U.S. stock futures slide as China growth angst rattles global risk appetite

What’s driving markets

Concerns about a faltering Chinese economy were again damping global risk appetite and infecting U.S. stock futures in early trading.

Data released Tuesday showed retail sales and industrial production in the world’s second biggest economy grew less than expected in July. The news, which followed other recently disappointing data, and which comes amid signs of severe distress in the property sector, prompted a series of interest rate cuts by the central bank in Beijing.

However, that unexpected monetary policy easing, alongside news that the authorities would stop publishing youth unemployment data, seemed to only spook markets further, and S&P 500 futures lost ground in sympathy with Asian and European bourses, while prices for China-sensitive industrial commodities like oil, copper and iron ore fell back.

“China’s central bank surprised most economists by cutting rates this morning. While fully warranted…it is unlikely to have much lasting benefit in the absence of government spending. The monetary policy effects are most likely to be neutral or could even be perceived as unfavorable in the sense that policymakers are starting to hit the panic button, especially in the face of a local confidence crisis,” said Stephen Innes, managing partner at SPI Asset Management.

As the Wall Street opening bell approaches, investors will turn their attention to the health of the U.S. household sector. Consumption — which makes up more than two-thirds of the U.S. economy — has proved stoic in the face of a sharp rise in borrowing costs by the Federal Reserve over the past 16 months.

So the earnings results from Home Depot
HD,
-0.35%,
due before the regular session opens, and the U.S. retailssales figures for July, due at 8:30 a.m. Eastern, will be keenly scanned for any evidence consumers are pulling in their horns.

Other economic updates set for release on Tuesday include the August Empire State manufacturing survey for August, both at 8:30 a.m. Eastern. At 10 a.m. traders will get the June business inventories numbers and the August NAHB builders confidence index.

Adding to the pressure on equities Tuesday, was the sight of further rises in benchmark government bond yields. Despite the soft China data, the 10-year Treasury yield
BX:TMUBMUSD10Y
rose above 4.2% to sit within just a few basis points of 15-year highs.

“U.S. Treasury yields remain quite important as a possible catalyst for stock indices in both directions,” said Mark Newton, head of technical strategy at Fundstrat. Newton reckons yields will fall over the coming months but may first move still higher “and if this happens quickly, I suspect that stock indices could be spooked by this rapid ascent in yields.”