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David Becker
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US stock prices were under pressure for most of the trading session, with the Dow Industrials down nearly 950 points at the lows. The impetus for the selloff was China’s announcement that they plan to retaliate against the US. Recall on Friday, President Trump announced via tweet that he was planning to install new tariffs against China on 300-billion worth of goods and services. China, for its part, plans to stop buying US agricultural products and let their currency slide against the greenback to the lowest levels seen since 2008. If the Chinese currency drops it can offset the tariffs that are issued against its goods and services.

Gold prices broke out, buoying mining stocks, especially the GDX ETF which tracks gold miners. US yields tumbled with the 10-year benchmark Treasury yield dropping nearly 11-basis points. The 2-year yield dropped 11-basis points down to 1.60. This implies another 50-basis points of easing over the next 2-years. All sectors were lower, led down by technology and energy shares, utilities were the best performing sector in a bad tape. The dollar weakened across the spectrum accept against the Chinese Yuan. This came as tensions between the US and China increased over the weekend. Additionally, the US ISM services PMI decelerated in July to the weakest level in 3-years. This comes as the Chinese government let the Yuan slip to the lowest levels since 2008.

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US ISM Services Declines More than Expected

The US services sectors decelerated in July to its weakest level in 3-years, according to the Institute of Supply Management. This comes as trade worries weighed on business orders and the outlook for the overall economy declined. The Institute for Supply Management reported on Monday that its non-manufacturing activity index fell to 53.7 from 55.1 in June. Expectations had been for a reading of 55.5 for July. The ISM services survey’s measure on new orders fell to 54.1 last month, its lowest since August 2016, from 55.8. New export orders fell to 53.5 from 55.5 in June. Prices fell to 56.5 from 58.9. The employment index, which moved up to 56.2 from 55.0.


The PBOC Announces Weaker Yuan

The PBOC announced that the onshore yuan traded above 7 for the first time since early 2008.  For offshore Yuan it was the first time it has ever traded with a 7-handle.  President Trump immediately complained this was currency manipulation but the weak yuan is largely reflecting weakness in emerging markets around the globe.  The PBOC reported that although the yuan is dropping against the US dollar it is stable and strong against a basket of currencies.  The central bank added that it will act to curb speculation and will try to keep the yuan stable.  China has pledged not use the currency as a weapon in the trade war against the United States.

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