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(Bloomberg) —U.S. equities swung between gains and losses as tech stocks sank and investors assessed a testy exchange between Secretary of State Michael Pompeo and Chinese officials during a meeting in Beijing. Meanwhile, European shares declined amid Italy’s continued defiance of EU officials over the budget proposed by the new populist government.


The S&P 500 Index clawed back roughly half of an earlier slide, while the Nasdaq 100 Index fell to the lowest since Aug. 1 on its third day of more than 1 percent declines, with software companies and semiconductor manufacturers the worst performing groups in the market. Volatility appears to be returning, with the Cboe Volatility Index, or VIX, at one point touching its highest intraday level since June.
“When these stocks get this expensive on a valuation basis and the market turns down, they tend to be the ones that get hit the hardest,” said Matt Maley, equity strategist at Miller Tabak. “That’s where the weak money is. There’s a certain amount of people who are in certain stocks only for momentum reasons, not because they believe in the fundamentals of the stock.”
The dollar gained versus most major peers except the yen, and gold fell. The U.S. bond market is closed due to the Columbus Day holiday following last week’s rout.

Emerging market stocks fell despite a rally in Brazil as far-right Army Captain and investor favorite Jair Bolsonaro took an overwhelming lead in the first round of the nation’s presidential election. China’s yuan weakened following a policy move by monetary authorities and overseas investors dumped 9.7 billion yuan, or $1.4 billion, of A shares through exchange links with Hong Kong. South Africa’s rand slipped on reports the finance minister sought to resign.

“China and the U.S. are headed toward a confrontation,.” said Alicia Levine, chief strategist at BNY Investment Management. “What I really worry about is not so much the real effect, but the knock-on effect. We saw this today, the Chinese currency is going lower as a result of this, and if the trade confrontation continues the Chinese currency will go lower and that will create a whole host of problems for the global economy.”
In Europe, traders focused their attention on Italy, where the nation’s 10-year bond yield ratcheted up to a four-year high and banking stocks sold off as the populist-led government refused to bow to European Union criticism over its planned budget. Italy’s struggle and further weakness in German industrial data added to pressure on the euro.
Investors are watching moves in the biggest economies for directional signals this week, after China’s central bank cut the amount of cash lenders must hold as reserves, seeking to shore up output amid a worsening trade war.
In the U.S., traders are gearing up for $230 billion of Treasury auctions this week following a selloff last week that took 10-year yields to the highest level since 2011 and helped sap interest in many equities markets.

Elsewhere, WTI crude hovered near $74 a barrel. Aluminum tumbled after Norsk Hydro ASA reversed a decision to close the world’s biggest alumina refinery, adding to supply issues.

By Vildana Hajric and Sarah Ponczek



Here are some key events coming up this week:
The U.S. Treasury has $230 billion worth of debt auctions this week.
The IMF presents its World Economic Outlook on Tuesday.
A closely watched gauge of U.S. consumer prices probably remained elevated in September and rose 2.3 percent from a year earlier, according to forecasts ahead of Thursday’s release.
JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. kick off earnings season for U.S. banks on Friday.

 



Stocks
The S&P 500 was down 0.3 percent to 2,878.43 as of 2:18 p.m. in New York.

Paring losses soon after and closing down -0.02% at 2885.12.

The Stoxx Europe 600 Index decreased 1.1 percent to the weakest since April.

Italy’s FTSE MIB Index declined 2.4 percent to the lowest since April 2017.

The MSCI Emerging Market Index fell 0.6 percent to the weakest since May 2017.

The MSCI All-Country World Index slid 0.5 percent to the lowest in more than seven weeks.



Currencies
The dollar was essentially unchanged.

The euro fell 0.3 percent to $1.1486.

The British pound dipped 0.2 percent to $1.3091.

The Japanese yen gained 0.7 percent to 112.93 per dollar.

South Africa’s rand sank 0.4 percent to 14.8327 per dollar.


Bonds
The yield on 10-year Treasuries was unchanged at 3.23 percent as the U.S. bond market was closed for a national holiday.

Germany’s 10-year yield fell four basis points to 0.529 percent.

Italy’s 10-year yield rose 14 basis points to 3.568 percent, the highest since February 2014.


Commodities
The Bloomberg Commodity Index was little changed.

West Texas Intermediate crude fell 0.2 percent to $74.17 a barrel.

Gold sank 1.4 percent, the biggest tumble in almost two months, to $1,186.80 an ounce

 


-R.W.N II, yours in 322.

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