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Stocks Climb Off Worst Levels But Remain Firmly Negative - U.S. Commentary

wallstreet4 061518 19jun18 lt

Stocks have climbed off their worst levels of the day but continue to see notable weakness in mid-day trading on Tuesday. Concerns about a trade war between the U.S. and China have limited the momentum behind the recovery attempt.

Currently, the major averages remain firmly in negative territory. The Dow is down 267.87 points or 1.1 percent at 24,719.60, the Nasdaq is down 53.69 points or 0.7 percent at 7,693.33 and the S&P 500 is down 14.35 points or 0.5 percent at 2,759.40.

The initial weakness on Wall Street came after President Donald Trump directed U.S. Trade Representative Robert Lighthizer to identify $200 billion worth of Chinese goods for additional tariffs at a rate of 10 percent.

Trump said the tariffs will go into effect if China refuses to change its unfair trade practices and insists on going forward with recently announced tariffs.

The potential tariffs announced by Trump come as the U.S. and China both announced plans to impose tariffs on up to $50 billion worth of goods imported from the other country.

Trump threatened to pursue additional tariffs on another $200 billion worth of goods if China increases its tariffs yet again.

"The United States will no longer be taken advantage of on trade by China and other countries in the world," Trump said. "We will continue using all available tools to create a better and fairer trading system for all Americans."

Despite the threat from Trump, China vowed to retaliate with "strong" countermeasures if the U.S. goes ahead with the new tariffs.

"This practice of extreme pressure and blackmail deviates from the consensus reached by both parties on many occasions and is disappointing for the international community," the Commerce Ministry said in a statement.

The statement added, "The United States has initiated a trade war that violates market laws and is not in accordance with current global development trends."

In U.S. economic news, the Commerce Department released a report showing a much bigger than expected jump in new residential construction in the month of May, although the report also showed a much steeper than expected drop in building permits.

The report said housing starts spiked by 5.0 percent to an annual rate of 1.350 million in May after tumbling by 3.1 percent to a revised rate of 1.286 million in April.

Economists had expected housing starts to climb by 1.8 percent to a rate of 1.310 million from the 1.287 million originally reported for the previous month.

Meanwhile, the Commerce Department said building permits plunged by 4.6 percent to an annual rate of 1.301 million in May after falling by 0.9 percent to a revised rate of 1.364 million in April.

Building permits, an indicator of future housing demand, had been expected to edge down by 0.1 percent to a rate of 1.350 million from the 1.352 million originally reported for the previous month.

Sector News

Steel stocks continue to turn in some of the market's worst performances in mid-day trading amid concerns about the impact of a global trade war. The NYSE Arca Steel Index is down by 2.6 percent after hitting its lowest intraday level in over two months.

Significant weakness also remains visible among stocks, as reflected by the 2.3 percent loss being posted by the S&P Chemical Sector Index.

Transportation, computer hardware, and semiconductor stocks are also seeing considerable weakness on the day, while some strength has emerged among biotechnology and utilities stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved significantly lower during trading on Tuesday. Japan's Nikkei 225 Index plunged by 1.8 percent, while China's Shanghai Composite Index plummeted by 3.8 percent.

The major European markets also moved to the downside on the day. While the U.K.'s FTSE 100 Index fell by 0.4 percent, the French CAC 40 Index and the German DAX Index slumped by 1.1 percent and 1.2 percent, respectively.

In the bond market, treasuries have pulled back off their highs of the session but remain in positive territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 3.8 basis points at 2.888 percent.

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