➤ China vows to retaliate if US Hong Kong bill becomes law.
➤ US retail sales unexpectedly slip, boosting Fed rate cut bets.
➤ Sterling swings as Brexit negotiations continue.
➤ Safe-haven assets rise.
U.S. stocks retreated as uncertainty regarding the prospects of U.S.-China trade continued and U.S. retail sales unexpectedly declined, boosting Fed rate cut hopes.
The S&P 500 declined 0.2% around 9:30 a.m. ET after closing 1% higher yesterday. Bank of America Corp.'s shares gained 2.8% after the bank beat third-quarter EPS estimates. International Business Machines Corp. and Netflix Inc. are due to report earnings after market close on Oct. 16.
U.S. retail sales unexpectedly declined for the first time in seven months in September, increasing fears that the economic growth slowdown may be spreading into the consumer sector.
"With the recent deterioration in consumer confidence and broad-based declines across various types of merchants, this report is the first hard data to indicate cracks in one of the key pillars of the economy that, so far, had been holding up rather well," Tim Quinlan, senior economist at Wells Fargo Securities wrote.
The U.S. House of Representatives passed a bill, which, if passed by the Senate and signed by President Donald Trump, would enable Washington to assess annually whether Hong Kong is sufficiently autonomous from the mainland China to justify its special status with the U.S.
China vowed to retaliate if the bill becomes law, saying it would harm U.S.-China relations.
The U.S. and China are in talks regarding a partial deal, but they seem to have made little to no progress on the structural issues at the center of their dispute, S&P Global Ratings Asia-Pacific Chief Economist Shaun Roache said. This suggests a comprehensive solution is some way off.
This came after reports that China wants the U.S. to roll back trade war tariffs before it can proceed with purchasing up to $50 billion worth of American farm products.
Trade tensions are "set to re-escalate" following the Hong Kong bill and China's request to lower tariffs, according to Margaret Yang Yan, market analyst at CMC Markets (Singapore).
In Europe, the FTSE 100 shed 0.8% and France's CAC 40 fell 0.1% while Germany's DAX gained 0.3%. In Asia, Hong Kong's Hang Seng gained 0.6% and Japan's Nikkei 225 advanced 1.2% while the Shanghai SE Composite lost 0.4%.
Hong Kong Chief Executive Carrie Lam said the semi-autonomous territory entered a technical recession in the third quarter as she unveiled measures aimed at restoring business confidence in the Asian financial hub amid monthslong protests.
The dollar index slipped 0.1%.
In currencies, the pound rose 0.1% against the dollar, reversing losses from earlier in the day as negotiations on a Brexit deal reportedly hit a standstill amid resistance from Northern Ireland's Democratic Unionist Party to proposed customs solutions. While the two sides have made progress, there are hurdles that need to be overcome, Irish Prime Minister Leo Varadkar reportedly said.
The U.K.'s annual inflation came in less than expected in September.
The euro gained 0.1%, as annual inflation in the eurozone for September was revised lower amid weaker energy prices. Headline inflation came in at 0.8% in September, down from a flash estimate of 0.9% and slower than the 1.0% rate in August.
The Japanese yen rose 0.2%. The Korean won depreciated 0.2% against the dollar as the Bank of Korea lowered its base rate by 25 basis points to a record low of 1.25%.
Ten-year Treasurys gained, with their yields dropping 2 basis points to 1.759%. Elsewhere, the yield on German bunds with the same maturity gained 3 basis points.
In commodities, Brent crude dipped 0.1% to $58.69 per barrel on the ICE Futures Exchange while gold rose 0.6%.
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The day ahead:
10 a.m. ET – U.S. Atlanta Fed Business Inflation Expectations
10 a.m. ET – U.S. Business Inventories (Econoday consensus: 0.3% monthly)
10 a.m. ET – U.S. Housing Market Index (Econoday consensus: 68)
1 p.m. ET – U.S. Fed's Robert Kaplan speaks
2 p.m. ET – U.S. Beige Book
3 p.m. ET – U.S. Fed's Lael Brainard speaks
4 p.m. ET - Treasury International Capital