The Wall Street Journal - 02.10.2019

THE WALL STREET JOURNAL. ***** Wednesday, October 2, 2019 |B13

slid to about $54 and, like
Brent, is down about 30% in
the past year.
Driving the declines are wa-
gers that softening demand and
steady production from the U.S.
and other suppliers will result
in excess supply. Crude is criti-
cal to the transportation and
shipping industries, and a spate
of downbeat manufacturing fig-
ures and cuts to projections for
consumption globally have
eroded investor sentiment.
Those worries have offset
much of the premium traders
are willing to pay to account
for further flare-ups in the
Middle East.
Saudi Arabia has signaled
that it will soon have crude op-
erations back to normal, and
other signs of easing tensions
in the region have boosted con-
fidence that disruptions will
prove short-lived.
“The market is telling us

Continued from page B1

U.S. government-bond prices
surged after a report showed
manufacturing activity con-
tracted for a second consecu-
tive month, exacerbating inves-
tors’ worries about a possible
economic slowdown.
The yield on the benchmark
10-year Treasury note fell for a
fourth consecutive trading ses-
sion, settling at 1.651% from
1.675% Monday. The yield had
been 1.723% before the report,
according to Tradeweb.
Yields, which decline when
bond prices rise, sank after the
Institute for Supply Manage-
ment said its U.S. manufactur-
ing index fell to
47.8 in September
from 49.1 in Au-
gust. The reading
is the lowest since June 2009
and well below the 50.1 pre-
dicted by economists in a Wall
Street Journal survey.
The data show a continua-
tion of a slowdown seen in Au-
gust, when the index—which is
based on survey data from
manufacturing purchasing
managers and executives na-
tionwide—contracted for the
first time in three years.
Treasurys’ Tuesday gain ex-
tended a bout of volatility in
government-bond markets. The
10-year yield, a key reference
for corporate and individual
borrowing costs, fell to 1.456%
last month, within about 0.1
percentage point of a record
low,draggeddownbyfearsofa
looming economic slowdown.
Signs of U.S. economic strength
then sent the yield to its big-
gest weekly gain in six years
before it stabilized within a rel-
atively narrow range.
The contraction in manufac-
turing adds to worries that
slowing growth in other coun-
tries is poised to spill over to
the U.S., analysts said. Some
fear the protracted trade fight
between the U.S. and China will
intensify the risks to domestic
growth while hurting profits
for multinational corporations.
“It was a number that sur-
prised a lot of people,” said
Sean Simko, head of global
fixed-income management at
SEI Investments. “People are
fearing this is the start of
something bigger.”
Many already see cautionary
signs in the market. The yield
on the 10-year Treasury note
Tuesday traded about 0.2 per-
centage point lower than the
rate on U.S. government three-
month bills. That worries inves-
tors because shorter-term
yields tend to exceed longer-
term ones ahead of recessions,
a phenomenon known as an in-
verted yield curve.
Some investors said the data
also could spur the Federal Re-
serve to continue lowering in-
terest rates. Federal-funds fu-
tures, which investors use to
bet on the path of central-bank
policy, showed the probability
that the Fed will cut rates again
by the end of the year in-
creased to 79% Tuesday from a
chance of about 2 in 3 the day
before, according to CME
Group data.

BYDANIELKRUGER

Treasurys

Soar Amid

Slowdown

Concerns

session, closing down 0.7% at

$2.5605 a pound.

ThelatestU.S.datahavein-

tensified worries about a broad

economic slowdown. Other ma-

jor economies have also experi-

enced a slump in manufactur-

ing, putting further pressure

on copper, which is used to

build everything from office

buildings to electric vehicles.

“When you have every ma-

jor manufacturing hub slowing

down, metals consumption

will suffer as a result,” said

Edward Meir, a consultant at

INTL FCStone.

The weak manufacturing

numbers come amid slowing

copper demand from China.

The country is importing less

refined copper, Mr. Meir said,

another factor weighing on

prices. China is one of the

world’s largest copper con-

sumers and accounts for about

half of global demand.

Elsewhere in commodities,

U.S. oil futures declined Tues-

day, with U.S. crude falling

0.8% to $53.62 a barrel and

Brent crude, the global bench-

mark, slipping 0.6% to $58.89

a barrel.

Oil prices have erased all of

the gains they made after at-

tacks on Saudi Arabian oil fa-

cilities in September, high-

lighting how a gloomy

economic outlook is weighing

on demand.

Downbeat manufacturing

figures and cuts to projections

for consumption globally have

eroded investor sentiment to-

ward oil, offsetting much of

the premium traders were ini-

tially willing to pay to account

for further flare-ups in the

Middle East.

In precious metals, fears

that manufacturing weakness

could spread to other sectors

pushed investors to the safety

of gold. Front-month gold fu-

tures rose 1.1% to $1,482 a troy

ounce.

The price of copper fell

Tuesday after weak manufac-

turing data stoked new wor-

ries about global growth.

Most-active copper futures

fell more than

2% after fig-

ures from the

Institute of Supply Manage-

ment showed U.S. factory ac-

tivity declined in September to

its lowest level since June

2009, underscoring a contin-

ued slowdown in the goods-

producing sector.

The industrial metal pared

some of its losses later in the

BYSARAHTOY

Economic Worries Pressure Copper

The metal is also under pressure amid slowing demand for copper from China, a top consumer of it. A copper smelter in China.

QILAI SHEN/BLOOMBERG NEWS

MARKETS

The Dow Jones Industrial

Average slumped, giving up its

entire gain for the third quar-

ter, as disappointing manufac-

turing data spurred concerns

about the economy’s health.

The new data showing U.S.

factory activity contracted for

a second consecutive month

added to growing evidence of

a global manufacturing slow-

down, which many economists

attribute to the

escalating trade

dispute between

the U.S. and

China.

Investors, who have been

particularly sensitive to trade-

related headlines in recent

weeks, will be watching as the

countries engage in planned

high-level trade talks in Wash-

ington this month. They will

also be parsing third-quarter

earnings reports to see what

big companies have to say

about the effects of the trade

war on their businesses.

“We could see a continued

deterioration in manufactur-

ing,” said Kristina Hooper,

chief global market strategist

at Invesco. “We could move

lower from here. And that, to

me, is the reality of continuing

with the trade wars. It will im-

pact the U.S.”

The Dow Jones Industrial

Average lost 343.79 points, or

1.3%, to 26573.04, while the

S&P 500 fell 36.49 points, or

1.2%, to 2940.25. The declines

were broad, with 26 of 30

blue-chip stocks and all 11 S&P

500 sectors in the red. The in-

dustrial, materials, energy and

financial segments dropped

more than 2%.

The losses wiped out both

indexes’ gains for the third

quarter, though the Dow in-

dustrials are still up 14% for

the year and the S&P is hold-

ing on to a 17% increase.

The technology-heavy Nas-

daq Composite dropped 90.65

points, or 1.1%, to 7908.68.

The indexes opened higher

but reversed course after the

Institute for Supply Manage-

ment said its U.S. manufactur-

ing index fell to 47.8 in Sep-

tember—the lowest since June

2009—from 49.1 in August.

Readings below 50 indicate a

contraction in manufacturing

activity.

“Everything now seems to

be orbiting around the manu-

facturing data, which unfortu-

nately reinforced data we had

coming out of Europe last

week, specifically Germany,

kind of pointing to this global

slowdown scenario, at least

from the manufacturing,” said

Daniel Morgan, vice president

and senior portfolio manager

at Synovus Trust.

Investors flocked to the

safety of U.S. government

bonds and gold following the

release of the data. The yield

on the U.S. 10-year Treasury

note fell to 1.651% from above

1.7% earlier in the session.

Bond yields fall when prices

rise. Gold prices climbed 1.1%

Slowing economic growth

has prompted central banks,

including the Federal Reserve

and European Central Bank, to

enact stimulus measures, and

federal funds futures showed

traders priced in a higher

probability of more interest-

rate cuts this year following

Tuesday’s data release.

Among Tuesday’s big stock

movers, online brokers

slumped after Charles Schwab

said it would eliminate com-

missions on online stock

trades, furthering the e-broker

price wars. Shares of Charles

Schwab fell 9.7%, while TD

Ameritrade Holding plunged

26%—its largest percent de-

crease since 1999, according to

Dow Jones Market Data—and

E*Trade Financial sank 16%.

European stocks edged

lower, as manufacturing senti-

ment in the continent fell to

the lowest level in nearly

seven years. The Stoxx Europe

600 fell 1.3%.

At midday Wednesday in

Tokyo, the Nikkei was down

0.7% and Hong Kong’s Hang

Seng Index was down 0.8%.

Australia’s S&P ASX 200 was

down 1.3% after rising the day

before after the Australian

central bank cut interest rates

by a quarter of a percentage

point to a record 0.75% and

left the door open to more

cuts.

BYKARENLANGLEY

ANDMAXBERNHARD

Weak Factory Data Pound Stocks

Sources: FactSet (performance); Tullett Prebon (yields)

Investors flocked to safer assets on Tuesday

ANNOUNCEMENT FROM ISM

Index performance

2

–2

–1

0

1

%

10 a.m. noon 2 p.m. 4 noon 2 p.m.

Treasury yields

1.8

1.5

1.6

1.7

%

10 a.m. 4

10-year

2-year

Metals performance

2.0

–2.0

–1.0

0

1.0

%

10 a.m. noon 2 p.m. 4

Gold

Copper

Dow Jones

Industrial

Average

S&P 500

Nasdaq

Composite

CREDIT
MARKETS

TUESDAY’S

MARKETS

COMMODITIES

there’s still ample supply,” said

Rob Thummel, a senior portfo-

lio manager who oversees en-

ergy assets at Tortoise Capital

Advisors, which has been favor-

ing refiners that would benefit

from lower prices for crude

that they turn into fuel. “Until

we get a U.S.-China trade war

resolution, demand concerns

will continue to win the tug of

war.”

At the same time, down-

grades to expectations for

global growth and Chinese tar-

iffs on U.S. crude have stoked

worries that protectionist trade

policies will amplify pressure

on fuel demand.

In mid-September, the Or-

ganization of the Petroleum Ex-

porting Countries lowered its

targets for global oil-demand

growth this year for the third

time in four months. The Inter-

national Energy Agency has

also cut consumption targets,

and the group’s reports of bur-

geoning stockpiles of crude in

developed nations have bol-

stered bets there will be plenty

of oil available in the future.

That is a main reason mar-

ket watchers warn that any set-

backs in coming trade talks be-

tween the U.S. and China could

further diminish demand ex-

pectations for 2020.

Meanwhile, the U.S. contin-

ues to churn out record

amounts of crude and increase

its ability to export it, and a

wave of new projects around

the world are set to add oil to

the market next year.

“Oil prices are getting hit

from both sides,” said Bob

Yawger, director of the futures

division at Mizuho Securities

USA. “The demand side is not

good, and we are cranking out

oil on the supply side.”

Net bets on higher U.S.

crude prices by hedge funds

and other speculative investors

are well below their peaks from

April, Commodity Futures

Trading Commission data show.

They barely increased following

the attacks in Saudi Arabia and

are back to preattack levels, the

latest example of investor cau-

tion in the energy sector.

“There is a significant de-

gree of malaise in the market,”

said Michael Tran, energy

strategist at RBC Capital Mar-

kets. “It’s quite telling when

we’ve seen a big disruption and

the market can’t break high

enough on the back of that.”

West Texas Intermediate,

the U.S. oil benchmark, is ex-

pected to average $58.24 a bar-

rel in the fourth quarter, barely

above where it is currently, ac-

cording to a poll of 13 major

banks conducted by The Wall

Street Journal. Brent is ex-

pected to average $64.31, a

level that was unchanged from

August’s forecast and is more

than 10% below projections

made a year ago.

The negative sentiment has

hurt shares of producers, in-

cluding EOG Resources Inc.

and Diamondback Energy Inc.,

that have fallen 35% or more in

the past 12 months.

“The industry has been re-

ally frustrated,” said Regina

Mayor, who leads KPMG LLP’s

energy practice. “The markets

have been really blasé about

supply-side risk and overem-

phasizing demand-side risk.”

Even after the disruptions in

Saudi Arabia sparked concerns

about possible supply short-

ages, shale companies said they

were planning to leave output

steady. The response was the

latest example of U.S. firms try-

ing to appease restive share-

holders by limiting output.

“We should not be depending

strictly on OPEC,” Continental

Resources Inc. Chief Executive

Harold Hamm said in August.

“We want to make sure that we

don’t oversupply the market.”

Oil Loses

Gains Since

Attack

Lower costs at thepump could benefit consumers.

CHRISTOPHER PIKE/REUTERS

A startup behind one of the

largest initial coin offerings of

the past several years will pay

$24 million to resolve Securi-

ties and Exchange Commission

allegations that its deal vio-

lated federal investor-protec-

tion laws.

The civil settlement repre-

sents one of the biggest fines

since the SEC began cracking

down on ICOs in 2017. Officials

say many such deals evaded

federal securities laws because

the coin issuers didn’t provide

investors with required disclo-

sures meant to inform them

about a business’s finances and

operations.

Block.one , a software com-

pany whose officers are mostly

based in Hong Kong, capitalized

on the hype in cryptocurrencies

when it sold 900 million tokens

in 2017 and 2018, taking in bil-

lions of dollars.

Unlike in some other SEC

enforcement actions that tar-

geted crypto startups, the order

with block.one didn’t accuse

the company of fraud. Instead,

the deal only said block.one

failed to register the sale with

the SEC and provide U.S. inves-

tors with required disclosures.

The deal also includes a dis-

ciplinary waiver that allows

block.one to continue making

its own private investments in

U.S. companies. Under the

terms of its settlement,

block.one could have been dis-

qualified from fundraising ex-

emptions that allow such fund-

ing deals to happen with

minimal red tape. But the SEC

waived the disqualification, ac-

cording to a separate order

posted on the SEC website.

The company, registered in

the Cayman Islands, said it re-

solved the case without admit-

ting or denying the allegations,

a standard practice in SEC en-

forcement settlements. A

block.one statement issued

Monday suggested there is still

uncertainty around how crypto

assets are regulated, while the

SEC insists the regulatory de-

mands are clear.

“We are excited to resolve

these discussions with the SEC

and are committed to ongoing

collaboration with regulators

and policy makers as the world

continues to develop more clar-

ity around compliance frame-

works for digital assets,” the

company said.

Block.one raised money from

investors around the world and,

owing to concern about how its

offering was regulated in the

U.S., made efforts to block

American investors from buy-

ing into the deal through its

website.

Some traders, however,

made it through the barrier,

and the company didn’t con-

firm whether they were U.S.

residents.

BYDAVEMICHAELS

Crypto

Startup

Fined Over

Offering