The Wall Street Journal - 09.08.2019

THE WALL STREET JOURNAL. ***** Friday, August 9, 2019 |B11

they are disproportionately

exposed to technology, and

tech was the worst-perform-

ing sector.

Tech weakness wasn’t only

because of China-exposed

tech stocks such as the chip

makers andApple.Face-

book,Twitter, Google owner

AlphabetandAmazon.com,

none of which rely on China,

all fell by more than the

wider market.

In many ways this is odd.

The big disruptive companies

have shown their ability to

grow independently of the

strength of the economy in

the past decade, have tons of

cash and are loved by inves-

tors.

Again, their falls could be

because investors were

shocked out of leveraged po-

sitions, in this case in tech

stocks bought because they

had strong upward momen-

tum.

MARKETS

territory, but can’t go very

far without hurting banks

and encouraging hoarding of

bank notes.

A

nyone with memories

of the last euro crisis

will scoff at the idea

that the currency could be a

haven. It is true that serious

economic troubles could

again create doubts about

the survival of the currency.

But the ECB has shown its

willingness to rip up its rules

to hold the euro together, so

things would have to get

very, very bad before this be-

comes an issue.

In such situations of fi-

nancial unrest, ordinary mar-

ket relationships are up-

ended anyway, so other

havens also will become un-

reliable. Remember that gold

lost one-quarter of its value

after the collapse of Bear

Stearns in 2008, just when

holders really needed its se-

curity.

W

ithin the stock mar-

ket, one natural

place to hide is

quality stocks with little debt

and solid earnings. Unfortu-

nately, they were big losers

on Monday, mainly because

A

nother possibility is

investors were holding

stocks in part because

bond yields were so low, a

theory dubbed TINA for

“there is no alternative” to

stocks. Reluctant buyers nat-

urally avoided stocks that

had been duds for years—

cheap old-economy stocks—

and went for high profit

margins, growth and strong

balance sheets for safety.

When they fled stocks, they

sold what they owned, and

that dragged down both

quality and tech.

As with the euro, bulls will

hope such a reversal in posi-

tioning is purely temporary.

As with the euro, though, the

tech-stock underperformance

could last a long time in a

downturn purely because so

many people shared the

same views to start with.

My guess is that the dollar

will still be king if things

turn really nasty, while tech

stocks will suffer from a loss

of faith. But the trouble with

choosing a haven is that we

never really know how much

leverage is supporting posi-

tions until it gets yanked

away, and even the safest as-

set can do the opposite of

what you expect when it is.

point since then, jarring inves-

tors when they are already anx-

ious about falling interest

rates, slowing global growth

and tepid earnings.

Those concerns abated

somewhat Thursday.

“The odds are that this may

last for a while as the [People’s

Bank of China] calms down the

market,” said Sébastien Galy, a

senior macro strategist at Nor-

dea Asset Management, refer-

ring to China’s central bank.

Also feeding into the sense

of relief was an unexpected

turnaround in Chinese exports,

which climbed 3.3% in July

from a year earlier. In addition,

the Bank of France’s July busi-

ness survey indicated an accel-

eration in growth in the euro-

zone’s No. 2 economy.

Economists at Daiwa Capital

Markets called that report “ar-

guably as upbeat as might have

been hoped.”

The S&P 500’s technology

sector climbed 2.4%, recouping

all of its losses from earlier in

the week as most stocks in the

group notched gains.Advanced

Micro Devicesoutpaced the

broader sector though, adding

$4.73, or 16%, to $33.92 after

saying it plans to release a new

server chip.

The Stoxx Europe 600 added

1.7%, its biggest daily gain since

June. Japan’s Nikkei advanced

0.4%, snapping a four-day los-

ing streak. At midday Friday,

the Nikkei was up 0.7%, Hong

Kong’s Hang Seng Index was up

0.2%, the Shanghai Composite

was up 0.1%, South Korea’s Ko-

spi was up 1.3% and Australia’s

S&P ASX 200 was up 0.3%.

borrow euros to buy higher-

yielding dollars when mar-

kets were stable, but in cha-

otic markets these leveraged

“carry trades” are shut

down, which involves buying

back euros and selling dol-

lars.

There was heavy position-

ing against the euro in fu-

tures markets, suggesting a

lot of leveraged bets needed

to be shut down. In the short

term that helps the euro, but

once the leveraged traders

are out, it offers no longer-

term support.

Interest rates might help

the euro if market conditions

worsen, however. The Fed-

eral Reserve has scope to

lower U.S. interest rates at

least 2 percentage points if

the economy gets into seri-

ous trouble. The European

Central Bank can take its

rates further into negative

Continued from page B1

Few Places

To Hide in

The Market

blue-chip index notched gains,

including aerospace company

Boeingand technology firm

Microsoft. The S&P 500 also

climbed, adding 54.11 points, or

1.9%, to 2938.09, and the Nas-

daq Composite added 176.33

points, or 2.2%,

to 8039.16.

Meanwhile,

investors di-

aled back their appetite for

risk-averse assets. Yields on

the 10-year U.S. Treasury note

logged their biggest one-day

gain since mid-July, rising to

1.710%. Yields rise as prices fall.

Gold prices fell 0.3% to $1,515 a

troy ounce.

The U.S.-China trade war en-

tered a new phase this week af-

ter the Chinese currency depre-

ciated below the crucial 7-

yuan-per-dollar level on

Monday, days after the U.S.

threatened to expand tariffs on

$300 billion of Chinese im-

ports. That pushed stocks

sharply lower Monday, with all

three major indexes suffering

their biggest single-day pull-

backs of the year.

The U.S. Treasury Depart-

ment labeled China a currency

manipulator following the

move, and the yuan has fluctu-

ated above and below that

Continued from page B1

Dow Jumps

As Beijing

Eases Fear

from emerging-markets stocks

and bonds between last Thurs-

day and Tuesday, according to

the Institute of International

Finance, a period in which the

U.S. slapped more tariffs on

Chinese goods and branded

the country a currency manip-

ulator for allowing the yuan to

weaken. Some $2 billion of

those outflows came from Chi-

nese stocks, the IIF said.

The decline has been a re-

versal of fortune for investors.

After falling into a bear mar-

ket last year, emerging-mar-

kets stocks were off to a

strong start in the first three

months of the year, as the

Federal Reserved signaled it

was unlikely to raise rates af-

ter a December increase that

roiled markets. Bond-market

investors snapped up offerings

such as the sovereign bonds of

long-isolated Uzbekistan,

which easily met the $1 billion

target it had set for its debut

sovereign-bond offering in

February.

“Things have escalated be-

yond most people’s imaginings

in recent days,” said Alejo Cz-

erwonko executive director of

emerging-markets investment

strategy at UBS Wealth Man-

agement. “The fear is that

things escalate into a down-

ward spiral.”

A decline in commodity

prices also has weighed on

emerging markets.

Investors are fleeing emerg-

ing-markets stocks and cur-

rencies, fearful that an esca-

lating trade war between the

U.S. and China will weigh on

global growth.

The MSCI Emerging Mar-

kets Index, a measure of stock

performance, has fallen for 11

straight sessions through

Wednesday and is down more

than 11% from its recent highs,

putting it in correction terri-

tory.

Top index components such

as China’s Alibaba Group

Holding, Tencent Holdings

Ltd. and South African media

companyNaspersLtd. slid at

the beginning of the week.

Currencies also have tum-

bled with some, like the Co-

lombian peso, following the

Chinese yuan to record lows.

The sudden flight from the

boom-and-bust asset class il-

lustrates how drastically in-

vestor views shifted as the

conflict between Washington

and Beijing intensified in re-

cent days.

Many believe the trade bat-

tle will likely weigh on global

growth for the long term, un-

dercutting the case for owning

assets of emerging-markets

countries, particularly those

with economic and trade links

to China.

Investors pulled $6.8 billion

BYIRAIOSEBASHVILI

Reversal Dents Shares

In Emerging Markets

was considering taking action

to halt heavy selling.

The world’s largest oil ex-

porter had contacted other

crude-producing nations to

discuss policy responses to

dropping prices, according to

Bloomberg.

The kingdom has already

exceeded its production-cut

requirements from the deal

between the Organization for

the Petroleum Exporting

Countries and its allies that

was extended in July. What

form further action might take

remains unclear.

“It’s very understandable

that they’d start interfering

with prices at these levels—

Brent in the mid-50s is not

good for them,” said Georgi

Slavov, head of research at

Marex Spectron. “I more than

expect them to interfere ag-

gressively, but whether they’ll

do that formally, asking for an

emergency meeting of OPEC,

or simply engineer a rebound

through statements is any-

one’s guess.”

Brent prices plunged 7% on

Aug. 1, their largest daily

move of the year, as President

Trump announced fresh tariffs

on roughly $300 billion of Chi-

nese imports.

Prices have swung wildly

intraday since then, with daily

trading volumes hitting their

second-highest level of 2019

on Wednesday, according to

FactSet, when U.S. government

data showed a surprise in-

crease in crude stockpiles.

This sparked fresh anxieties

about weakening fuel demand

alongside flagging global eco-

nomic growth.

Despite those fears, a pause

in hostilities between the U.S.

and China appeared to be

helping to drive oil’s recovery.

Stocks and other risky assets

also rose, with foreign-ex-

change moves also calmer, af-

ter China’s central bank set

the official yuan rate Wednes-

day at a level stronger than

many had predicted.

Should Saudi Arabia make

deeper oil supply cuts, Riyadh

may experience the same

problems it faced in trying to

enforce those already in place.

Numerous oil-exporting

countries, often ones facing

geopolitical strife and eco-

nomic strictures, have re-

ceived de facto exemptions

from fulfilling their cuts.

Some analysts have even

touted the likelihood of Russia

flouting its quotas amid pres-

sure from oil companies, now

that the flow from the Dru-

zhba pipeline has returned to

normal after it suffered chlo-

ride contamination in April.

“A starting point would be

to ensure that all members of

the current output cut deal are

at least in compliance—mem-

bers such as Iraq and Nigeria,”

ING strategists said.

Oil prices could receive an-

other negative jolt Friday from

the International Energy

Agency’s monthly market re-

port. The IEA has already

downgraded its oil-demand

growth forecast for 2019, and

Executive Director Fatih Birol

intimated in July that the

agency would cut its forecast

by another 100,000 barrels to

1.1 million barrels a day in its

August report.

Rather than discussing

whether the IEA will cut, in-

vestors were asking whether

the reduction will be deeper

than 100,000 barrels, said Gio-

vanni Staunovo, a commodi-

ties analyst at UBS Wealth

Management.

—Amrith Ramkumar

contributed to this article.

Crude prices rallied Thurs-

day from near their lows for

the year as investors’ anxiety

about global growth prospects

showed signs of easing.

U.S. crude futures advanced

2.8% to

$52.54 a bar-

relonthe

New York Mercantile Ex-

change, snapping a three-ses-

sion losing streak and trim-

ming some of their August

drop following their lowest

close since mid-January a day

earlier. Brent crude, the global

price gauge, added 2% to

$57.38 a barrel on the Inter-

continental Exchange.

Thursday’s uptick left Brent

down 7.3% on the week, with

U.S. crude down 5.6%. Those

losses were larger before a

Bloomberg News report late

Wednesday said Saudi Arabia

BYDAVIDHODARI

Oil Rebounds From Near 2019 Lows

Saudi Arabia, the world’s largest oil exporter, is said to be considering taking action to halt heavy selling. An offshore oil field operated by the kingdom.

SIMON DAWSON/BLOOMBERG NEWS

COMMODITIES

TechSupport

Technologyandcommunicationcompaniesledabroadmarket

rallyThursday,helpingtheS&P500recouplossesfromearlier

intheweek.

Source: FactSet

30

–5

0

5

10

15

20

25

%

Jan. Feb. March April May June July Aug.

Informationtechnologysector

Communicationsservicessector

S&P500

Indexandsector

performancethisyear

SearchingforHavens

Gold,theyenandtheSwissfranchaverisenwitheconomic

concerns,butthedollarhasn'tgainedagainsttheeuro.

Currencies*andcommodityprices,performancesinceMay

Source: Refinitiv

*Value against the U.S. dollar

15

–15

–10

–5

0

5

10

%

Yen

Euro

Swissfranc

Gold

Brentcrude

June July Aug.

THURSDAY’S

MARKETS

AUCTIONRESULTS
Here are the results of Thursday's Treasury auctions.
All bids are awarded at a single price at the market-
clearing yield. Rates are determined by the difference
between that price and the face value.
FOUR-WEEK BILLS
Applications $131,949,944,500
Accepted bids $50,000,164,500
" noncompetitively $1,548,881,000
" foreign noncompetitively $200,000,000
Auction price (rate) 99.839389
(2.065%)
Coupon equivalent 2.103%
Bids at clearing yield accepted 16.29%
Cusip number 912796VU0
The bills, dated Aug. 13, 2019, mature on Sept. 10,
2019.
EIGHT-WEEK BILLS
Applications $129,588,173,900
Accepted bids $40,001,062,700
" noncompetitively $275,462,900
" foreign noncompetitively $150,000,000
Auction price (rate) 99.681111
(2.050%)
Coupon equivalent 2.091%
Bids at clearing yield accepted 0.88%
Cusip number 912796VY2
The bills, dated Aug. 13, 2019, mature on Oct. 8, 2019.
30-YEAR BONDS
Applications $54,920,389,000
Accepted bids $31,398,523,000
" noncompetitively $8,712,200
" foreign noncompetitively $0
Auction price (rate) 98.173884
(2.335%)
Interest rate 2.250%
Bids at clearing yield accepted 46.20%
Cusip number 912810SJ8
The bonds, dated Aug. 15, 2019, mature on Aug. 15,
2049.

U.S. government-bond
prices fell Thursday after a re-
port that the German officials
are considering a fiscal stimu-
lus package.
The yield on the benchmark
10-year government note rose
the most in four weeks, set-
tling at 1.710% from 1.675%
Wednesday.
Yields, which rise as bond
prices fall, climbed in the U.S.
and Germany following a Reu-
ters report that the German
government is considering an
increase in spending. Such a
plan could provide a jolt to the
country’s economy after slow
growth raised concerns about
a recession.
Investors said that an in-
crease in fiscal support could
help Europe’s
economy, espe-
cially because the
European Central
Bank has already held interest
rates below zero for several
years and many remain con-
cerned that additional reduc-
tions will provide only a lim-
ited boost to growth.
The yield on 10-year Ger-
man government bunds settled
at negative 0.559%, up from
negative 0.601% Wednesday.
Investors buying the debt are
effectively paying the country
to hold their money, because
they are paying more than the
total of any interest payments
and the face value of the secu-
rity to hold it.
“If governments can issue
at zero or negative [yields], it
just seems like a sensible
thing to do,” said Andre Sever-
ino, head of global fixed in-
come at Nikko Asset Manage-
ment. “Either governments
start doing fiscal, or we’re go-
ing to continue down that neg-
ative rate path.”
The yield climb marked a
pause in the latest leg of this
year’s rally, which accelerated
after the Federal Reserve re-
duced interest rates for the
first time in more than a de-
cade.
Concerns that rising trade
tensions could become a
greater drag on global growth
have also weighed on yields,
after President Trump said
last week that he would im-
pose additional tariffs on
China.
Fed officials have cited the
risk of slowing global trade as
a risk to the continuation of
the U.S. economic expansion.

BYDANIELKRUGER

German

Stimulus

News Hits

Treasurys

CREDIT
MARKETS

U.S. Sets Debt Sales

The Treasury Department will
auction $112 billion in securities
next week. Details (all with mini-
mum denominations of $100):
Monday:$42 billion in 13-
week bills, a reopening of an is-
sue first sold on May 16, 2019,
maturing Nov. 14, 2019. Cusip
number: 912796SS9.
Also Monday, $42 billion in
26-week bills, dated Aug. 15,
2019, maturing Feb. 13, 2020.
Cusip number: 912796TF6.
Noncompetitive tenders for
both issues must be received by
11 a.m. EDT Monday and com-
petitive tenders, by 11:30 a.m.
Tuesday:$28 billion in 52-
week bills, dated Aug. 15, 2019,
maturing Aug. 13, 2020. Cusip
number: 912796TD1.
Noncompetitive tenders must
be received by 11 a.m. Tuesday;
competitive tenders, by 11:30 a.m.