Wall Street braces for China and Fed fallout

May 23, 2013: 9:06 AM ET
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NEW YORK (CNNMoney)

Investors better buckle up. It's shaping up to be a rough day on Wall Street.

World markets tumbled Thursday, led by by the Nikkei, which sunk 7.3%. Other markets quickly followed suit.

European markets were all down about 2%, while Asian markets ended the day with sharp losses.

In the U.S., stock futures were down between 0.8% and 1%. Meanwhile, the yield on the 10-year Treasury note nudged back up near 2%, as investors sought safety in government-backed bonds.

Investors were spooked by worse-than-expected Chinese data that showed manufacturing slowed for the first time in seven months, and the latest minutes from the U.S. Federal Reserve's monetary policy meeting.

"We fear that this may get very ugly, very quickly, and that with the usual 5%-7% correction having happened in one day [in Japan], a greater 7%-10% correction... or worse... shall follow," wrote Dennis Gartman, editor and publisher of daily financial newsletter The Gartman Letter.

Related: Japan stocks slump 7%

U.S. stocks had rallied early Wednesday after Fed chairman Ben Bernanke told lawmakers that withdrawing monetary stimulus prematurely could derail the economic recovery.

But markets went into reverse after the Fed's minutes showed that some members were willing to dial down the Fed's bond-buying program as soon as June if the recovery appears sustainable.

On the economic front, the Department of Labor reported that initial claims for unemployment benefits fell to 340,000 last week, down from 363,000 the week before. A report on new home sales is due at 10 a.m. ET.

On the corporate front, Ralph Lauren (RL) is set to report quarterly results in the morning, while Gap (GPS) and Sears Holdings (SHLD) are up after the bell.

Related: Fear & Greed Index continues to wallow in extreme greed

Shares of Hewlett-Packard (HPQ) surged about 12% in premarket trading after the PC-maker reported quarterly earnings that beat estimates.

Shares of Tesla (TSLA) slumped nearly 3%, a day after the electric car maker announced that it had repaid a $465 million loan from the government nearly a decade before it was scheduled to do so.

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