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Beyond the Number

Trade War Concerns May Continue To Weigh On Wall Street
3/2/2018 8:49 AM

The major U.S. index futures are pointing to a sharply lower opening on Friday, with stocks likely to extend the sell-off seen over the past few sessions.

The downward momentum on Wall Street comes as traders express concerns about the impact President Donald Trump’s plans to impose new tariffs on steel and aluminum imports will have on global trade.

Trump shrugged off the concerns in a post on Twitter early Friday morning, calling trade wars “good” and “easy to win”

“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win,” Trump said.

He added, “Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!”

Following Trump’s announcement, several industry groups warned that the tariffs would lead to increased costs and hamper their ability to create jobs.

Stocks moved considerably lower during trading on Thursday, extending the sharp pullback seen over the two previous sessions. The major averages showed a lack of direction early in the day session but slid firmly into negative territory as the day progressed.

While the major averages climbed off their lows of the session, they still posted steep losses on the day. The Dow plummeted 420.22 points or 1.7 percent to 24,608.98, the Nasdaq tumbled 92.45 points or 1.3 percent to 7,180.56 and the S&P 500 slumped 36.16 points or 1.3 percent to 2,677.67.

The continued weakness on Wall Street came amid concerns about a potential trade war after President Donald Trump announced the U.S. will impose new tariffs on steel and aluminum imports.

Trump told metals industry executives at a White House meeting that he would sign an order formally imposing the new sanctions next week.

"Sometime next week we'll be signing it in," Trump said. "And you're going to have protection for the first time in a long time."

Trump indicated that he plans to impose a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports.

The tariffs are likely to benefit U.S. steel and aluminum producers, although some officials have warned of retaliation by the European Union and China.

Earlier in the day, traders kept a close eye on Federal Reserve Chairman Jerome Powell's second day of testimony on Capitol Hill.

Powell testified before the Senate Banking Committee after his remarks before the House Financial Services Committee on Tuesday sparked fears the Fed may raise interest rates more than previously estimated.

The Fed chief added to uncertainty about the outlook for interest rates after telling the Senate committee there has not yet been strong evidence of a decisive increase in wages.

"We see wages by a couple of measures trending up a little bit, but most of them continuing to grow at two and a half percent," Powell said.

"Nothing is suggesting to me that wage inflation is at a point of accelerating," he added. "I would expect that some continued strengthening in the labor market can take place without causing inflation."

On the U.S. economic front, the Labor Department released a report showing first-time claims for U.S. unemployment benefits unexpectedly fell to a nearly fifty-year low.

The report said initial jobless claims fell to 210,000 in the week ended February 24th, a decrease of 10,000 from the previous week's revised level of 220,000. Economists had expected jobless claims to inch up to 226,000.

With the unexpected decrease, initial jobless claims fell to their lowest level since hitting 202,000 in December of 1969.

A separate report from the Commerce Department showed personal income increased by slightly more than expected in the month of January, while personal spending rose in line with estimates.

The Commerce Department said personal income climbed by 0.4 percent in January, matching the increase seen in December. Economists had expected income to rise by 0.3 percent.

Additionally, the report said personal spending edged up by 0.2 percent in January after climbing by an upwardly revised 0.4 percent in December.

Personal spending had been expected to rise by 0.2 percent compared to the 0.3 percent increase originally reported for the previous month.

The Institute for Supply Management also released a report showing an unexpected acceleration in the pace of growth in the manufacturing sector in the month of February.

The ISM said its purchasing managers index climbed to 60.8 in February from 59.1 in January, with a reading above 50 indicating growth in the manufacturing sector. Economists had expected the index to edge down to 58.7.

With the unexpected increase, the purchasing managers index reached its highest level since hitting 61.4 in May of 2004.

Most of the major sectors moved to the downside on the day, although particular weakness was visible among semiconductor stocks.

Reflecting the weakness in the semiconductor, the Philadelphia Semiconductor Index tumbled by 1.6 percent. The index continued to give back ground after reaching a record intraday high on Tuesday.

Healthcare stocks also moved significantly lower, dragging the Dow Jones U.S. Health Care Index down by 1.5 percent.

Biotechnology, financial, and chemical stocks also saw notable weakness, while some strength was visible among natural gas, steel and gold stocks.

Commodity, Currency Markets

Crude oil futures are slipping $0.17 to $60.82 a barrel after falling $0.65 to $60.99 a barrel on Thursday. Meanwhile, after tumbling $12.70 to $1,305.20 an ounce in the previous session, gold futures are jumping $18.20 to $1,323.40 an ounce.

On the currency front, the U.S. dollar is trading at 105.37 yen compared to the 106.24 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.2317 compared to yesterday’s $1.2267.

Asia

Asian stocks joined a global sell-off on Friday after President Donald Trump vowed to impose tariffs on steel and aluminum imports, sparking fears of a trade war. Concerns over a faster pace of interest rate increases in the U.S. also kept investors nervous.

China's Shanghai Composite Index dropped 19.18 points or 0.6 percent to 3,254.58 and Hong Kong's Hang Seng Index plunged 460.80 points or 1.5 percent to 30,583.45 as investors looked ahead to an upcoming session of the National People's Congress starting next week in Beijing. The gathering of 3,000-plus delegates is expected to set the tone for the year's development plans.

Japanese shares tumbled amid a stronger yen as investors fretted about a potential trade war and the prospect of the ECB and Bank of Japan exiting extraordinary stimulus.

The Nikkei 225 Index slumped 542.83 points or 2.5 percent to 21,181.64, the lowest closing level since February 14th. The index fell 3.2 percent for the week. The broader Topix Index closed 1.8 percent lower at 1,708.34, dragged down by steel and aluminum companies.

Exporters Sony, Canon and Panasonic fell 1-2 percent as the yen strengthened. Steel makers Nisshin Steel, Kobe Steel and JFE Holdings all fell around 3 percent, while automakers Toyota Motor, Honda Motor and Mazda Motor lost 2-4 percent on worries that higher tariffs could boost their costs.

In economic news, Japanese core consumer inflation rose at the fastest pace in nearly three years in February, while the jobless rate hit its lowest level in nearly 25 years in a sign that the labor market is tightening.

Australian shares extended losses for the third straight session, dragged down by miners after Trump said the U.S. would impose tariffs of 25 percent on steel imports and 10 percent on imported aluminum.

The benchmark S&P/ASX 200 Index dropped 44.40 points or 0.7 percent to 5,928.90, while the broader All Ordinaries Index ended down 47.30 points or 0.8 percent at 6,028.40.

Miners BHP Billiton, Rio Tinto and Fortescue Metals Group fell between 0.8 percent and 1.6 percent. BlueScope Steel rose 0.8 percent on expectations that its North American operations will benefit from the tariffs announced by Trump.

Woolworths shed 0.6 percent after the ACCC said it would take the company to the federal court, accusing it of incorrectly labeling its 'W Select eco' branded disposable picnic products as biodegradable.

Meanwhile, gold miner Newcrest gained over 1 percent and Regis Resources jumped more than 2 percent as gold prices rebounded from two-month lows.

Europe

European stocks are extending losses for a fourth straight session on Friday and the dollar declined versus a basket of currencies as investors fretted about a potential trade war and the prospect of the ECB and Bank of Japan exiting extraordinary stimulus.

Bank of Japan Governor Haruhiko Kuroda said an exit from the current ultra loose monetary policy is likely around fiscal 2019 when it achieves 2 percent inflation target.

"The members of the policy board and I think that prices will move to reach 2 percent in around fiscal 2019," Kuroda told parliament. It will be natural to think about and debating exit at that time, he added.

While the U.K.’s FTSE 100 Index has slumped by 1.1 percent, the French CAC 40 Index and the German DAX Index are down by 1.9 percent and 2.2 percent, respectively.

Steelmakers Salzgitter, ThyssenKrupp and ArcelorMittal have fallen sharply after the U.S. said it would impose tariffs of 25 percent on steel imports and 10 percent on imported aluminum.

Cement giant LafargeHolcim has also slumped after the cement giant posted a fourth quarter net loss of 3.12 billion Swiss francs, hit by an impairment charge.

German chipmaker Infineon Technologies has dropped after announcing a joint venture with China-based SAIC Motor Corp. to manufacture power modules for the dynamically developing electric vehicle market in China.

GKN shares have also declined in London. The engineering group confirmed that it is in talks about selling its automotive business to Dana.

On the other hand, plastic and fibre products manufacturer Essentra has rallied after narrowing its annual pre-tax loss.

Packaging and paper company Mondi has also advanced. The company announced a special payout after reporting modest growth in full-year underlying profit.

On the data front, German retail sales decreased 0.7 percent month-on-month in January, confounding expectations for an increase of 0.7 percent, official data showed. Sales fell 1.1 percent in December.

German import price inflation eased to the lowest since late 2016, while wholesale sales fell for the first time in eight months.

The U.K. construction sector continued to expand at a subdued pace in February, survey data from IHS Markit showed. The construction Purchasing Managers' Index rose to 51.4 in February from a 4-month low of 50.2 in January.

U.S. Economic Reports

At 10 am ET, the University of Michigan is scheduled to release its revised report on consumer sentiment in the month of February.

The consumer sentiment index for February is expected to be downwardly revised to 99.5 from the preliminary reading of 99.9, although that would still be up from the final January reading of 95.7.

Stocks In Focus

Retailer J.C. Penney (JCP) is likely to see initial weakness after reporting fourth quarter earnings that beat analyst estimates but weaker than expected sales.

Shares of American Outdoor Brands (AOBC) are moving sharply lower in pre-market trading after the firearms and outdoor products maker reported weaker than expected fiscal third quarter revenues and provided disappointing guidance.

Department store chain Nordstrom (JWN) may also come under pressure after reporting fourth quarter earnings that came in below analyst estimates and provided mixed guidance for the current year.

Shares of Pure Storage (PSTG) are also seeing considerable weakness in pre-market trading even though the data storage company reported fourth quarter results that beat analyst estimates on both the top and bottom lines.

On the other hand, shares of Gap (GPS) are moving significantly higher in pre-market trading after the apparel retailer reported better than expected fourth quarter results and provided upbeat guidance.

Data analytics service Splunk (SPLK) is also likely to see early strength after reporting fourth quarter results that exceeded estimates on both the top and bottom lines and raising its full-year outlook.

Shares of Ambarella (AMBA) may also move to the upside after the semiconductor design company reported better than expected fourth quarter results.
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