A look at the day ahead in U.S. and global markets from Mike

Dolan

Wall Street seems to be making a habit of these early month

stock plunges, with Tuesday's tremor a mild aftershock from the

brief August quake one month ago.

Given that September historically tends to be the worst

month of the year for stock market returns - with August a close

second - then seasonal flurries like this probably should be

treated as such. This too will likely pass.

And yet there's inevitably some anxiety that the sharp

retreat from near record highs is rooted in something more

fundamental. And on that score, this week's critical U.S.

employment report and another dour reading on global

manufacturing for August cranked up the tension again.

While factories in the U.S. and around the world have been

spluttering for the best part of two years, there had been some

sign of a manufacturing upturn earlier this year. But the sector

seems to be suffering a relapse, not least as China's economy

continues to struggle with its property bust and growth there

wanes.

U.S. output contracted again in August, according to

Tuesday's release of the Institute for Supply Management's

latest factory survey, even if some modest improvement in

employment readings may ease fears for this week's big labor

market readouts. The first of those starts today with a report

on July job openings.

But survey signs of a further decline in new orders and

rising inventories suggested a deepening slowdown in

manufacturing is taking hold.

What's more, JPMorgan's global manufacturing index slipped

to its weakest reading of the year and registered its second

month in a row in contractionary territory.

"More concerning are signs that business equipment spending

is losing steam - potentially pointing to a weakening in the

pace of hiring as well," the bank said in a report.

While manufacturing only accounts for about 10% of the U.S.

economy, it's 15% of euro zone GDP, 20% of Germany's output and

26% of China's.

More dominant service sector readings are offsetting the

gloom - with euro zone surveys on Wednesday showing the overall

business activity signal still expanding last month and only

marginally below forecast as the Paris Olympics seemed to lift

the mood.

Still, the factory wobble seems to have been enough to knock

back the stocks again as the S&P500's 2% loss on Tuesday

clocked its worst day in a month and the VIX volatility gauge

jumped back above its long-term averages.

Adding to the angst was a near 10% drop in artificial

intelligence bellwether Nvidia ( NVDA ), its worst day since

April and marking its biggest ever one-day loss in market value

with a $279 billion wipeout.

The stock lost another 1% out of hours overnight after

Bloomberg reported the U.S. Department of Justice has sent a

subpoena to Nvidia ( NVDA ) as it deepens its probe into the AI

heavyweight's antitrust practices.

Stocks around the world were caught in the slipstream on

Wednesday, with Japanese, Taiwanese and Korean

markets all suffering 3-4% swoons.

European stocks lost another 1% and Wall St stock

futures remained slightly in the red.

With growth clouds nudging up Federal Reserve easing

expectations, there was some relief for global investors from

the rally in Treasuries - sustaining the newly negative

correlation between stocks and bonds that re-emerged last month.

The chances of a Fed rate cut of as much as 50 basis points

rose to about 40%, with 104bps now priced for the year.

Two-year Treasury yields plunged to 3.83% - their

lowest since May last year - and 10-year yields ebbed too.

The bond rally was encouraged by a sharp drop in oil prices

- which were hit by worries about global manufacturing, a likely

resumption of Libyan supply after the recent outage and

expectations of an increase in overall OPEC output next month.

U.S. crude prices fell below $70 per barrel for the

first time since Jan. 2 and year-on-year price drops are now

running at close to 20%.

The dollar index, which hit a two-week high on

Tuesday, slipped back again. And there was little sign of a

renewed "safety bid" in the likes of gold or Bitcoin

, which both fell today.

Japan's yen was slightly firmer after this week's

latest reiteration from the Bank of Japan that it plans to

continue tightening.

And the Canadian dollar found a foothold as it awaits

another Bank of Canada interest rate cut later today - the third

of the year so far even before the Fed gets going.

Key developments that should provide more direction to U.S.

markets later on Wednesday:

* Bank of Canada policy decision, news conference from BOC

governor Tiff Macklem

* US July job openings, July international trade balance, July

factory goods orders; Canada July trade balance,

* Federal Reserve publishes 'Beige Book' on economic conditions;

European Central Bank board member Frank Elderson speaks

* US corporate earnings: Hewlett Packard Enterprise ( HPE ), Dollar

Tree ( DLTR ), Hormel Foods ( HRL ), Copart ( CPRT )

(By Mike Dolan, editing by Philippa Fletcher

[email protected])