lower for a fourth day. Technically, the yield decline is a correction, which should find support above 3.100 percent, the September peak and the uptrend line since early September, within an uptrend. Should yields resume their climb in the current trend, stocks are likely to continue selling off.

The STOXX 600 dropped 1.77 percent to a 20-month low. The pan-European benchmark entered correction territory, after it gave up as much as 10.5 percent since its January peak. Technically, it may be topping out. The FTSE 100 slid 1.37 percent as of this writing, hitting a six-month low and posting a drop of more than 11 percent since its May all-time high.

During the earlier Asian session, China’s Shanghai Composite tumbled 5.22 percent, closing at a four-year low. Taiwan’s technology-heavy TWSE Index posted yet steeper losses, plummeting more than 6 percent and faring as the region's worst performer.

Global Financial Affairs

During yesterday's US session, equities took their biggest hit since February, on resurfacing interest rates fears and mounting trade risk for technology and industrials stocks.

The S&P 500 retreated 3.29 percent, for a fifth straight loss—the longest slide since Donald Trump’s election victory. Computer companies led the decline, though all of the SPX's 11 sectors closed in the red. Shares of Utilities (-0.55 percent) outperformed, while the other 'best performing' sectors lost at least 1 percent. Technology (-4.85 percent) and Communication Services (-3.95 percent) took the brunt of the selloff, as companies in these two sectors rely heavily on China as a manufacturing base. Industrials also dropped 3.22 percent.

The Dow Jones Industrial Average shed 831 points, or 3.15 percent, with Boeing (NYSE:BA) (-4.66 percent) alone slashing 90 points off the index. All 30 stocks of the blue-chip benchmark sold off.

The tech-heavy NASDAQ Composite underperformed, plunging over 4 percent—the most in 7 years.

The same driver that pushed investors to prop up equity prices—corporate earnings results—is now prompting them to shed their stock allocations, on growing signs that firms will not be able to provide their shareholders with the growth they have come to expect. This bleak outlook is motivated by trade tensions, relative valuation and particularly soft guidance. Adding to that, surging bond yields hike the cost of borrowing.

West Texas Intermediate crude fell back below $73 a barrel yesterday and headed beneath $72 this morning as Hurricane Michael threatened to slash fuel demand across the US southeast. Technically, the weaker dollar boosted the price of oil, which bounced off the day’s low, forming a hammer, bullish upon a close, particularly having neared the uptrend line since mid-August.

Up Ahead

• The US Treasury auctions $230 billion worth of debt this week.

• US President Donald Trump holds the latest series of rallies this week, ahead of the November 6 mid-term elections.

• US consumer prices, due on Thursday, are expected to have remained elevated in September, climbing 2.3 percent from a year earlier.

• JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) kick off earnings season for US banks on Friday.

Market Moves

Stocks

• The UK's FTSE 100 slipped 1.5 percent to the lowest level in about six months on the most significant drop in eight weeks.

• Futures on the S&P 500 fell 0.4 percent, hitting the lowest level in almost 14 weeks and a sixth consecutive decline.

• The STOXX Europe 600 dropped 1.6 percent to the lowest level in more than 20 months.
• Germany’s DAX lost 1.1 percent to the lowest level in 20 months.
• The MSCI Asia Pacific Index tumbled 3.6 percent, hitting the lowest level in about 17 months with its ninth consecutive decline and the most substantial decrease in more than two years.
• The MSCI Emerging Market Index gave up 3.5 percent, reaching the lowest level in 19 months on its sixth straight decline and the biggest decrease in more than two years.

Currencies

• The British pound fell less than 0.05 percent to $1.3195.
• The Dollar Index lost 0.1 percent to the lowest level in more than a week, but it bounced off its 0.23 percent lows, potentially forming a hammer.
• The euro gained 0.2 percent to $1.1539, the strongest level in more than a week.
• The Japanese yen climbed less than 0.05 percent to 112.22 per dollar, reaching the strongest level in more than three weeks on its sixth straight advance.

Bonds

• Britain’s 10-year yield edged five basis lower points to 1.682 percent.
• The yield on 10-year Treasuries advanced less than one basis point to 3.16 percent.
• Germany’s 10-year yield dropped four basis points to 0.51 percent, the lowest level in more than a week.
• The spread of Italy’s 10-year bonds over Germany’s rose eight basis points to 3.0359 percentage points.

Commodities

• West Texas Intermediate crude lost 1 percent to $72.45 a barrel, the lowest level in two weeks.
• Gold climbed 0.1 percent to $1,195.89 an ounce.