Dow Jones Industrial Average (DJIA) futures collapsed in early trading Monday, falling more than 200 points.
The move comes on a trifecta of bad news for global stock markets. Goldman Sachs issued a recession warning, China continued to hold the yuan at weak levels, and Treasury bonds plunged overnight.
In a note to investors, Goldman Sachs said the chance of recession is much higher in light of recent trade war developments.
“Fears that the trade war will trigger a recession are growing” – Goldman Sachs
Dow futures collapse triple-digits
At 7.31 am ET, Dow Jones Industrial Average (DJIA) futures plunged more than 200 points, pointing to a disastrous open on Wall Street Monday. The move comes despite a strong Asian session which saw the Shanghai Composite jump 1.5 percent.
S&P 500 futures also slumped 0.8 percent to 2,896. Nasdaq Composite futures shed 64 points to 7,595.
Goldman Sachs rings recession bell
The Wall Street giant lowered growth forecasts and braced investors for a possible recession. Goldman cited the ongoing trade war between the US and China and the disruption to supply chains for its gloomy conclusion.
“We have increased our estimate of the growth impact of the trade war. The drivers of this modest change are that we now include an estimate of the sentiment and uncertainty effects and that ﬁnancial markets have responded notably to recent trade news” – Jan Hatzius, Goldman Sachs chief US economist.
Hatzius said businesses are likely to hold off on hiring and investment activity until there is more certainty in the global trading arena. As such, productivity may fall.
Dow futures crumble with Treasury bond yields
The Dow’s weakness is mirrored by cratering Treasury bond yields. In early morning trading, 10-year Treasury yields fell to 1.6864%. 30-Year yields also fell, briefly hitting 2.2043%.
The decrease in yields is a strong indicator of demand for safe-haven assets. Traders are increasingly pulling money out of stocks to hold in more stable assets.
US 10-yr Treasury yield below Fed funds rate… A signal of investor concerns about growth and inflation pic.twitter.com/kuosuyTtoC
— Daniel Lacalle (@dlacalle_IA) August 10, 2019
At the same time, China continued to fix the yuan above $7 on Monday, a psychologically weak level. China let the yuan fall beyond $7 for the first time in a decade last week, in a move that was widely seen as retaliation to Trump’s trade threats. By holding the yuan at this level, China is digging in its heals and escalating the trade tension.
As a result, Goldman Sachs no longer anticipates a trade deal resolution before the 2020 presidential election.
Goldman Sachs: buy bitcoin instead?
While Wall Street issues gloomy analysis of the equity markets, Goldman Sachs is surprisingly bullish on bitcoin. As CCN reported this morning, a recent investment note positioned bitcoin as a buying opportunity in the current pullback.
“Any such retracement from $12,916 – $13,971 should be viewed as an opportunity to buy on weakness as long as it doesn’t retrace further below $9,084 low.”
Goldman Sachs, bearish on stocks, bullish on bitcoin. Who would have thought it?
This article was updated at 7.45 am ET to reflect latest prices.
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