Stocks fell on Monday as the intensified Hong Kong protests soured investor sentiment already aggravated by the trade dispute between Washington and Beijing.
Losses accelerated in morning trading after Hong Kong International Airport cancelled all departures for the remainder of the day, citing serious disruptions due to intensifying protests.
The increasingly violent protests since June have plunged the Asian financial hub into its most serious crisis in decades and are one of the biggest popular challenges to Chinese leader Xi Jinping since he came to power in 2012.
“The bear is alive and kicking. We think the failed breakout last week for the S&P 500 confirms we are still mired in a cyclical bear market,” Mike Wilson, Morgan Stanley’s chief U.S. equity strategist, said in a note on Monday.
Trade bellwether Caterpillar fell more than 1%, while Google’s parent Alphabet and Amazon fell 0.92% and 0.86% respectively.
The escalated U.S.-China trade war rattled the markets last week with the Dow posting a loss of 0.75%. Major stock averages suffered their worst days of the year on Aug. 5 after China allowed its currency to drop against the dollar below a key level unseen since 2008.
The intensified tensions caused Goldman Sachs to lower its fourth-quarter growth forecast by 20 basis points to 1.8% as the firm no longer expects a trade deal before the 2020 election.
Bank of America on Monday raised chance of a recession to more than 30% in the next 12 months as the firm believes many economic indicators are “flashing yellow.”
The People’s Bank of China on Monday set its daily midpoint for yuan trading at 7.0211 per dollar, the third consecutive session below the psychological level of 7 per dollar. It was also weaker than Friday’s session but beat market expectations.
Market participants have been monitoring the dollar/yuan exchange rate closely following an escalation in trade tensions between Washington and Beijing. The U.S. Treasury Department has designated China as a currency manipulator following the yuan’s move below 7 against the greenback.
A weaker currency makes a country’s exports cheaper and President Donald Trump’s administration has consistently complained that a cheaper yuan would give China a trade advantage.
The U.S. president said Friday that the U.S. would continue to hold trade talks with Beijing, but that Washington was not prepared to make a deal for now.
The Hong Kong protests have gained steam with about 600 people arrested in total since the unrest began. Steve Eisman, the investor of “Big Short” fame, said last week the protests are his biggest worry with the global economy, calling them a possible “black swan.”
On the data front, the federal budget for July is expected to be published at around 2 p.m. ET.