What's moving markets today: September 4, 2019

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10:23 a.m. ET, September 4, 2019

Trade war will take America to the 'brink of recession,' UBS warns

The United States economy will grind to a near-halt just before the 2020 presidential election because of the trade war with China, UBS warned.

The increasingly pessimistic Swiss bank slashed its GDP forecast for the first quarter to 0.5%, and to 0.3% for the second quarter. That would mark a sharp slowdown from growth of 3.1% during the first three months of 2019.

"A further shock to the economy could result in contraction," UBS chief US economist Seth Carpenter wrote in a report on Monday.

The report, titled "Tariffs take us to the brink of recession," blamed the looming slowdown on the escalating trade battle with China. UBS dimmed its forecast for consumer and business spending as well as job growth.

"This forecast puts the specter of a recession front and center," Carpenter wrote.

Trade war fears were amplified on Monday by a new report showing that US manufacturing activity contracted in August for the first time in three years. Reflecting the impact from tariffs, new export orders plunged to the weakest level since 2009.

UBS warned that the trade war could cause a drop in oil prices that sets off a recession in the United States, which is the world's leading oil producer.

"The slower the growth of the economy, the smaller the shock of any kind is needed to tip an economy into a recession," Carpenter wrote.

9:35 a.m. ET, September 4, 2019

Stocks rebound from Tuesday's losses. Dow jumps 200 points

US stocks bounced higher at Wednesday’s open, clawing back ground after Tuesday’s losses.

The Dow opened 0.8%, or 200 points, higher.

The S&P 500 rose 0.7%.

The Nasdaq Composite kicked off 0.9% higher.

Shares of Starbucks (SBUX) dropped more than 2% at the opening bell, after the company lowered its outlook for next year.

American Eagle (AEO) also downgraded its outlook. Its stocks opened 11% lower.

9:59 a.m. ET, September 4, 2019

Starbucks shares slide after cutting 2020 growth outlook

Starbucks (SBUX) shares slumped more than 3% in early trading after it said its 2020 earnings growth won't be as strong as expected.

The world's largest coffee chain said 2020 growth will be below its original forecast of 10% or more. Starbucks revealed the updated forecast in a presentation at the Goldman Sachs Global Retailing Conference.

The stock is up 45% for the year. Starbucks' next earnings release will be in late October.

9:04 a.m. ET, September 4, 2019

Trade deficit shrinks in July

The US trade deficit decreased to $54 billion in July as exports went up and imports went down, according to the Bureau of Economic Analysis.

That is a drop of $1.5 billion versus June, but less than economists had expected.

Stock futures remained upbeat following the data release.

9:20 a.m. ET, September 4, 2019

US stock futures point at a rebound

The US stock market is on track to rebound from Tuesday's selloff, as futures are pointing at a higher open.

Doware up 0.9%, or 221 points, while those for the S&P 500 are also up 0.9%. Futures for the Nasdaq Composite are up 1.1%.

Dow futures are up 0.9%, or 221 points, while the S&P 500 is up 0.9%. Nasdaq Composite futures are up 1.1%.

Global exchanges are also in the green after news that Hong Kong chief executive Carrie Lam will withdraw the controversial China extradition bill that had sparked the city's protests. The Hang Seng closed 3.9% higher, making it the best day of the year.

US stocks closed lower on Tuesday, after new trade tariffs were implemented by the United States and China over the weekend. On top of that, America's manufacturing sector contracted for the first time in three years.

7:05 a.m. ET, September 4, 2019

US manufacturing contracted. Here's what comes next

A version of this post first appeared in the newly relaunched "Before the Bell" newsletter. Subscribe here!

Those who have argued that the United States can withstand the weakness hitting global factories just received a shock: the American manufacturing sector shrank last month, according to the Institute for Supply Management. It's the first time that's happened since August 2016.

Against expectations, the group's manufacturing index, a key gauge for the industry, came in at 49.1 as the trade war hit sentiment. Any number below 50 indicates a contraction. 

So what happens now? Societe Generale strategist Kit Juckes points out that this is the third time that the US manufacturing ISM has dropped below 50 since the financial crisis, and the previous two events did not trigger recessions. But it's definitely not a positive signal.

In the near term, the survey's biggest impact has been to increase expectations for a larger interest rate cut by the Federal Reserve later this month. The odds of a 50-basis point cut are now at more than 9%, up from 0% on Tuesday, according to CME Group's FedWatch tool.

But we'll get a much better picture of what the Fed is working with by the end of the week. The Institute for Supply Management's non-manufacturing index arrives Thursday. That's followed, of course, by a blockbuster August jobs report on Friday.

6:37 a.m. ET, September 4, 2019

Hong Kong stocks jump nearly 4% on best day of the year

Hong Kong stocks turned in their strongest performance of the year, gaining nearly 4% on news that a controversial extradition bill that sparked months of protests would be completely withdrawn.

The Hang Seng Index (HSI) notched up its biggest daily percentage gain since November 2018 to end at 26,523 points. It got a major boost during afternoon trading from local media reports, subsequently confirmed, that Hong Kong leader Carrie Lam will formally withdraw the bill.

Lam had suspended the bill in June after more than 1 million people took to the streets but that didn't quell the protests.

Read more here.

7:01 a.m. ET, September 4, 2019

Boris Johnson's loss is the pound's gain

A version of this post first appeared in the newly relaunched "Before the Bell" newsletter. Subscribe here!

The pound is getting whipsawed by political turmoil in Britain. Brace for more volatility as the parliamentary drama continues to unfold.

The currency jumped 0.9% against the dollar on Wednesday, rising to nearly $1.22 after UK Prime Minister Boris Johnson suffered a parliamentary revolt aimed at preventing Britain from crashing out of the European Union without a deal to protect the economy. Those gains reverse steep declines from earlier this week, when the pound fell to its lowest level since a surprise flash crash in October 2016.

On the radar: Investors are now looking toward the prospect of an election, which could theoretically be called before or after the October 31 Brexit deadline.

Some investors worry that an election would only amp up the chaos. The outcome could embolden Johnson to pursue his hardline approach to Brexit. Or, it could elevate Labour leader Jeremy Corbyn, whose leftist policies could hit asset prices, the thinking goes.

Deutsche Bank strategist Oliver Harvey disagrees. He says an election is the "least worst of all scenarios this week" and believes it would reduce the prospect of no deal Brexit. Harvey says he'd upgrade his view on sterling to neutral if an October election is called.

Key takeaway: Labour policies would be temporary, reversible and most likely moderated by Parliament, as opposed to the "permanent shock caused by a no deal Brexit," per Harvey.