The major U.S. index futures are pointing to a notably lower opening on Wednesday, with stocks likely to extend the pullback seen over the course of the previous session.
Worries about a further escalation of the U.S.-China trade dispute may weigh on the markets amid concerns China may seek to weaponize its dominance in rare earth minerals.
Reports suggest China is considering restricting the export of rare earth minerals, which are crucial for the U.S. technology industry.
The latest developments on the trade front have added fuel to investor fears that the dispute between the U.S. and China could escalate into a full-fledged trade war.
Trade war worries have increased the appeal of safe havens such as U.S. treasuries, resulting in a sharp decline in bond yields.
The slump in bond yields has in turn added to concerns that the U.S. could be headed for a recession or at least a notable slowdown in the pace of economic growth.
Treasuries are seeing further upside this morning, driving the yield on the benchmark ten-year note down to its lowest level since September of 2017.
Overall trading activity may remain somewhat subdued, however, as a lack of major U.S. economic data is likely to keep some traders on the sidelines.
Traders may look ahead to the release of reports on first quarter GDP, pending home sales and personal income and spending in the coming days.
Stocks moved notably lower over the course of the trading session on Tuesday after failing to sustain an initial move to the upside. With the downturn on the day, the Nasdaq and the S&P 500 fell to two-month closing lows.
The major averages pulled back well off their early highs and firmly into negative territory. The Dow slumped 237.92 points or 0.9 percent to 25,347.77, the Nasdaq dropped 29.66 points or 0.4 percent to 7,607.35 and the S&P 500 slid 23.67 points or 0.8 percent to 2,802.39.
The pullback by stocks reflected lingering concerns about the economic impact of the ongoing trade dispute between the U.S. and China.
During a trip to Japan over the weekend, President Donald Trump expressed optimism the U.S. and China will eventually reach a trade agreement.
"I think, sometime in the future, China and the United States will absolutely have a great trade deal. And we look forward to that," Trump said.
However, Trump also warned that U.S. tariffs on Chinese goods could "go up very, very substantially, very easily."
Trump also said the U.S. is "not ready to make a deal" and suggested China probably wishes "they made the deal that they had on the table before they tried to renegotiate it."
The trade war worries contributed to a slump in treasury yields, which in turn added to concerns about a potential recession. The yield on the benchmark ten-year note dropped to its lowest levels since September of 2017.
Meanwhile, traders largely shrugged off a Conference Board report showing another substantial improvement in consumer confidence in the month of May.
The Conference Board said its consumer confidence index surged up to 134.1 in May after jumping to 129.2 in April. Economists had expected the index to inch up to 129.8.
Tobacco stocks showed a substantial move to the downside over the course of the session, dragging the NYSE Arca Tobacco Index down by 3 percent.
The sell-off by tobacco stocks came after Nielsen data showed cigarette sales volume tumbled by 11.2 percent in the four-week period ended May 18th.
Significant weakness also emerged among oil service stocks, as reflected by the 1.7 percent slump by the Philadelphia Oil Service Index. The index hit its lowest closing level in five months.
Utilities, financial, and pharmaceutical stocks also came under pressure on the day, contributing to the pullback by the broader markets.
Commodity, Currency Markets
Crude oil futures are tumbling $1.71 to $57.43 a barrel after rising $0.51 to $59.14 a barrel on Tuesday. Meanwhile, after sliding $6.50 to $1,277.10 an ounce in the previous session, gold futures are climbing $7 to $1,284.10 an ounce.
On the currency front, the U.S. dollar is trading at 109.29 yen compared to the 109.38 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1155 compared to yesterday's $1.1160.
Asia
Asian stocks fell broadly on Wednesday as investors reacted to falling U.S. Treasury bonds yields, reflecting worries over an economic slowdown.
Trade worries deepened after media reports suggested that China could be considering restricting the export of rare earth minerals, which are crucial for the U.S. technology industry.
Chinese shares closed a tad higher, shrugging off concerns over slowing growth and the standoff in U.S.-China trade talks.
The benchmark Shanghai Composite index recovered from an early slide to end the session up 4.79 points or 0.2 percent at 2,914.70. Meanwhile, Hong Kong's Hang Seng index dropped 155.10 points or 0.6 percent to 27,235.71.
Japanese shares fell amid broad uncertainties over trade and economic growth. The benchmark Nikkei 225 Index gave up 256.77 points or 1.2 percent to end at 21,003.37, while the broader Topix closed 0.9 percent lower at 1,536.41.
Bank of Japan Governor Haruhiko Kuroda said Japan has difficulty in re-anchoring long-term inflation expectations from inflation below the target level and suggested examining how best to manage inflation expectations within the flexible inflation targeting framework.
Exporters ended broadly lower as the safe-haven yen edged higher against both the dollar and the euro. Mazda Motor dropped 1.1 percent, Sony fell 2.6 percent and Panasonic lost 1 percent. Chip-testing equipment maker Advantest plunged by 4 percent and Tokyo Electron declined 2.2 percent.
Banks Mitsubishi UFJ Financial, Sumitomo Mitsui Financial and Mizuho all ended down over 1 percent, reflecting decreases in U.S. bond yields.
Australian markets followed global peers lower on rising fears of a prolonged U.S.-China trade war after U.S. President Trump said the U.S. was "not ready" to make a deal.
The benchmark S&P/ASX 200 Index slid 44.80 points or 0.7 percent to 6,440, while the broader All Ordinaries Index ended down 43.80 points or 0.7 percent at 6,536.60.
Mining stocks fell after recent gains, with BHP and Rio Tinto ending down 0.6 percent and 0.7 percent, respectively.
Oil Search declined 1 percent amid political disarray in Papua New Guinea. Santos shed 1.6 percent and Origin Energy gave up 2.5 percent.
Telecom giant Telstra edged up slightly despite saying it would record about A$500 million in impairments in its fiscal 2019 results.
Mirvac Group shares were in a trading halt after the company said it would undertake an equity raising.
Seoul stocks fell as a tax cut for stock trading comes into effect later this week. The benchmark Kospi tumbled 25.51 points or 1.3 percent to 2,023.32.
Europe
European stocks have fallen sharply on Wednesday after Chinese newspapers warned Beijing was ready to use its dominance of rare earths as a counter in its trade battle with Washington.
The U.S. imports about 80 percent of its rare earth elements, used in a host of electronic components, from China.
In another development, Huawei Technologies Co. Ltd. has filed a motion for summary judgment in its lawsuit against the U.S. government.
"The U.S. government has provided no evidence to show that Huawei is a security threat. There is no gun, no smoke. Only speculation," the company's chief legal officer Song Liuping said in a statement.
While the French CAC 40 Index has plunged by 2 percent, the U.K.'s FTSE 100 Index and the German DAX Index are both down by 1.6 percent.
Mining stocks have fallen as investors monitor trade headlines. Marks and Spencer Group has also slumped on fears it could be removed from the FTSE 100 next week.
On the other hand, Stobart Group shares have jumped. The aviation and energy group said it was confident about the outlook for the New Year as it ramps up investment in expanding its London Southend Airport after de-risking the balance sheet through disposals.
Prosiebensat.1 shares have also moved to the upside after Italy's Mediaset said it had acquired a 9.6 percent stake in the German broadcaster.
In economic news, German unemployment climbed sharply for the first time in nearly two years, defying expectations for further decline, figures from the Federal Employment Agency showed.
The number of unemployed rose by 60,000 in May, while economists had expected a decline of 7,000. The jobless rate climbed to 5 percent in May, equaling the rate seen in February.
An estimate from statistical office Insee showed French consumer price inflation eased more than expected to 1 percent in May from 1.3 percent in April. A similar rate was last seen in September 2017.
French GDP grew 0.3 percent sequentially in the first quarter, in line with the estimate released on April 30 but slightly slower than the revised 0.4 percent expansion seen in the fourth quarter of 2018.
U.S. Economic Reports
The Treasury Department is scheduled to announce the results of its auction of $32 billion worth of seven-year notes at 1 pm ET.
Stocks In Focus
Shares of Capri Holdings (CPRI) are moving significantly lower in pre-market trading after the luxury retailer reported fiscal fourth quarter results that exceeded analyst estimates but provided disappointing guidance.
Inovio Pharmaceuticals (INO) may also come under pressure on news AstraZeneca (AZN) subsidiary MedImmune Limited intends to discontinue activities with respect to research collaboration programs with the biotechnology company.
On the other hand, shares of Soliton (SOLY) are soaring in pre-market trading after the medical device company received FDA clearance to market its Rapid Acoustic Pulse device for tattoo removal.
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