Morning Call: Escalation of U.S.-China trade tensions hammers stocks; Sep E-mini S&Ps down -1.09% at a 2-week low; Sep 10-year T-notes up +12.5 ticks at a 2-week high. - Tue Jun 19, 6:45AM CDT
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 ESU18 - S&P 500 E-Mini

Overnight Markets and News

Sep E-mini S&Ps (ESU18 -1.22%) this morning are down -1.09% and European stocks are down -1.07%, both at 2-week lows, as global stocks sell-off on increased trade tensions between the U.S. and China. President Trump ordered up identification of $200 billion in Chinese imports for additional tariffs of 10%, with another $200 billion after that if China retaliates. China's Ministry of Commerce responded by saying, "if the U.S. loses its senses and publishes such a list, China will retaliate forcefully and take comprehensive quantitative and qualitative measures." Also, July WTI crude oil (CLN18 -1.66%) is down -1.52% and is undercutting energy stocks as the prospects for increased OPEC output along with concerns to global growth from the U.S.-China trade disputes are driving crude prices lower. The slump in stocks is benefiting demand for government bonds as a safe-haven as the 10-year German bund yield fell to a 2-week low of 0.349% and the 10-year T-note yield dropped to a 2-week low of 2.85%. Asian stocks settled lower: Japan -1.77%, Hong Kong -2.78%, China -3.78%, Taiwan -1.65%, Australia -0.03%, Singapore -0.68%, South Korea -1.31%, India -0.74%. Asian markets tumbled as China's Shanghai Composite fell to a 23-month low and Japan's Nikkei Stock Index fell to a 2-week low as the escalation of trade tensions between the U.S. and China worsens global growth prospects.

The dollar index (DXY00 unch) is up +0.47% at an 11-month high. EUR/USD (^EURUSD -0.63%) is down -0.65% at a 2-1/2 week low after ECB President Draghi said the ECB "will remain patient in determining the timing of the first interest rate increase." USD/JPY (^USDJPY -0.66%) is down -0.61% at a 1-week low as the sell-off in global stocks boosts the safe-haven demand for the yen. GBP/USD (^GBPUSD -0.66%) sank -0.67% to a 7-month low after UK Prime Minister May lost a vote on her Brexit legislation in the House of Lords.

Sep 10-year T-note prices (ZNU18 +0-125) are up +12.5 ticks at a 2-week high.

ECB President Draghi said, "we will remain patient in determining the timing of the first rate increase and will take a gradual approach to adjusting policy thereafter."

New York Fed President Williams said, "the U.S. economy is in great shape and we are in the second-longest expansion in our history."

U.S. Stock Preview

Key U.S. news today includes: (1) St. Louis Fed President James Bullard (non-voter) speaks on a panel with ECB Executive Board member Peter Praet on the "Macroeconomics of Price and Wage-Setting" at the Sintra conference in Portugal, (2) May housing starts (expected +1.9% to 1.312 million, Apr -3.7% to 1.287 million).

Notable Russell 1000 earnings reports today include: Oracle (consensus $0.94), FedEx (5.69).

U.S. IPO's scheduled to price today: Eidos Therapeutics (EIDX).

Equity conferences this week: J.P. Morgan Energy Equity Conference on Mon-Wed, JMP Securities Financial Services and Real Estate Conference on Tue, Jefferies Global Consumer Conference on Tue-Wed, Oppenheimer Consumer Growth and e-Commerce Conference on Tue-Wed, Citi Chemicals Conference on Thu, National Business Aviation Association Regional Conference on Thu.

Market Comments

Sep S&P 500 E-minis (ESU18 -1.22%) this morning are down -30.25 points (-1.09%) at a 2-week low. Monday's closes: S&P 500 -0.21%, Dow Jones -0.41%, Nasdaq 100 -0.06%. The S&P 500 on Monday dropped to a 1-week low and closed lower on concerns about an escalation of the US/Chinese trade war after China immediately retaliated to the Trump administration's 25% levy on $34 billion of U.S. agricultural and auto exports starting July 6. Stocks were also undercut by the U.S. Jun NAHB housing market index of -2 to 68, which weaker than expectations of unchanged at 70. Energy stocks received a boost as crude oil prices rose +1.21%.

Sep 10-year T-notes (ZNU18 +0-125) this morning are up +12.5 ticks at a 2-week high. Monday's closes: TYU8 unch, FVU8 unch. Sep T-notes on Monday closed little changed. T-notes were undercut by bond dealer hedging as dealers sold 10-year T-note futures to hedge against Bayer's sale of $15 billion in corporate bonds to help finance its acquisition of Monsanto. T-note prices were also undercut by Atlanta Fed President Bostic's comment that he is comfortable continuing to move Fed policy toward a more neutral stance." T-note prices received a boost from safe-haven demand with the expanding US/China trade war.

The dollar index (DXY00 unch) this morning is up +0.446 (+0.47%) at an 11-month high, EUR/USD (^EURUSD -0.63%) is down -0.0075 (-0.65%) at a 2-1/2 week low and USD/JPY (^USDJPY -0.66%) is down -0.67 (-0.61%) at a 1-week low. Monday's closes: Dollar Index -0.0027 (-0.02%), EUR/USD +0.00013 (+0.11%), USD/JPY -0.11 (-0.10%). The dollar index on Monday closed lower on the fall in the S&P 500 to a 1-week low, which boosted USD/JPY on increased safe-haven demand for the yen. The dollar was also undercut by concern that a US/Chinese trade war will derail global growth and slow the Fed's rate-hike regime.

Metals this morning are mixed with Aug gold (GCQ18 -0.34%) +0.7 (+0.05%), July silver (SIN18 -0.91%) -0.095 (-0.58%) at a 2-week low, and July copper (HGN18 -1.61%) -0.046 (-1.48%) at a 2-week low. Monday's closes: Aug gold +1.60 (+0.13%), Jul silver -0.040 (-0.24%), Jul copper -3.80 (-1.21%). Metals on Monday settled mixed with Jul silver at a 1-1/2 week low and Jul copper at a 2-week low. Metals prices were undercut by US/Chinese trade war concerns that may curb global growth and reduce demand for industrial metals. Copper prices were undercut by the -2,050 MT decline in LME canceled warrants, a sign of copper demand, to a 1-month low of 47,900 MT. Gold closed higher as trade war concerns sent the S&P 500 down to a 1-week low and boosted the safe-haven demand for gold.

July crude oil prices (CLN18 -1.66%) this morning are down -$1.00 a barrel (-1.52%) and July gasoline (RBN18 -1.36%) is -0.0257 (-1.25%). Monday's closes: Jul crude +0.79 (+1.21%), Jul gasoline +3.14 (+1.55%). Jul crude oil and gasoline on Monday closed higher on signs that OPEC may not raise production by as much as feared after a report that OPEC is considering a compromise agreement to increase oil production between 300,000 bpd and 600,000 bpd over the next few months, well below Russia's proposal for a +1.5 million bpd increase in order to appease concerns from Iran, Iraq and Venezuela. Crude oil prices were also boosted by comments from OPEC officials who said they are working to make cooperation between the cartel, Russia and other oil producers a permanent fixture.

Overnight U.S. Stock Movers

Red Hat (RHT +0.73%) was downgraded to 'Market Perform' from 'Outperform' at Raymond James.

Dr Pepper Snapple (DPS +0.25%) was downgraded to 'Hold' from 'Buy' at Stifel.

Commercial Metals (CMC +2.42%) was downgraded to 'Underperform' from 'Neutral' at Bank of America Merrill Lynch with a price target of $23.

Masco (MAS -1.20%) was upgraded to 'Buy' from 'Neutral' at Citigroup with a price target of $44.

Verizon Communications (VZ -1.25%) was upgraded to 'Buy' from 'Hold' at Deutsche Bank.

Colgate-Palmolive (CL -2.19%) gained 1% in after-hours trading after it reported a $5 billion share repurchase program.

The Times reported the UK Royal Air Force is in favor of buying 4 to six surveillance planes from Boeing (BA -0.88%) at 2 billion to 3 billion pounds.

Pagseguro Digital Ltd (PAGS -3.75%) dropped 7% in after-hours trading after it filed to sell 33 million shares of its common stock.

Mattel (MAT +0.57%) was downgraded to 'Neutral' from 'Buy' at UBS.

Tellurian (TELL -1.72%) fell almost 7% in after-hours trading after it announced that it intends to offer 12 million shares of its common stock in an underwritten public offering.

Viveve Medical (VIVE -0.52%) jumped 15% in after-hours trading after it reported positive six-month data from its monopolar radiofrequency technology platform for the treatment of mild-to-moderate stress urinary incontinence in women.