U.S. equity markets traded lower on Monday as investors remained skittish over the renewed possibility of a September rate increase, while they cheered oil inventory data from the EIA.
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The Dow Jones Industrial Average was 115 points lower, or 0.70% to 16527. The S&P 500 slumped 16 points, or 0.84% to 1972, while the Nasdaq Composite lost 51 points, or 1.07 % to 47756.
Energy was the only one of ten S&P sectors in positive territory, up 1.06%.
Crude wiped out steep August losses after a sharp swing higher in global oil prices in late-morning trade.
The move came after the U.S. Energy Information Administration pared back its assessment of crude production for the first five months of the year. Comments from the Organization of the Petroleum Exporting Countries also gave markets a boost when it said it would consider talking to outside producers after having maintained production levels since the oil slump began last summer.
U.S. crude skyrocketed, snapping a two-month losing streak, as it settled up 8.51% to $49.06 a barrel. That was the biggest one-day dollar gain since August 2012. On a monthly basis, U.S. crude gained 4.41%.
Brent, the international benchmark, surged 7.83% to $53.97 a barrel – the largest one-day dollar gain since September 2008 – and snapped three-straight months of declines. ON a monthly basis, Brent is up 3.72%.
Meanwhile, investors continued to fret about what kind of future impact Chinese weakness will have on global markets, and when the Federal Reserve is most likely to begin hiking short-term interest rates from historic lows.
Over the weekend, investors around the globe digested comments from top Fed officials at the annual Jackson Hole retreat in Wyoming. On Saturday, Vice Chairman Stanley Fischer said the central bank doesn’t necessarily have to wait until 2% inflation is reached before beginning the tightening cycle, adding there’s a “pretty strong case” for beginning to hike rates in September.
Fischer’s comments come after a tumultuous week for the global markets, one in which Wall Street saw exceptionally volatile swings, and even kicked off the prior trading week with the Dow plunging 1,089 points. In the midst of the turmoil, many on the Street pushed back their rate-hike forecasts – with some even expecting the Fed to delay raising rates until March.
Leading up to the central bank’s September 16-17 meeting, all eyes will be closely watching economic data releases in the U.S., culminating with Friday’s August jobs report, for hints about the economy’s ability to handle higher interest rates. On Monday, traders were set for the latest snapshot of Midwest manufacturing data from the Institute for Supply Management-Chicago due at 9:45 a.m.
“Suddenly September is back on the table,” Michael Block, chief strategist at Rhino Trading Partners said in a note. “The futures market had the odds of a September hike below 25% two days ago and now that’s back to just under 40%.”
Elsewhere, traders continued to keep a close eye on developments in China where market instability last week caused near panic in global financial markets.
Asia markets were mixed at the closing bell. China’s Shanghai Composite Index fell 0.82% for the day, capping the month down a whopping 12.49%. Hong Kong’s Hang Seng rose 0.15%, ending the month down 11.94%, while the Nikkei declined 1.28% and ending August down 8.23%.
A similar pattern played out across European markets. The Euro Stoxx 50, which tracks large-cap companies in the eurozone declined 0.52%. The German Dax fell 0.38%, while the French CAC 40 declined 0.47%. The UK’s FTSE 100 was closed due to a holiday in London.
Larry Shover, chief investment officer at Solutions Funds Group, said the dramatic swings in the global equity markets haven’t tracked underlying fundamentals, but the damage to sentiment over the last week or so can’t be ignored.
“The fundamental landscape is undergoing some adjustment, but the pace is much more evolutionary and gradual than one would think simply by observing the S&P 500 in the latter part of August,” he said. “The real damage inflicted on stocks can’t be ignored – no matter how stale and unjustified the Chinese concerns may be, they had a material effect on prices. However, despite deafening claims to the contrary and panicked behavior, a 2008-like crisis isn’t in the offering.”
Gold snapped a two-month losing streak in August, though it dipped into the red during the trading day Monday. For the month, it was up 3.35% to $1,131 a troy ounce. Silver, meanwhile saw a monthly loss of 1.15% to $14.58 an ounce. Copper also saw a monthly decline, shedding 1.25% to $2.34 a pound.
“Given that supply is playing such a greater role in the commodity collapse than demand, it is on this front that investors should be most focused. But the outlook is nebulous at best,” Shover said. “In the metals and mining space there have been an accumulation of minor capital spending reduction announcements, but most of the cuts are coming as a result of enhanced efficiency, not lower output.”
In currencies, the euro gained 0.18% against the U.S. dollar. Meanwhile, the yield on the U.S. 10-year Treasury bond fell 0.005 percentage point to 2.179%.