Global stocks extended declines Monday, following the steepest May sell-off for the S&P 500 in nine years, as investors reacted to escalating trade tensions between Washington and Beijing and compounding evidence of a parallel economic slowdown.
China published details of its trade stance with the United States over the weekend in move that suggested officials in Beijing were digging in for a prolonged dispute with the world's largest economy. The white paper also included plans for a so-called 'Unreliable Entities' list of U.S. companies, similar in nature to collection of Chinese firms targeted by the Commerce Department, in the coming weeks. There was also a suggestion that officials would investigate Fedex (FDX - Get Report) after executives at Huawei Technologies accused it of deliberately mis-handling packages.
"If the U.S. side wants to use extreme pressure, to escalate the trade friction, to force China to submit and make concessions, this is absolutely impossible," China's Vice Commerce Minister Wang Shouwen said Sunday. "During the (trade) consultations, China has overcome many difficulties and put forward pragmatic solutions. However, the U.S. has backtracked, and when you give them an inch, they want a yard."
China's tough stance on trade, and a warning from Defense Minister Wei Fenghe for the U.S. not to meddle in the country's decades-long dispute with Taiwan, triggered a new bout of risk aversion for global investors as the final month of the third quarter kicked off, with stocks in Asia sliding into the red, and Japan's Nikkei 225 dipping to a four-and-a-half month low, as manufacturing data around the region contracted in the wake of a broader trade-related slowdown.
Wall Street looks set to replicate that concern later this morning, with contracts tied to the Dow Jones Industrial Average suggesting a 60 point decline and those linked to the S&P 500 indicating a 6 point pullback for the broader benchmark, which tumbled 6.6% last month, its worst May decline since 2010.
Alphabet Inc. (GOOGL - Get Report) shares were indicated sharply lower as investor trimmed holdings of the Google parent following a weekend issue that caused traffic congestion across key parts of its network and a report that suggested it may face a federal antitrust probe over its search engine.
FedEx Corp. (FDX - Get Report) shares were on the move, too, falling 3% in pre-market trading following a weekend report from China's state-run news agency that the group will be investigated for allegedly re-routing packages destined for Huawei Technologies.
U.S. investors will also be eyeing developments from Washington today, where officials from Mexico will meet with their American counterparts to discuss the current immigration crisis along the southwester U.S. border, which triggered a move by President Donald Trump last week to impose escalating tariffs on goods heading into the United States from its southern neighbor.
Government bond yields around the world were also notably lower in overnight trading, with benchmark 10-year U.S. Treasury notes trading at 2.09%, after falling nearly 40 basis points over the month of May, and 2-year paper marked at 1.842%, the lowest since December 2017 and the biggest two-session decline since 2008.
The moves have altered investor projections for near-term interest rate cuts from the Federal Reserve, as well, with the CME Group's FedWatch tool now suggesting a 50/50 chance of a July easing and a more than 70% chance of a subsequent cut to the Fed's key target rate, which currently sits at 2.25% to 2.5%, in September.
European stocks were also firmly on the back foot Monday, with the Stoxx 600 falling 0.62% in the opening hours of trading in Frankfurt and Britain's FTSE 100 sliding 0.64%.
Deutsche Bank (DB - Get Report) shares slumped to a fresh record low in Frankfurt as pressure continues to mount on the region's biggest lender amid calls to increase its capital buffer and record low interest rates in the struggling European economy.
Benchmark 10-year German bunds hit a new all-time low of -0.216% in mid-morning Monday trade, following similar moves for risk-free government debt around the world as data continues to suggest that the prolonged U.S.-China trade spat could trigger a global recession. Those concerns, as well as a more pronounced slowdown in Germany over the first three months of this year, pushed the country's Financial Stability Board to have domestic lenders set aside nearly $6 billion in extra cash, starting this summer, as a precaution against further risks.
President Trump begins a week-long European tour to mark the 75th anniversary of the D-Day landings in northern France with a controversial three-day state visit to the United Kingdom, which includes an audience with Her Majesty the Queen later today in London.
Trump, an unpopular U.S. President with the British public, has already broken decades of political protocol by expressing a preference for Boris Johnson in the Conservative Party leadership contest to replace outgoing Prime Minister Theresa May, as well as suggesting maverick Euroskeptic MEP Nigel Farage should lead Britain's stalled exit talks with the European Union.
Global oil prices followed stock and commodity prices lower Monday, as well, as investors re-priced industrial assets in the wake of further data suggesting a world economic slowdown. Copper prices on the Shanghai futures exchange were marked at a two-year low, while oil extended declines following a sharp May selloff that saw U.S. crude slide more than 16%.
Brent crude contracts for August delivery, the new global benchmark, were seen 93 cents lower from from their Friday close in New York and changing hands at $61.06 per barrel while WTI contracts for the July were marked 39 cents lower at $53.11 per barrel.