US Stock Market Overview – Stocks Drop and Volatility Rises as Hong Kong Protest Increases

Volatility surges and US yields tumble
David Becker

US stock prices moved lower on Monday as Hong Kong protestors swarmed the airport, pushing officials to cancel all flights. The VIX surged higher, as the S&P 500 dropped. Gold and silver prices moved higher helping to buoy metal and mining stocks. All sectors were lower, led down by Cyclicals and Energy, while Utilities were the best performer in a down tape. When defensive sectors outperform it is an ominous sign for stocks. US yields tumbled on Monday with the 10-year US benchmark treasury closing at the lowest level since May of 2016.

Volatility Rises on Hong Kong Protesting

Implied volatility in the form of the VIX volatility index surged 9%, as heightened tension in Hong Kong has led to criticism from the mainland. The airport on Hong Kong was closed on Monday as protestors swarmed the terminal, generating volatility. The VIX volatility index measures the “at the money” implied volatility on the S&P 500 index.

Senior Hong Kong officials were quoted, saying the protestors had committed a serious crime and showed signs of terrorism.  The Hong Kong economy is already suffering from the US-China trade war, and these ongoing protests will only make things worse. The yuan was fixed weaker Monday.  Recent moves support the view that China is not weaponizing the yuan, but rather letting market forces drive its movements.

Chinese Market Rise as Yuan Continues to Drop

The Shanghai Composite closed higher, though, notching a 1.5% gain after China’s central bank continued to weaken the yuan, though at a slower pace than traders had expected. That helped ease concerns of a sharp devaluation after President Trump last week accused China of manipulating its currency.

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