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US, European stocks slump on economic fears; US, UK yield curves invert

➤ U.S. delays, removes tariffs on major Chinese imports.

➤ German economy shrinks in the second quarter as trade rift weighs on exports.

➤ China industrial production growth at 17-year low.

➤ U.K. inflation unexpectedly accelerates; yield curve inverts.

➤ U.S. stock futures, European shares fall; Asian stocks rise.

Wall Street looked set to reverse yesterday's gains as investors assessed whether the U.S.'s new tariff relief would be long-lasting and after a spate of downbeat macroeconomic data from China and Germany underscored fears of global growth slowdown.

The U.K. yield curve inverted for the first time since the global financial crisis after data showed inflation breached the Bank of England's 2% threshold. European stocks slumped as Germany said its economy contracted in the second quarter.

The U.S. announced Aug. 13 that it will delay the imposition of tariffs on major Chinese imports until Dec. 15 and remove certain products from the tranche of tariffs slated to go into effect Sept. 1. The Trade Representative's Office said the removal of certain products from its tariff list was due to "health, safety, national security and other factors." President Donald Trump attributed the postponement to a "very good call with China."

Meanwhile, Beijing will reportedly stick to its plan to meet U.S. officials in Washington in September, though Chinese negotiators were not hopeful of any imminent progress arising from the planned talks.

U.S. equities rallied yesterday following the announcement, with the S&P 500 and the tech-heavy Nasdaq Composite closing 1.5% and 2% higher, respectively.

"Although the news was greeted with relief, a permanent solution to U.S.-China tensions remains distant, and another flare up in the future seems likely, particularly given that Chinese authorities may view this latest retreat as a sign their strategy of retaliation and persistence is working," Monex Europe analysts said in a daily note.

The German economy contracted 0.1% in the second quarter as weak exports weighed on growth. In the U.K., a report showed that inflation unexpectedly accelerated to 2.1% in July, breaching the Bank of England's 2% target, potentially complicating BoE Governor Mark Carney's response to a no-deal Brexit.

Other data today showed Chinese industrial production growth hit a 17-year low in July, while retail sales expansion missed expectations.

The S&P 500 index fell 1.6% as of about 10 a.m. ET. In Europe, Germany's DAX slid 2.2% to the lowest level since March, while France's CAC 40 dropped 2%. The U.K.'s FTSE 100 declined 1.3% to a 10-week low.

In Asia, the Shanghai SE Composite pared gains to end the session up 0.4%. Japan's Nikkei 225 rose 1% and Hong Kong's Hang Seng ticked up 0.1% after the territory's airport resumed operations.

U.S. 10-year Treasury yields fell 10 basis points to 1.60%, the lowest level since October 2016, and briefly falling below the 2-year yield. Yields on German Bunds dropped 3 basis points to a record-low negative 0.64%, while yields on Italian bonds with the same maturity were 4 basis points lower at 1.58%.

The yield on 10-year U.K. gilts fell 4 basis points to 0.45%, while the two-year note yield was little changed at 0.46%, inverting the yield curve for the first time since the financial crisis. Higher short-term rates compared with longer-term rates has sometimes preceded recessions.

Sterling was little changed versus the dollar, the euro slipped 0.2%, while the Japanese yen advanced 0.7%. The Dollar Index, which measures the currency's performance against a basket of developed-market peers, was broadly stable at 97.8690.

In commodities, Brent crude oil fell 3.5% to $50.18 per barrel on the ICE Futures Exchange. Gold spot added 0.8% to $1,512.97 per ounce.

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The day ahead:

8:30 a.m. ET — U.S. export and import prices

10 a.m. ET — Atlanta Fed's U.S. business inflation expectations survey

10:30 a.m. ET — Energy Information Administration petroleum status report

9:30 p.m. — China house price index