Current Stock Market Tumbling on Huawei Sanctions

CURRENT STOCK MARKET- European stocks were in the negative territory while government bond yields fell after the US government decided to slap sanctions on Chinese telecom Huawei, further pitting the US against China.

The STOXX 600, which is a pan-European index of European shares, lost as much as 0.5 percent during the early European trading.

Germany’s DAX, which is sensitive to tariff and China-related news, was 0.4 percent weaker.

US stock futures were also 0.4 percent lower, threatening a weaker start on Wall Street.

The US Commerce Department said that it was putting Huawei Technologies Co Ltd and 70 affiliates to its so-called Entity List, which effectively bans the company from acquiring components from American companies without asking for government approval first.

Meanwhile, small gains in Chinese and Hong Kong stock indexes slightly offset the broad weakness in European markets.  As such, there were only marginal losses on a global stock index.

Investors were also expecting state authorities to intervene and back the Chinese market and stabilize sentiment.

“Chinese stocks are up as market expect authorities to intervene to support sentiment but this kind of activity is not sustainable and unless we see a clear resolution in the China-US trade conflict, overall sentiment will remain weak,” said  a forex strategist.

Core German government bond yields were hovering near their lowest level in almost three years. Dutch bond yields were near the red, which is a level not seen since October 2016.

US Interest Rate Cut More Possible

With trade tension worsening and weak US economic data, investors are expecting a US interest cut to be in the pipeline for the coming months.

US retail sales unexpectedly dropped in April, with purchases of motor vehicles and a range of other goods weakening. April industrial production has also shed 0.5 percent, which is the third time it dropped this year.

Ten-year US Treasury Bond yields retreated 2.366 percent, close to a 15-month low of 2.340 percent, which was brushed on March 28.

Futures for the Fed fund rates are fully pricing in a rate cut by the end of the year, along with a high probability of a move by September.

“The markets are inching step by step in pricing in a rate cut. That is a sea change from a year ago when the consensus was three to four rate hikes a year,” said a bond fund manager.

Meanwhile, the dollar was down 0.1 percent against a basket of other major currencies after weaker US yields failed to maintain dollar support.

In other markets, oil prices strengthened after tensions increased in the Middle East and participants worried the conflicts might hit global supplies even in the face of a surprise build in US crude inventories.

Brent crude increased 0.3 percent to $71.99 per barrel, while US West Texas Intermediate (WTI) crude gained $62.26, or half a percent higher.