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Beyond the Numbers

Trade Concerns May Continue To Weigh On Wall Street
5/8/2019 8:56 AM

Trade Concerns May Continue To Weigh On Wall Street

The major U.S. index futures are pointing to a lower opening on Wednesday, with stocks likely to extend the downward move seen over the two previous sessions.

Trade concerns may continue to weigh on the markets, as news the U.S. plans to raise tariffs on Chinese goods as early as Friday has led to renewed worries about a trade war.

The threat of higher tariffs has led to concerns about global economic growth and the potential for higher costs to be passed on to U.S. consumers.

A report showing Chinese exports unexpectedly shrank 2.7 percent in April compared to a year earlier may add to the negative sentiment.

Trading activity may be somewhat subdued, however, as traders wait for news out of U.S.-China trade talks scheduled for the coming days.

A lack of major U.S. economic data on the day may also keep traders on the sidelines ahead of the release of reports on the U.S. trade deficit and producer and consumer prices.

After recovering from an initial sell-off on Monday, stocks showed a substantial move back to the downside during the trading day on Tuesday. With the drop on the day, the Dow fell to its lowest closing level in well over a month.

The major averages climbed well off their lows of the session going into the close but remained firmly negative. The Dow tumbled 473.39 points or 1.8 percent to 25,965.09, the Nasdaq plunged 159.53 points or 2 percent to 7,963.76 and the S&P 500 slumped 48.42 points or 1.7 percent to 2,884.05.

The sell-off on Wall Street came as selling pressure was reignited after U.S. Trade Representative Robert Lighthizer confirmed the U.S. plans to raise tariffs on $200 billion worth of Chinese goods to 25 percent on Friday.

President Donald Trump threatened to implement the tariff increase in a post on Twitter on Sunday, claiming trade talks between the U.S. and China are moving "too slowly."

The confirmation of the Friday deadline may have shattered the belief that the threat from Trump was just a negotiating tactic.

Lighthizer attributed the potential tariff increase to an "erosion in commitments by China" over the last week, with the trade representative calling substantive changes to the text of a deal "unacceptable."

Treasury Secretary Steven Mnuchin noted the U.S. would reconsider raising the tariffs if negotiations get back on track during the next round of talks later this week.

However, traders have largely shrugged off news that Chinese Vice Premier Liu He is expected to join this week's talks

Lighthizer and Mnuchin did not comment on Trump's threat to impose tariffs on the remaining $325 billion worth of Chinese imports.

Biotechnology stocks moved sharply lower over the course of the trading session, dragging the NYSE Arca Biotechnology Index down by 3.5 percent to a four-month closing low.

Regeneron Pharmaceuticals (REGN) posted a steep loss after the biopharmaceutical company reported weaker than expected first quarter results.

Significant weakness was also visible among semiconductor stocks, as reflected by the 2.4 percent slump by the Philadelphia Semiconductor Index.

Chemical stocks also saw considerable weakness on the day, with the S&P Chemical Sector Index tumbling by 2.4 percent to its lowest closing level in well over a month.

Software, pharmaceutical, transportation and banking stocks also moved notably lower amid broad based weakness on Wall Street.

Commodity, Currency Markets

Crude oil futures are inching up $0.13 to $61.53 a barrel after sliding $0.85 to $61.40 a barrel on Tuesday. Meanwhile, after rising $1.80 to $1,285.60 an ounce in the previous session, gold futures are climbing $6.50 to $1,292.10 an ounce.

On the currency front, the U.S. dollar is trading at 110.05 yen compared to the 110.26 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1196 compared to yesterday’s $1.1191.

Asia

Asian stocks ended mostly lower on Wednesday as mixed trade data from China and concerns that a U.S.-China trade war will dent growth kept underlying sentiment cautious.

After the U.S. confirmed it plans to raise tariffs on $200 billion worth of Chinese goods this Friday, investors remained edgy ahead of trade talks in Washington on Thursday and Friday.

Chinese shares fell as trade worries lingered and April exports data added to investor concerns over slowing growth.

China's exports unexpectedly shrank 2.7 percent in April from a year earlier, while imports surprised with their first increase in five months, customs data showed.

The benchmark Shanghai Composite Index slumped 32.63 points or 1.1 percent to 2,893.76, while Hong Kong's Hang Seng Index tumbled 359.82 points or 1.2 percent to 29,003.20.

Japanese shares fell sharply to hit a five-week low as the yen rallied to a six-week high against the dollar on fears of worsening U.S.-China trade tensions.

The Nikkei 225 Index plunged 321.13 points or 1.5 percent to 21,602.59, the lowest closing level since April 2. The broader Topix closed 1.7 percent lower at 1,572.33, with all 33 subsectors ending in the red.

China-linked companies such as Komatsu and Hitachi Construction Machinery fell around 3 percent, while exporters Canon, Panasonic and Honda Motor declined 1-3 percent.

Yamaha Motor plummeted by 13.4 percent after reporting a drop in operating profit for the January-March period.

Australian markets followed Wall Street lower after the IMF chief warned fresh trade tensions between the U.S. and China would dent global growth.

The benchmark S&P/ASX 200 Index dropped 26.60 points or 0.4 percent to 6,269.10, while the broader All Ordinaries Index ended down 31.70 points or 0.5 percent at 6,351.80.

Santos dropped 1 percent, Beach Energy declined 1.5 percent and Origin Energy shed 1.6 percent after oil prices fell sharply overnight on trade worries and higher U.S. crude supplies.

Mining heavyweights BHP and Rio Tinto ended with modest losses, while smaller rival Fortescue Metals Group gave up 1.5 percent.

CSR lost 1.5 percent after the construction materials supplier reported a 59 percent nosedive in full-year profits.

On the other hand, gold miner Northern Star Resources jumped 3.9 percent and Evolution Mining rallied 2.2 percent as gold prices hit a one-week high.

Seoul stocks fell for a third straight day amid the deepening trade dispute between the U.S. and China. The benchmark Kospi dropped 8.98 points or 0.4 percent to 2,168.01, dragged down by technology and pharmaceutical stocks.

Samsung BioLogics slumped 7.7 percent after prosecutors raided the firm's factory on alleged accounting fraud.

Europe

European shares turned mixed on Wednesday as investors digest mixed earnings updates and look ahead to the two days of trade talks in Washington.

On the data front, Chinese trade data proved to be a mixed bag, adding to investor concerns over slowing global growth.

Closer to home, German industrial production rose for a second straight month and at the fastest pace in three months in March, raising hopes of a strong economic performance in the first quarter.

While the German DAX Index has risen by 0.3 percent, the French CAC 40 Index is down by 0.1 percent and the U.K.’s FTSE 100 Index is down by 0.3 percent.

Dutch supermarkets and eCommerce company Ahold Delhaize N.V. has fallen after it reported a 2.3 percent decline in comparable sales in its Belgian operations in the first quarter.

Reinsurer Munich Re has also shown a notable move to the downside after reporting a 23 percent decline in first-quarter net profit.

British tobacco company Imperial Brands has also fallen after reporting weaker than expected sales of its e-cigarettes.

Broadcaster ITV has also plunged. After a weak quarter, the company said it expects total advertising revenue to fall 6 percent in the first half.

Direct Line Insurance Group has also slumped after premiums at the company fell in the first three months of 2019.

Pub group JD Wetherspoon is also seeing notable weakness as sales growth slowed in the three months to the end of April.

On the other hand, shares of Spanish IT provider Amadeus have rallied on upbeat first quarter results.

Siemens has also soared on news it would spin off its Gas and Power business, cut about 10,400 jobs and create about 20,500 new jobs by 2023.

U.S. Economic Reports

The Energy Information Administration is scheduled to release its report on oil inventories in the week ended May 3rd at 10:30 am ET.

Crude oil inventories are expected to rise by 1.2 million barrels after jumping by 9.9 million barrels in the previous week.

At 1 pm ET, the Treasury Department is due to announce the results of its auction of $27 billion worth of ten-year notes.

Stocks In Focus

Shares of TripAdvisor (TRIP) are moving sharply lower in pre-market trading after the travel website reported better than expected first quarter earnings but on sales that missed estimates.

Money transfer company Western Union (WU) is also likely to see initial weakness after reporting first quarter results that missed expectations on both the top and bottom lines.

Shares of Microchip Technology (MCHP) may also come under pressure after the chipmaker reported better than expected fiscal fourth quarter earnings but provide disappointing guidance due to the U.S.-China trade dispute.

On the other hand, shares of Electronic Arts (EA) are seeing considerable pre-market strength after the video game publisher reported better than expected fiscal fourth quarter results.
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