Dow Futures Collapses as Wall Street Screams Recession Alarms

June 3, 2019 07:01 UTC


By CCN: Dow Jones futures tumbled in early trading Monday as Wall Street firms triggered multiple recession warnings. The Dow is poised to open in the red as traders initiating a triple-digit selloff overnight. Risk-off mode is firmly engaged.

JP Morgan Chase and Co. said the likelihood of recession in 2019 is now at 40 percent, up from 25 percent last month. Morgan Stanley warned that a recession is imminent unless tensions cool between the US and China.

Dow Jones futures in triple-digit fall overnight

Dow Jones Industrial Average (DJIA) futures fell as much as 180 points on Monday, pointing to a weak open. At 6.01 ET, dow futures recovered slightly to 24,730, still down 90 points (0.36 percent).

Dow Jones futures collapsed as much as 180 point in early trading on Monday. Source: Yahoo Finance

S&P 500 futures fell 8.5 points (0.31 percent) to 2,744. The tech-heavy Nasdaq Composite index slumped 34.75 points lower (0.49 percent) to 7,098.

Markets are “underestimating” the recession risk

Morgan Stanley analyst Chetan Ahya said that Wall Street is finally waking up to the reality of Trump’s China trade war. He told Bloomberg that traders have so far underestimated the global impact of US tariffs and China’s retaliation.

“Recent conversations with investors have reinforced the sense that markets are underestimating the impact of trade tensions… they appear to be overlooking its potential impact on the global macro outlook.”

In other words, there’s more room to fall yet and recession bells are ringing. The Dow Jones Industrial Average (DJIA) pumped towards all-time highs in 2019. But the momentum was knocked out of the market as Sino-American trade relations broke down. The DJIA snapped a four-month winning streak to end May with the first monthly loss of the year.

Trump extends trade threats to Mexico

Dow traders are also weighing Trump’s latest tariff threat on Mexico. The US president has warned of 5 percent tariffs on Mexican imports unless the country acts on illegal immigration into America. The tariffs will rise monthly until they reach 25 percent.

JP Morgan warned the move would hit the US economy, even if the US and Mexico reached a quick agreement.

“Even if a deal is quickly reached with Mexico, which seems plausible, the damage to business confidence could be lasting, with consequences that might still require a Fed response.”

The Wall Street firm thinks the Federal Reserve will be forced to brace against a possible recession. A warning note to investors predicts the Fed will slash interest rates twice in 2019 if the tariffs reach 25 percent.

Dow in trouble as China blames US for trade collapse

The Dow is poised to extend losses on Monday as China issued a controversial white paper. The paper hit back at Trump and blamed the US for the breakdown in negotiations.

“The U.S. government accusation of Chinese backtracking is totally groundless. It is reckless to accuse China of ‘backtracking’ while the talks are still under way.”

Traders are no longer expecting a trade deal before the upcoming G20 meetings. In fact, the appear to be pricing in the likelihood of a long and painful negotiation period.

This article was edited by Samburaj Das.

Last modified: June 3, 2019 10:08 UTC

Ben is a journalist with a decade of experience covering financial markets. Based in London, UK, his writing has appeared in The Huffington Post and he was Chief Editor at Block Explorer, the world's longest-running source of Blockchain data. Reach him at benjamin-brown.uk or on Twitter at _Ben_Brown. Email ben @ benjamin-brown.uk.