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Beyond the Numbers

Lingering Trade War Worries May Weigh On Wall Street
8/12/2019 9:05 AM

The major U.S. index futures are currently pointing to a lower opening on Monday amid lingering concerns about the escalating U.S.-China trade war.

Worries about a prolonged trade war between the U.S. and China may weigh on the markets after President Donald Trump suggested he feels no sense of urgency to resolve the dispute.

Trump told reporters last Friday that he is “not ready to make a deal” with China and suggested the U.S. could skip the next round of trade talks in September.

“We’ll see whether or not we keep our meeting in September. If we do, that’s fine. If we don’t, that’s fine,” Trump said. “But it’s time that somebody does what we’re doing.”

Trump denied that Americans are paying the price for his trade war with China, arguing that Beijing’s efforts to depress their currency prove that the Chinese are “paying for it.”

“I want them to do well. But as of this moment, they’re having the worst year that they’ve had in many, many years — in decades,” he added. “And really, we’re just bringing the system back into order.”

Concerns about the impact of increasingly violent protests in Hong Kong may also weigh on the markets, with the Hong Kong International Airport canceling all departing flights due to the disruption caused by protesters.

The pro-democracy demonstrations in Hong Kong have intensified following allegations of unnecessary police violence on Sunday.

Overall trading activity may be somewhat subdued, however, as a lack of major U.S. economic data may keep some traders on the sidelines.

Several key economic reports are scheduled to be released in the coming days, including an avalanche of data on Thursday.

After coming under pressure in morning trading on Friday, stocks staged a recovery attempt in the afternoon but still ended the day notably lower. With the pullback on the day, the major averages partly offset the strong gains posted on Thursday.

While the Dow briefly peeked above the unchanged line, the blue chip index ended the day down 90.75 points or 0.3 percent at 26,287.44. The Nasdaq slumped 80.02 points or 1 percent to 7,959.14 and the S&P 500 slid 19.44 points or 0.7 percent to 2,918.65.

The major averages regained some ground following the sell-off seen on Monday but still closed lower for the week. The Dow fell by 0.7 percent, while the Nasdaq and the S&P 500 dropped by 0.6 percent and 0.5 percent, respectively.

The weakness on Wall Street came after Trump told reporters the U.S. is "not going to do business" with Chinese tech giant Huawei.

"And I really made the decision. It's much simpler not doing any business with Huawei," Trump said. "That doesn't mean we won't agree to something if and when we make a trade deal."

The comments from Trump came after a report from Bloomberg said his administration is holding off on decisions about licenses for U.S. companies to restart business with Huawei.

Trump previously said his administration would make "timely licensing decisions" but has reportedly decided to delay the decisions in response to China halting its purchases of U.S. agricultural products.

China decided to stop buying U.S. agricultural products in retaliation against Trump's announcement last week that he plans to impose a 10 percent tariff on the remaining $300 billion worth of Chinese imports.

The report weighed on U.S. chipmakers, which require a special license to sell goods to Huawei after the company was added to a U.S. trade blacklist in May over national security concerns.

In U.S. economic news, the Labor Department released a report showing a modest increase in producer prices in the month of July.

The Labor Department said its producer price index for final demand rose by 0.2 percent in July after inching up by 0.1 percent in both May and June. The uptick in prices matched economist estimates.

Meanwhile, the report said core producer prices, which exclude food and energy prices, edged down by 0.1 percent in July after climbing by 0.3 percent in June.

The modest pullback in core producer prices came as a surprise to economists, who had expected core prices to rise by 0.2 percent.

"The decline in core producer prices in July confirms that underlying price pressures remain subdued," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

He added, "At the margin, that makes it a little more likely that Fed officials will react to any further signs of weakness in the real economy by cutting interest rates again."

Steel stocks showed a substantial move to the downside amid concerns about the U.S.-China trade war, dragging the NYSE Arca Steel Index down by 3.3 percent. The index ended the session at its lowest closing level in almost three years.

Significant weakness also emerged among oil service stocks, with the Philadelphia Oil Service Index plunging by 3.1 percent to an eighteen-year closing low.

The sell-off by oil service stocks came amid a sharp drop by the price of crude oil, as crude for September delivery plunged $1.96 to $54.50 a barrel.

Tobacco, semiconductor, and biotechnology stocks also saw considerable weakness on the day, moving lower along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are dipping $0.37 to $54.13 a barrel after soaring $1.96 to $54.50 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,516.20, up $7.70 from the previous session’s close of $1,508.50. On Friday, gold dipped $1.

On the currency front, the U.S. dollar is trading at 105.15 yen compared to the 105.69 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.204 compared to last Friday’s $1.200.

Asia

Asian stocks ended mixed on Monday as investors monitored the value of the yuan and remained focused on U.S.-China trade-related headlines after U.S. President Donald Trump poured cold water on the prospect of a trade deal. Trading volumes were thin as markets in Japan, Malaysia, Singapore, India and Thailand were closed for public holidays.

China's Shanghai Composite Index surged up 40.24 points or 1.5 percent to 2,814.99 ahead of a slew of key data due out on Wednesday. Meanwhile, Hong Kong's Hang Seng Index slid 114.58 points or 0.4 percent to 25,824.72.

Australian stocks edged slightly higher as trade worries offset investor optimism over upbeat corporate earnings. The benchmark S&P/ASX 200 Index inched up 5.90 points or 0.1 percent to 6,590.30, while the broader All Ordinaries Index crept up 6.70 points or 0.1 percent to 6,670.10.

JB Hi-Fi shares soared 10 percent after the electronics retailer posted strong profit growth. Likewise, rubber glove maker Ansell jumped 6 percent after flagging a stronger 2020 outlook.

Bendigo and Adelaide Bank rallied 3.4 percent after the regional bank flagged the possibility of more job cuts.

On the other hand, miners BHP, Rio Tinto and Fortescue Metals Group dropped 1-4 percent after iron ore prices posted their biggest weekly drop in over 16 months on Friday. Gold miners Newcrest Mining and Evolution Mining fell around 3 percent.

Seoul stocks rose modestly to extend gains for the third straight session. The benchmark Kospi gained 4.54 points or 0.2 percent to finish at 1,942.29 amid bargain hunting, while the Korean won hit its lowest level against the U.S. dollar in over three years.

Tech heavyweights Samsung Electronics and SK Hynix advanced 1.3 percent and 1.6 percent, respectively. Pharmaceutical giant Samsung BioLogics spiked 7.2 percent and Hanmi Pharmaceutical added 0.9 percent.

Europe

European stocks have moved modestly lower in cautious trading on Monday after U.S. President Donald Trump downplayed the scheduled September meeting with China and Italy's ruling League party said it would present a no confidence motion in the Senate to bring down the government.

On the positive side, China's central bank set the official midpoint reference for the yuan at a stronger than expected level. Italian bond yields fell from five-week highs as Fitch Ratings left the country's rating unchanged.

While the German DAX Index has slipped by 0.2 percent, the French CAC 40 Index and the U.K.’s FTSE 100 Index are both down by 0.4 percent.

Steel producer Salzgitter Group has tumbled as it slipped to a loss in the second quarter compared to net income of 68.4 million euros in the prior year.

Shares of Rolls-Royce have also slumped on reports that engine parts from a Norwegian Boeing 787 Dreamliner fell shortly after take-off from Rome Fiumicino.

Thomas Cook shares have also plunged after the struggling travel company admitted that its increased capital raising plan will dilute existing shareholders' stakes.

Shares of M&C Saatchi Plc have also plummeted. The marketing services business said it continues to expect year-on-year decline in first-half profit before tax as prior year's first half was unusually strong.

On the other hand, Tullow Oil has soared on news that it has made a "potentially transformational" oil discovery in Guyana.

Osram shares have also spiked after Apple supplier AMS made an all-cash takeover offer for the German lighting group.

U.S. Economic Reports

No major U.S. economic data is scheduled to be released today, although reports on consumer prices, retail sales, industrial production, and housing starts are likely to attract attention in the coming days.

Stocks In Focus

Shares of Sysco (SYY) are moving notably higher in pre-market trading after the food service company reported better than expected fiscal fourth quarter earnings.

Drug store chain Rite Aid (RAD) may also see initial strength after appointing Heyward Donigan to replace John Standley as Chief Executive Officer.

On the other hand, shares of Tyson Foods (TSN) may move to the downside after the company said a meat processing plant in Kansas will remain closed indefinitely after a Friday night fire caused significant damage.
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