BOND YIELDS PLUNGE TO NEW LOWS -- STOCK RALLY FADES ON CHINA TARIFF THREAT -- DOLLAR WEAKENS AS YEN AND GOLD REBOUND -- CRUDE OIL TUMBLES 7% -- FALLING YIELDS HURT FINANCIALS

BOND YIELDS PLUNGE...A threat of new tariffs on China starting September 1 is contributing to this afternoon's plunge in bond yields.  And lower stock prices.  Chart 1 shows the 10-Year Treasury yield plunging 13 basis points to the lowest level since 2016.  Even more surprising is a 16 bps drop in the 2-year yield.  That's pushing bond prices sharply higher and boosting bond proxies like staples, utilities, and REITs.  But it's hurting most other groups, and banks in particular.   That's also causing today's earlier rally in stocks to fade this afternoon.   Falling Treasury yields are also weakening the dollar and causing safe haven buying in the yen and gold.  A -7% plunge in oil is making energy the day's weakest sector (Chart 3).  Financials are the second weakest sector.

Chart 2 shows the S&P 500 trading lower this afternoon and reversing this morning's gain.  That would be a discouraging close for the day.   We'll watch developments for the rest of the day.  And take another look at this week's trading at week's end.