US economy

China warnings from Caterpillar, Nvidia rattle Wall Street


US stocks faced hefty losses on Monday after warnings of a sluggish Chinese economy rippled across Wall Street.

Caterpillar, the maker of construction and mining equipment, issued a weaker earnings outlook than expected for 2019 with sales poised to flatline in China. Nvidia added to investors’ concerns by making a surprise cut to its fourth-quarter revenue guidance, saying demand for gaming chips in the region had deteriorated.

Monday’s fresh warnings of trouble in China — just days before US and Chinese officials meet in Washington — gave Wall Street reason to believe that a long-running trade dispute between the world’s two largest economies is taking its toll, both on the Chinese economy and US corporate earnings. Nvidia’s downbeat outlook echoed warnings from other tech giants including Apple, which shocked Wall Street early this month with a rare cut to its revenue forecast, citing slow iPhone sales in China.

The CBOE Volatility Index, known as Wall Street’s “fear gauge,” was sitting more than 2 points higher at 19.53.

Morgan Stanley’s chief US equity strategist Michael Wilson advised clients to “dismount” from the bull market amid continued volatility and mixed signals from the initial batch of fourth-quarter earnings.

“We’ve gotten close enough on a bull that is becoming increasingly dangerous and we struggle to see the upside in hanging on just to see how long we can,” Mr Wilson wrote in a note to clients. “We think it is better to hop off now and rest up for the next rodeo.”

Technology and industrial shares were among the worst performers in the S&P 500, which tumbled as much as 1.5 per cent. The benchmark index was down 1 per cent in midday trading amid a 1.8 per cent decline for the tech sector. Industrials fell 1.3 per cent, while healthcare dipped 1.4 per cent and communication services fell 1.4 per cent.

Energy shares also retreated, down 1.4 per cent, as the worsening outlook for China renewed concerns that a slowdown could hit oil demand. West Texas Intermediate lost 3.3 per cent to trade at $51.91 a barrel. Brent crude slipped 2.9 per cent to $59.85 a barrel.

The Dow Jones Industrial Average shed 1.1 per cent. Shares in Caterpillar, by far the worst performer in the Dow, sank 9 per cent to set a pace toward its worst single-day drop since August 2011.

The tech-heavy Nasdaq Composite slumped 1.3 per cent, battered by falling shares of semiconductor groups. Nvidia was down 15.5 per cent. Advanced Micro Devices declined 7 per cent, while shares of Intel and Texas Instruments also saw red.

Other companies with exposure to China also felt pressure on Monday. Shares of Boeing, MGM Resorts, smartphone glass maker Corning, auto parts supplier BorgWarner and engine builder Cummins were in negative territory.

The US dollar softened, with the DXY index down 0.1 per cent at 95.711.

The yield on the 10-year Treasury note dropped 1.2 basis points to 2.7386, while that on the two-year note declined 1 basis point to 2.5897.



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