US open: China fears hit Wall Street, bank stocks drop

By 1015 ET, all three indices were down 0.9%, with the Dow at 35,000, the S&P 500 falling to 4,450 and the Nasdaq trading 13,671 lower.

The Commerce Department revealed that retail sales increased by a seasonally adjusted 0.7% in July, the fourth monthly increase in a row. This followed a revised 0.3% gain in June and surpassed economists' predictions of 0.4% growth. Excluding auto sales, sales growth jumped to 1% from 0.2%, well ahead of the 0.4% gain expected.

"Consumers’ spending appears to have made a strong start to the third quarter, and we cannot dismiss the conclusion that the trend in real consumers’ spending growth is reaccelerating," said Kieran Clancy, senior US economist at Pantheon Macroeconomics. However, Clancy did highlight that last month's figures were helped by Amazon Prime Day, and so there will be some reversal of this support in the coming months.

In other US economic data, import prices rose 0.4% in July, the largest gain in over a year, according to the Labor Department. Meanwhile, the National Association of Home Builders said confidence among US homebuilders dropped in August for the first time in eight months, with the monthly confidence index down from 56 to 50, as elevated interest rates hit the market.

China data disappoints

A barrage of economic data from China came in below expectations overnight, raising concerns over the world's second largest economy. July retail sales rose 2.5% on an annualised basis, well below expectations of a 4.5% increase; industrial production increased 3.7% year on year. missing the 4.4% increased by analysts; while fixed asset investment rose by 3.4% for the first seven months of the year from a year ago, below expectations of a 3.8% increase.

Separately, the country's statistics bureau controversially suspended publication of youth unemployment figures.

Additionally, in a surprise move, the People's Bank of China cut the medium-term lending facility rate – the interest for one-year loans to financial institutions – from 2.65% to 2.5%.

Banks fall on Fitch comments

Banking stocks were under pressure on Tuesday morning after ratings agency Fitch said it might downgrade its assessment of the whole banking industry from AA- to A+, putting some major institutions at risk of a rating cut. These include Bank of America and JP Morgan Chase.

Home Depot gained after beating forecasts for both revenue and profits and unveiling a $15bn share buyback programme alongside its second-quarter results. Sales still declined 2% year-on-year to $42.92bn and the company maintained guidance for a 2% to 5% fall in revenues for the full year.

Discover Financial Services dropped 8% after announcing that its long-service chief executive and president Roger Hochschild is stepping down.

DR Horton rose on the news that Berkshire Hathaway has invested a $700m stake in the housebuilder.