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Stocks fall as geopolitical uncertainty unsettles markets

U.S. stocks slipped Wednesday after a strong rally at the start of June faded. Protests in Hong Kong further weighed on global markets.

The S&P 500 (^GSPC) fell 0.2%, or 5.88 points, as of market close. The Dow (^DJI) edged down 0.17%, or 43.68 points, while the Nasdaq (^IXIC) fell 0.38%, or 29.85 points.

Treasury yields tracked stocks’ declines, with the yield on the 10-year note (^TNX) down 1 basis points to 2.12% Wednesday afternoon. Gold prices (GC=F) edged up, and the Japanese yen strengthened against the U.S. dollar (JPYUSD=X).

Meanwhile, crude oil prices slid after the U.S. Energy Information Administration (EIA) slashed its forecast for 2019 world oil demand growth by 160,000 barrels per day (bpd) to 1.22 million bpd. The EIA reported Wednesday that U.S. commercial crude stockpiles rose by 2.2 million barrels for the week through June 7, adding to concerns of a supply glut.

U.S. West Texas intermediate crude oil futures (CL=F) dropped about 4% to settle at $51.14 per barrel, while Brent crude oil futures (BZ=F) fell 3.7% to settle at $59.97 per barrel.

Overseas, demonstrations in Hong Kong swirled up volatility in global financial markets. Tens of thousands of people took to the streets in protest of a government plan to allow extraditions to mainland China. Lawmakers postponed a legal debate on the bill to try and further the legislation amid the demonstrations. The protests, which began over the weekend, erupted into violence Wednesday.

The Hang Seng (^HSI), an index for the Hong Kong stock exchange, declined 1.73% on Wednesday.

Meanwhile, concerns of U.S.-China trade relations continue to simmer in the background. In one of the latest updates to U.S.-China trade relations, President Donald Trump said Wednesday he was personally standing in the way of a trade agreement with Beijing until an acceptable agreement could be reached.

“It’s me right now that’s holding up the deal,” Trump told reporters at the White House, according to Bloomberg. “And we’re going to either do a great deal with China or we’re not going to do a deal at all.”

Trader Craig Esposito, left, works with specialists Peter Mazza, center, and Vera Liu on the floor of the New York Stock Exchange. (AP Photo/Richard Drew, File)

According to many market pundits, the brinkmanship is likely to last even after the G20 summit in Japan later this month, where Trump and Chinese President Xi Jinping are expected to meet.

“The spat between the two powers is playing out in a similar fashion to many other negotiations in his life – an initial deal is rejected, followed up by tough language, but in the end a deal (probably similar to what was on the table in the first place) is finally signed,” Chris Beauchamp, chief market analyst at IG Group in the U.K., wrote in an email Wednesday. “But the time between initial deal and final agreement can be a long one, and markets have already learnt the folly of expecting a resolution too soon.”

ECONOMY

U.S. consumer prices inched up in May, according to data from the Bureau of Labor Statistics Wednesday. The consumer price index (CPI) rose 0.1% month-over-month in May, matching expectations and coming in lower than the 0.3% pace of increase logged in April. Food prices rose 0.3% in May after declining by 0.1% in April, and comprised nearly half of the May increase in CPI on a seasonally adjusted basis. However, the gains were offset by a decline in the energy index of 0.6% in May, and the gasoline index fell 0.5% following a 5.7% increase in April.

Excluding volatile food and energy prices, CPI rose 0.1% on a monthly basis for a fourth consecutive month. This was lower than the 0.2% pace of increase expected, and unchanged from the month prior’s reading.

Over last year, CPI excluding food and energy prices rose 2.0%, slightly below the 2.1% pace of gains expected. The so-called core CPI measure serves as a gauge of inflation in the economy. Overall CPI rose 1.8% year-over-year, coming short of both the 1.9% pace expected and the 2.0% rate from April.

“This morning’s inflation data adds more fuel to the rate cut fire and increasingly supports the Fed’s dovish stance,” Mike Loewengart, vice president of investment strategy for E-Trade, wrote in an email. “The big takeaway for investors today is that economic fundamentals are still quite strong and there continues to be reasons to be optimistic about the state of our economy – sure growth is slowing, but that does not mean it’s shrinking.”

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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