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Beyond the Numbers

Concerns About Trade May Lead To Weakness On Wall Street
6/18/2018 8:59 AM

The major U.S. index futures are pointing to a notably lower opening on Monday, with stocks likely to come under pressure following the mixed performance seen last week.

Lingering concerns about a global trade war may weigh on the markets after the U.S. and China announced plans to impose tariffs on billions of dollars worth of imported goods.

Traders have recently expressed concerns the new tariffs announced by the U.S. and China could negatively affect global economic growth.

After coming under pressure early in the session, stocks regained some ground over the course of the trading day on Friday. The major averages climbed well off their lows of the session, with the S&P 500 briefly turning positive.

The major averages all ended the day in negative territory, however, with the Nasdaq pulling back off Thursday’s record closing high. The Dow fell 84.83 points or 0.3 percent to 25,090.48, the Nasdaq dipped 14.66 points or 0.2 percent to 7,746.38 and the S&P 500 edged down 3.07 points or 0.1 percent at 2,779.42.

For the week, the major averages turned in a mixed performance. While the Nasdaq jumped by 1.3 percent, the S&P 500 closed nearly flat and the Dow slid by 0.9 percent.

Renewed trade war concerns contributed to the weakness on Wall Street after President Donald Trump announced plans to impose a 25 percent tariff on $50 billion worth of Chinese goods that contain "industrially significant technologies."

Trump attributed the new tariffs to China's theft of intellectual property and technology and its other unfair trade practices.

"These tariffs are essential to preventing further unfair transfers of American technology and intellectual property to China, which will protect American jobs," Trump said in a statement.

He added, "In addition, they will serve as an initial step toward bringing balance to the trade relationship between the United States and China."

Trump claimed he would impose additional tariffs on Chinese goods if China retaliates by imposing new tariffs on U.S. goods or services, raising non-tariff barriers, or taking punitive actions against American exporters.

Despite the threat, China announced new tariffs on 545 products imported from U.S., including agricultural products, vehicles and aquatic products.

China's Commerce Ministry previously accused Trump of launching a trade war and promised to impose tariffs matching the scale and intensity of the U.S. tariffs.

Negative sentiment may also have been generated by the release of a report from the Federal Reserve showing an unexpected decrease in industrial production in the month of May.

The Fed said industrial production edged down by 0.1 percent in May after climbing by an upwardly revised 0.9 percent in April.

The dip came as a surprise to economists, had expected production to rise by 0.2 percent compared to the 0.7 percent increase originally reported for the previous month.

The unexpected decrease in production came amid a pullback in manufacturing output, which largely reflected a disruption in truck assemblies due to a major fire at a parts supplier.

While many of the major sectors climbed off their worst levels of the day, substantial weakness remained visible among energy stocks. The weakness in the sector came amid a steep drop by the price of crude oil.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index tumbled by 2.5 percent, while the NYSE Arca Oil Index and the NYSE Arca Natural Gas Index slumped by 2.2 percent and 2.1 percent, respectively.

Significant weakness also remained visible among gold stocks, which moved lower along with the price of the precious metal. The NYSE Arca Gold Bugs Index sunk by 2.3 percent.

Steel and computer hardware stocks also showed notable moves to the downside on the day, while some strength emerged among utilities and telecom stocks.

Commodity, Currency Markets

Crude oil futures are rising $0.19 to $65.25 a barrel after plunging $1.83 to $65.06 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,281.90, up $3.40 from the previous session’s close of $1,278.50. On Friday, gold plummeted $29.80.

On the currency front, the U.S. dollar is trading at 110.47 yen compared to the 110.66 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.1613 compared to last Friday’s $1.1610.

Asia

Asian stocks fell on Monday as oil extended Friday's slump and escalating trade tensions between the U.S. and China curbed investors' appetite for risk.

Oil extended the drop from late last week amid fears of a global trade war as well as expectations that major oil producers will soon start to increase supplies.

After U.S. President Donald Trump announced hefty tariffs on $50 billion worth of Chinese goods, China announced new tariffs on 545 products imported from the U.S.

Japanese shares lost ground as fears of growing protectionism and news of a strong earthquake in Osaka and surrounding areas of western Japan overshadowed stronger-than-expected export data for May.

Japanese exports climbed 8.1 percent year-on-year to 6.323 trillion yen in May, exceeding forecasts for 7.5 percent and up from 7.8 percent in the previous month, official data showed.

Imports soared an annual 14.0 percent to 6.901 trillion yen versus forecasts for 8.0 percent and up from 5.9 percent a month earlier.

The Nikkei 225 Index dropped 171.42 points or 0.8 percent to 22,680.33, while the broader Topix index closed 1 percent lower at 1,771.43.

Osaka-based electronics manufacturers Panasonic and Sharp lost around 3 percent each despite no major damage reported to their plants. JXTG Holdings retreated 4.3 percent after announcing it had stopped its Osaka refinery.

Meanwhile, Australian shares finished modestly higher even as metal prices extended their slide and oil slumped ahead of the upcoming meeting of OPEC and non-OPEC producers.

The benchmark S&P/ASX 200 Index edged up 10.10 points or 0.2 percent to 6,104.10, led by financials and healthcare stocks. The broader All Ordinaries Index inched up 7.50 points or 0.1 percent at 6,212.80.

Mining heavyweights BHP Billiton and Rio Tinto tumbled 2.4 percent and 2 percent, respectively, as copper lingered near a two-week low. South32 dropped 1.3 percent after saying it would take full control of Toronto-listed Arizona Mining.

Energy stocks Woodside Petroleum, Santos and Oil Search fell between 0.7 percent and 1.5 percent, while a weaker local currency helped lift the big four banks up between 0.9 percent and 1.4 percent.

Blood products giant CSL advanced 1.1 percent and hearing implant maker Cochlear added half a percent.

Europe

European stocks are broadly lower on Monday amid worries the escalating trade spat between the U.S. and China could hurt global growth.

Political uncertainty in Germany also kept investors nervous. Chancellor Angela Merkel's leadership is under threat over migrant issues, prompting concerns the collapse of a fragile coalition could lead to a Europe-wide break up.

While the U.K.’s FTSE 100 Index has fallen by 0.3 percent, the French CAC 40 Index and the German DAX Index are down by 1.4 percent and 1.5 percent, respectively.

Novartis has moved to the downside after announcing 14-month results from a pivotal JULIET clinical trial.

Finland-based industrial company Metso Corp has also dropped despite winning two valve orders totaling 8,200 valves from major pulp and paper customers in China.

French cable maker Nexans has slumped after issuing a profit warning. French electric utility Engie has also dropped. The company expects to record a 250 million-euro ($290.1 million) hit in its 2018 earnings due to unscheduled outages at its Belgian nuclear reactors.

CYBG has fallen in London after it agreed to buy Virgin Money for £1.7 billion.

On the other hand, Air Shuttle has jumped after Lufthansa said it was in contact with the Norwegian carrier over a possible combination.

Evotec has also moved notably higher in Frankfurt after it signed a transaction agreement to integrate Sanofi's infectious disease unit into its organization.

Indivior has also rallied. The U.S. District Court for the District of New Jersey has granted the company a temporary restraining order that compels India's Dr. Reddy's to immediately cease its launch activities related to SUBOXONE Film.

U.S. Economic Reports

At 10 am ET, the National Association of Home Builders is scheduled to release its report on homebuilder confidence in the month of June.

The NAHB/Wells Fargo Housing Market Index is expected to come in unchanged in June after unexpectedly rising to 70 in May.

Atlanta Federal Reserve President Raphael Bostic is due to speak at the Rotary Club of Savannah in Savannah, Georgia, at 1 pm ET.

At 4 pm ET, New York Fed President John Williams is scheduled to make concluding remarks at a New York Fed conference exploring progress and challenges in reforming culture and behavior in the financial services industry.

Stocks In Focus

Shares of Zillow Group (Z) are moving notably lower in pre-market trading after Goldman Sachs downgraded its rating on the real estate website operator’s stock to Neutral from Buy.

Entertainment giant Disney (DIS) may also move to the downside after Pivotal Research downgraded its rating on the company’s stock to Sell from Hold.

On the other hand, shares of JD.com (JD) are likely to see early strength on news Alphabet’s (GOOGL) Google unit has invested $550 million in the Chinese e-commerce giant.
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