The yuan dipped after China set its reference rate slightly weaker than expected. India's rupee and the Thai baht slipped. The US dollar was steady, while the yen gained and gold rallied toward $1,500 an ounce.
Last week, President Donald Trump rattled markets when he promised to impose 10 per cent tariffs next month on all Chinese imports that haven't already been hit with tariffs of 25 per cent. China struck back on Monday, allowing its currency, the yuan, to weaken against the US dollar.
China stabilised the yuan on Tuesday and that helped lift US stocks a day after they endured their worst day of the year. But the markets turned volatile again after central banks in New Zealand, India and Thailand cut key interest rates Wednesday.
The surprise interest-rate cuts triggered a slide in bond yields around the world as investors scrambled for safety.
The yield on the 10-year Treasury dropped to its lowest level in nearly three years, down to 1.67 per cent from 1.74 per cent late Tuesday, and it's been sliced nearly in half in just nine months.
"The Treasury market is trading much higher ... as investors continue to seek a safer haven, completely unsure as to what may happen next," Kevin Giddis, head of fixed income capital markets at Raymond James wrote in a report.
The S&P 500 index was down 0.2 percent as of 2:13 p.m. Eastern time. The Dow slid 85 points, or 0.3 per cent, to 25,946. It was down as much as 589 earlier. The Nasdaq shook off an early slide, edging up 0.2 per cent.
The volatile trading has put a dent in the major indexes yearly gains. The S&P 500 is down 3.5 per cent for August.
The market's turbulent turn comes less than two weeks after the benchmark S&P 500 hit an all-time high.
While investors have been scrambling to adjust to the turns in the trade conflict, the broader US economy continues to grow and add jobs. Unemployment is at the lowest level in decades and consumer confidence remains strong.
Corporate earnings better than expected
Still, the bond market continues to flash a warning signal of recession. The gap between the yield on the three-month Treasury and the 10-year Treasury widened even further. It's a rare occurrence because investors usually demand bigger yields for tying up their money for longer periods of time, and one rule of thumb says a recession may hit about a year afterward if the gap, or spread, between those two rates persists over a long period.
A three-month Treasury was yielding 0.36 percentage points more than a 10-year Treasury as of Wednesday afternoon. The margin hasn't been that big since the spring of 2007, less than a year before the Great Recession torpedoed the economy.
Investors are increasingly betting that the Federal Reserve will need to cut short-term interest rates to support the economy given all trade tensions, and traders see a 55% chance of three cuts or more by the end of the year. A month ago, they projected the probability of that at less than 9 per cent.
US stocks have been on a wild ride since Jan. 22, 2018, when Trump first imposed tariffs on solar products and washing machines to help US manufacturers, but they're virtually back to where they started.
The S&P 500 closed at 2,832.97 that day and has since been down as much as 17 per cent and up as much as 7 per cent, with moves often driven by waxing and waning worries about the trade war. On Wednesday morning, the S&P 500 sat at 2,862.45, up 1 per cent from that early 2018 starting point.
Since Trump tweeted in March 2018 that "trade wars are good, and easy to win" after raising tariffs on steel and aluminum, the S&P 500 is up 6.3 per cent, though that gain has nearly halved in the last couple weeks as worries about the trade war have surged.
Banks sustained some of the worst losses Wednesday. Lower bond yields mean lower interest rates on mortgages and other kinds of loans, which mean lower profits for banks. JPMorgan Chase fell 2.8 per cent and Bank of America fell 2.7 per cent.
The dimming expectations for global growth also send the price of crude oil sharply lower. Benchmark U.S. crude plunged 4.6 per cent at $51.16 a barrel. That helped pull energy sector stocks lower. Occidental Petroleum gave up 4.9 pe cent.
Safe-play stocks, including consumer staples and utilities, held up far better than the rest of the market.
European and Asian indexes mixed
Disney fell 5.2% after disappointing investors with a sharp third quarter profit plunge that fell far short of Wall Street forecasts. The entertainment company said underperformance from its Fox movie and TV studio helped weigh down the fiscal third quarter financial results. It bought Fox's entertainment business in March for $71 billion.
Match Group shares jumped 25.4% after the operator of Tinder, OKCupid and other dating sights beat Wall Street's second quarter earnings forecasts. The company reported a surge in Tinder subscribers and raised its revenue forecast for the year.
Drugstore operator CVS Health rose 6.6% after swinging to a second quarter profit and handily beating Wall Street forecasts. The company attributed part of the gains to health insurer Aetna, which it bought for $69 billion in November.
