1. Dow set to drop more than 300 points after key bond yields invert
Traders work after the closing bell at the New York Stock Exchange (NYSE) on August 12, 2019 at Wall Street in New York City.
Johannes Eisele | AFP | Getty Images
U.S. stock futures were sharply lower Wednesday morning as the bond market flashed its strongest recession signal yet. The 2-year Treasury yield inverted and moved higher than the 10-year yield for the first time since 2007. The Dow Jones Industrial Average, S&P 500 and Nasdaq broke a two-session losing streak on Tuesday, in a strong rally on the Trump administration’s announcement of delays and removals of certain items on the new tariffs that had been set to go into effect Sept. 1.
2. Bonds flash strongest recession signal yet
The inverted yields on the 2-year and 10-year Treasurys is an odd bond market phenomenon that’s been a reliable indicator of economic recessions. Wall Street often pays special attention to the spread between the 10-year and the 2-year because flips in that part of the yield curve have preceded every recession over the past 50 years. A recession occurs on average 22 months following such an inversion, according to Credit Suisse.
3. Chinese economic data shows further weakness
Workers sewing shoes at a factory in Qingdao in China’s eastern Shandong province.
AFP | Getty Images
The flight to the perceived safety of U.S. bonds accelerated in recent days as concerns about the global economy due to the U.S.-China trade war mount. On Wednesday, the Chinese economy showed more weakness as the U.S. tariffs appeared to be taking their toll. China’s July industrial output rose 4.8% — slowest in 17 years. Retail sales growth in China was also weaker than expected last month.
4. China blames US for inciting pro-democracy protests in Hong Kong
Riot police disperse anti-extradition bill protesters during a mass demonstration after a woman was shot in the eye, at the Hong Kong international airport, in Hong Kong China August 13, 2019.
Thomas Peter | Reuters
China is accusing Democratic House Speaker Nancy Pelosi and Republican Senate leader Mitch McConnell of inciting chaos in Hong Kong. President Donald Trump wrote on Twitter that he “can’t imagine why” anyone would blame the U.S. for “the problems” in Hong Kong. Anti-government protests in the Chinese territory crippled airport operations Monday and Tuesday.
5. Mortgage refis spike 37% in one week as home loan rates drop
A for sale sign stands before property for sale in Monterey Park, California.
Frederic J. Brown | AFP | Getty Images
Another sharp drop in mortgage rates, linked to declining bond yields, sent even more homeowners to their lenders hoping to save money on their monthly payments. Refinance applications soared 37% last week, according to the Mortgage Bankers Association’s seasonally adjusted index. Total mortgage application volume jumped 21.7% last week compared with the previous week. Mortgage rates have plateaued this week, despite continued turbulence in international markets.