Market Analysis

Beyond the Number

Escalating Trade Dispute May Lead To Pullback On Wall Street
5/10/2019 8:57 AM

The major U.S. index futures are currently pointing to a lower opening on Friday, with stocks likely to move back to the downside following the attempted recovery from an early sell-off in the previous session.

Concerns about the economic impact of an escalating trade dispute between the U.S. and China may weigh on the markets after the U.S. raised tariffs on Chinese imports.

The U.S. hiked the tariff on $250 billion worth of Chinese goods from 10 percent to 25 percent after the U.S. and China failed to reach a trade deal by a midnight deadline.

President Donald Trump noted in a post on Twitter that the process has begun to place tariffs on the remaining $325 billion worth of Chinese imports.

Trump praised the massive tariff payments to the U.S. Treasury and said there is “absolutely no need to rush” to reach a trade agreement with China.

“Tariffs will bring in FAR MORE wealth to our Country than even a phenomenal deal of the traditional kind. Also, much easier & quicker to do,” Trump tweeted.

“Tariffs will make our Country MUCH STRONGER, not weaker. Just sit back and watch!” he added. “In the meantime, China should not renegotiate deals with the U.S. at the last minute. This is not the Obama Administration, or the Administration of Sleepy Joe, who let China get away with ‘murder!’”

After falling sharply early in the session, stocks regained ground over the course of the trading day on Thursday but still closed mostly lower. Reaction to comments from Trump was the main driver of trading on the day.

The major averages finished the session in negative territory but well off their worst levels of the day. The Dow slid 138.97 points or 0.5 percent to 25,828.36, the Nasdaq fell 32.73 points or 0.4 percent to 7,910.59 and the S&P 500 slipped 8.70 points or 0.3 percent to 2,870.72.

The initial sell-off on Wall Street came amid renewed trade concerns following tough talk from Trump ahead of two days of U.S.-China trade talks in Washington.

Trump claimed during a rally in Florida on Wednesday that the U.S. is planning to raise tariffs on Chinese goods because China "broke the deal."

"So they're flying in, the vice premier tomorrow is flying in — good man — but they broke the deal," Trump told his supporters. "They can't do that, so they'll be paying."

However, stocks staged a recovery attempt after Trump told reporters at the White House a trade deal with China is still possible.

Trump indicated he has set a midnight deadline to reach a trade agreement, calling raising tariffs an "excellent" alternative.

Analysts have previously urged investors to focus on Trump's actions rather than his words, suggesting the president's bluster is merely a negotiating tactic.

On the U.S. economic front, the Commerce Department released a report showing the U.S. trade deficit widened in the month of March.

The report said the trade deficit widened to $50.0 billion in March from a revised $49.3 billion in February. Economists had expected the deficit to widen to $50.2 billion.

The wider trade deficit came as the value of imports surged up by 1.1 percent to $262.0 billion compared to a 1.0 percent jump in the value of exports to $212.0 billion.

The Labor Department also released a report showing producer prices increased in line with economist estimates in the month of April.

The report said producer price index for final demand rose by 0.2 percent in April after climbing by 0.6 percent in March. The uptick in prices matched expectations.

Excluding food and energy prices, core producer prices inched up by 0.1 percent in April after rising by 0.3 percent in March. Economists had expected core prices to edge up by 0.2 percent.

A separate Labor Department report showed first-time claims for U.S. unemployment benefits pulled back by less than expected in the week ended May 4th.

The Labor Department said initial jobless claims dipped to 228,000, a decrease of 2,000 from the previous week's unrevised level of 230,000. Economists had expected jobless claims to drop to 220,000.

Despite the recovery attempt by the broader markets, significant weakness remained visible among networking stocks.

The NYSE Arca Networking Index regained ground after hitting its worst intraday level in well over a month but still ended the day down by 2.2 percent.

Considerable weakness also remained visible among semiconductor stocks, as reflected by the 1.2 percent loss posted by the Philadelphia Semiconductor Index.

Intel (INTC) plunged by 5.3 percent after BMO Capital downgraded its rating on the semiconductor giant to Market Perform from Outperform.

Gold, chemical, and computer hardware stocks also ended the day notably lower, while most of the other major sectors showed more modest moves.

Commodity, Currency Markets

Crude oil futures are inching up $0.12 to $61.82 a barrel after falling $0.42 to $61.70 on Thursday. Meanwhile, after rising $3.80 to $1,285.20 an ounce in the previous session, gold futures are climbing $3.90 to $1,289.10 an ounce.

On the currency front, the U.S. dollar is trading at 109.67 yen versus the 109.74 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1246 compared to yesterday’s $1.1215.


Asian stocks ended mostly higher on Friday as investors shrugged off the U.S. decision to increase tariffs on $200 billion worth of Chinese goods and remained hopeful of a breakthrough in trade talks.

China's Shanghai Composite Index spiked 88.26 points or 3.1 percent to 2,939.21 and the yuan strengthened as state funds stepped in to prop up markets following the Trump administration's latest tariff hike. Hong Kong's Hang Seng Index advanced 239.17 points or 0.8 percent to 28,550.24.

Meanwhile, Japanese shares ended lower after the U.S. hiked tariffs on more than $200 billion in goods from China, raising concerns the trade dispute will dent global growth.

The Nikkei 225 Index ended down 57.21 points or 0.3 percent at 21,344.92, extending losses for a fifth straight session. For the week, the Nikkei ended down more than 4 percent, marking the biggest weekly loss this year. The broader Topix ended marginally lower at 1,549.42.

China-related stocks rebounded from recent losses on short-covering. Fanuc rose 0.8 percent and Yaskawa Electric gained 2.3 percent.

Panasonic Corp slumped 6.5 percent after warning profit this financial year would fall for the first time in eight years. Mitsubishi Motors lost 13.8 percent as Nomura Securities cut its target price on the stock.

Australian markets fluctuated before finishing modestly higher as a federal election loomed and U.S.-China trade talks headed into a second day.

The benchmark S&P/ASX 200 Index rose 15.60 points or 0.3 percent to 6,310.90, while the broader All Ordinaries Index ended up 15.80 points or 0.3 percent at 6,393.10.

Energy stocks such as Origin Energy, Santos and Woodside Petroleum rose between half a percent and 1 percent as oil prices rose on optimism for a U.S.-China trade deal.

Mining heavyweights BHP and Rio Tinto ended slightly lower, while smaller rival Aurelia Metals gained 0.9 percent after it abandoned talks to buy the CSA mine in New South Wales.

Banks ended mostly higher showing modest gains despite the Reserve Bank of Australia downgrading its economic forecasts for GDP and underlying inflation this year.

Seoul stocks rose to snap a four-day losing streak as trade negotiations between the U.S. and China moved into a second day.

The benchmark Kospi inched up 6.03 points or 0.3 percent to 2,108.04. Tech heavyweight Samsung Electronics advanced 1.1 percent, while chipmaker SK Hynix fell 2.1 percent.


European stocks have moved higher on Friday as solid economic data from Germany and the U.K. helped ease concerns over growth and investors remained hopeful of a breakthrough in U.S.-China trade talks.

While the German DAX Index has climbed by 0.6 percent, the French CAC 40 Index is up by 0.4 percent and the U.K.’s FTSE 100 Index is up by 0.2 percent.

Swiss engineering firm ABB has moved notably higher after its Power Grids business won a triple digit million-euro order from the Aibel/Keppel FELS consortium.

Altice Europe has also shown a strong move to the upside. The Netherlands-based company signaled the turnaround of his telecoms and cables group was underway.

IAG, owner of British Airways and Iberia, has also jumped after reiterating its 2019 profit would be "in line" with last year.

Provident Financial has also risen after its board strongly urged its shareholders to take no action in relation to Non-Standard Finance offer.

GEA Group shares have also soared in Frankfurt. The company said it is working on plans to restructure the future organization of the group, which is to be communicated on June 24.

In economic news, official data showed German exports rebounded at the fastest pace in three months in March, defying expectations for a further decline.

Exports rose 1.5 percent month-on-month in March after a revised 1.2 percent drop in February, adding to hopes that the biggest euro area economy performed strongly in the first three months of the year after narrowly escaping a recession in the previous quarter.

Britain's economy got a sharp one-off boost in the first three months of 2019, boosted by companies stockpiling ahead of Brexit, another report showed.

GDP grew 0.5 percent in the first quarter, outpacing the 0.2 percent expansion seen in the final three months of 2018.

U.S. Economic Reports

Consumer prices in the U.S. increased by slightly less than anticipated in the month April, according to a report released by the Labor Department.

The Labor Department said its consumer price index rose by 0.3 percent in April after climbing by 0.4 percent in March. Economists had been expecting another 0.4 percent increase.

Excluding food and energy prices, core consumer prices inched up by 0.1 percent for third consecutive month compared to economist estimates for a 0.2 percent uptick.

Compared to the same month a year ago, consumer prices in April were up by 2.0 percent, reflecting a modest acceleration from the 1.9 percent growth in March.

The annual rate of growth in core consumer prices also crept up to 2.1 percent in April from 2.0 percent in the previous month.

At 9:05 am ET, Atlanta Federal Reserve President Raphael Bostic is due to participate in a discussion about the economic outlook and monetary policy at the East Mississippi Business Development Corporation's Bank President's Roundtable in Meridian, Mississippi.

New York Federal Reserve President John Williams is scheduled to deliver keynote remarks at the 21st Annual Bronx Bankers Breakfast in Bronx, New York at 10 am ET.

Stocks In Focus

Shares of Symantec (SYMC) are moving sharply lower in pre-market trading after the security software company provided disappointing fiscal first quarter guidance and announced the resignation of CEO and President Greg Clark.

Casino operator Wynn Resorts (WYNN) may also see initial weakness after reporting first quarter earnings that exceeded analyst estimates but weaker than expected revenues.

Shares of Yelp (YELP) could also move to the downside after the online business reviews company reported first quarter earnings that matched expectations but revenues that fell short of estimates.

On the other hand, shares of Zillow Group (ZG) are seeing significant pre-market strength after the real estate website operator reported a narrower than expected first quarter loss on revenues that beat expectations.

Online file-sharing company Dropbox (DBX) may also move to the upside after reporting first quarter results that exceeded analyst estimates on both the top and bottom lines and raising its full-year revenue guidance.

Shares of GoPro (GPRO) are also likely to see an initial jump after the camera maker reported a narrower than expected first quarter loss on revenues that exceeded estimates.
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