Stock markets falter after renewed trade war threats from Trump

  • Trump threatens to impose tariffs on $325bn more Chinese imports
  • S&P 500, Nasdaq Composite Index and Dow Jones Industrial Average subsequently trade lower
  • Materials and industrial sectors strengthened

Stock markets in the United States were dragged down yesterday by disappointing bank earnings and renewed threats from Donald Trump over the trade war with China. Not only did he say that a trade resolution could be “a long way off”, but he also threatened to impose tariffs on an extra $325bn worth of imports from China.

Chinese commerce minister Zhong Sham will soon join the negotiation team, which some observers expect could mean a tougher stance from China in these negotiations.

The S&P 500 dropped by 0.34 to close at 3,004.04. The Nasdaq Composite ended 0.43 down at 8,222.80, and the Dow Jones Industrial Average dropped by 0.09 to close at 27,335.63.

Wells Fargo dropped by up to 3 percent after its net interest income came in well below Wall Street estimates.

Goldman Sachs announced higher-than-expected equities sales and trading revenue. This boosted its stock price by 2 per cent. JPMorgan announced an 11 per cent increase in consumer and community bank revenues, which helped its EPS to exceed Wall Street estimates.

Meanwhile, meal kit delivery service Blue Apron’s share price exploded by up to 50 per cent.

The biggest gainers and losers on the S&P 500 were:

  • J.B. Hunt Transportation Services, up 5.79 per cent
  • Charles Schwab, up 3.50 per cent
  • Alaska Air Group, up 3.27 per cent
  • Western Digital, down 5.91 per cent
  • NRG Energy, down 4.66 per cent
  • First Republic Bank, down 4.35 per cent

The S&P 500’s technical index fell by nearly 0.9 per cent.

Energy stocks notched up the biggest losses, while the materials and industrial sectors gained between 0.2 per cent and 0.7 per cent. 

Global markets remain jittery amid conflicting signals from world economy

  • US stock markets rise slightly and USD surges while US Treasuries drop
  • Investors becoming reluctant to partake in bull run before Powell testimony
  • Stock markets move lower in Europe, China and Hong Kong

Stock markets in the United States closed somewhat higher on Tuesday after trading sideways for the biggest part of the day. Treasuries moved lower, but the USD reached its best level since the middle of last month.

Just before the close of trade, the S&P 500 suddenly started moving, with stronger tech stocks partly compensating for a drop in consumer staples and materials. The FAANG stocks, such as Facebook and Amazon, led gains in the equity benchmark.

Trading could remain volatile ahead of this week’s key testimony from Fed chairman Jerome Powell, with analysts assessing the likelihood of lower rates and other stimulus measures amid inconsistent signals from the world economy. Bond and stock investors are no longer so eager to take part in the bull run as a Fed rate cut has already been priced into current stock prices.

Fiera Capital Corp. portfolio manager and vice president Candice Bangsund said: “Powell is likely to walk a fine line between the hawks and doves in his testimony.”

In Europe, the STOXX 600 traded lower after BASF, the world’s biggest chemical firm, reduced its earnings forecast for this year because of international trade conflicts. In Japan, stock markets reversed earlier gains, while they were choppy in South Korea. China and Hong Kong reported small drops, while bonds strengthened in Italy. In Mexico, the peso lost value after the finance minister resigned.

In other economic news, bitcoin continued its bull run. The price of West Texas Intermediate crude oil increased, while the GBP lost value after a prediction by economists that the British economy would contract in Q2. The Hong Kong dollar, meanwhile, fell amid ongoing uncertainty over legislation that would enable extraditions to China.

Oil and USD lower as US stock markets gain

  • US stock markets gained on Tuesday
  • Bank stocks such as Wells Fargo, Bank of America, and Citigroup traded lower
  • Tech stocks strengthened on positive news from US-China talks

US stock markets strengthened yesterday to end a quiet session. The S&P 500 notched up its second record close in two days, despite the Trump government threatening to impose a new round of tariffs on European products.

Oil prices nosedived, with Brent crude oil and West Texas Intermediate crude oil falling by well over 3% each. This comes at a time when OPEC and other oil suppliers, including Russia, have just finalized plans to support oil prices.

The S&P 500 gained 0.3% to close at 2,973.07, while the Nasdaq Composite rose 0.2% to end the day at 8,109.09. The Dow Jones Industrial Average strengthened by 0.3% to close at 26,786.75.

The market was held back, however, by bank stocks losing value. Wells Fargo fell by more than 0.9%, as did Bank of America. Citigroup saw its stock price lose 0.4%. The two-year rate dropped to 1.76%, while the benchmark yield on 10-year Treasury Notes traded close to 1.97%. Meanwhile, the SPDR S&P ETF (KBE) nosedived by 1.4%.

Technology firms such as chip manufacturers, on the other hand, helped to lift the S&P 500 to a record high this week after the good news about China-US trade negotiations. The two countries’ leaders agreed not to impose fresh levies on one another’s products after they met privately during the G20 summit over the weekend.

The Dollar index, a measure of the American currency’s performance against a basket of international currencies, retreated on Tuesday. BK Asset Management forex strategist Kathy Lien said in a letter to clients: “After rising strongly on Monday, the U.S. dollar traded lower against all of the major currencies as G20 optimism gave way to fresh uncertainties.”

United States stock markets retreat on Tuesday

  • Jerome Powell issues warning of downside risk
  • Government downplays likelihood of a trade deal with China being sealed before G20
  • NASDAQ 100 down 1.7%, S&P 500 drops 0.95%, MSCI Indexes also lower

Stock markets in the United States recorded their biggest losses in well over three weeks yesterday after Fed Chairman Jerome Powell cautioned against an increased downside risk to the country’s economy. At the same time, the Trump government hinted that it was unlikely that a US-China trade deal would be signed at the G20 meeting. 

This caused the dollar and treasuries to strengthen.

The S&P 500 traded lower for the third day in a row as Powell again argued the case for an interest rate reduction. Markets seem to have priced in a drop of nearly 50 basis points next month, although St. Louis Fed President James Bullard believes that is too much.

Technology stocks dropped the most, with the NASDAQ 100 losing 1.7% after a senior official in the Trump government said no detailed trade agreement was expected during the G20 summit.

The S&P 500 lost 0.95%, while the Stoxx Europe 600 slipped 0.1%. There was a 0.8% drop in the MSCI Emerging Market Index, and the MSCI Asia Pacific Index lost 0.4%.

Returns on 10-year Treasury notes dropped below 2% for the first time in three years.

With the White House seemingly downplaying any hope of a breakthrough in trade negotiations with China, investors began to shun higher risk assets after the recent rally. The market was betting on substantial rate cuts this year, and comments by Trump officials yesterday led to renewed doubts.

According to Charles Schwab Investment Management CIO Omar Aguilar, the markets are nevertheless currently still driven by expectations of lower interest rates starting next month.

Drug manufacturer Allergan’s stock price spiked after it agreed to an acquisition by AbbVie Inc. Bitcoin extended its bull run to above $11,000, and West Texas oil traded lower despite increased tensions between Iran and the US. The possibility of OPEC further reducing production failed to cause an increase in prices.

Stock markets rally on trade war hopes, possibility of stimulus

  • Trump and Xi Jinping set to meet at G20
  • European STOXX 600 sees its biggest rise since January
  • S&P 500, MSCI Emerging Markets Index and MSCI Asia Pacific Index all up

Stock markets in the United States reached all-time highs on Tuesday amid renewed hopes that the US-China trade war can be defused. The optimism was further boosted by the European Central Bank signalling that it is prepared to reduce interest rates if needed. Oil and treasuries surged.

The European STOXX 600 traded 1.7% up, marking the largest increase since January. The S&P 500 surged by around 1.4% before receding slightly. There was also a 1.5% increase in the MSCI Emerging Markets Index, while the MSCI Asia Pacific Index strengthened by 0.6%.

After a long period of widespread concerns about the trade war, US President Trump’s tweet that he and Chinese President Xi Jinping will meet at the G20 summit next week created widespread euphoria in the markets. The mood was, however, later tempered when news emerged that the Trump administration is considering demoting Jerome Powell, the Chairman of the Federal Reserve, in February.

US Bank Wealth Management Senior Investment Strategist Rob Haworth said that markets have been sceptical about the chances of a meeting between Trump and Xi Jinping taking place. He added: “This pivot to an attempt to get a deal done is certainly a lot of what’s driving the market.”

ECB President Mario Draghi committed the bank to more economic stimulus measures if necessary. Central banks in Russia, Australia, Chile, and India have recently relaxed their policies, and the Reserve Bank of Australia announced that a further easing was very likely yesterday.

At today’s Fed meeting, members are widely expected to adopt a more dovish stance. The yield on 10-year Treasury Notes was close to 2% at one point, and similar yields dropped deeper into negative territory in Germany. 

The oil price reached a five-month high after the ECB’s comments, further boosted by OPEC countries and their allies getting closer to a meeting where they are likely to announce supply cuts.

US stock markets retreat on Tuesday while global markets strengthen

  • S&P 500 struggles to break past 2,900, thirty-year bond yields drop 0.6 basis points
  • Investors keeping a close eye on how trade war is panning out
  • Trump threatens to raise tariffs on Chinese imports further

US stock markets retreated slightly yesterday despite China’s announcement that it was poised to introduce fiscal stimulus measures to boost infrastructure spending across the country. After that, Treasury yields also dropped from their session high. 

Thirty-year bond yields fell 0.6 basis points, while two-year note yields increased by 2.2 basis points.

On Monday, Xinhua, China’s official news agency, stated that financial institutions and governments should use special bonds to boost infrastructure spending across the country. Although China and the US are in the middle of a nasty trade war right now, global investors have been keenly monitoring what the country will do to re-ignite the lackluster global economy.

On Monday, President Trump told China that he will expand tariffs to another $300 billion of its products if President Xi Jinping does not meet with him at the upcoming G20 meeting.

The S&P 500 SPX initially strengthened yesterday, but later found it difficult to exceed the 2,900 level. Internationally, however, stock markets fared much better. In China, the CSI 300 index ended 3% up, while Europe’s STOXX 600 strengthened by 0.7%.

The sale of $38 billion 3-year notes by the Treasury Department was well received by investors, with the bid-to-cover ratio at one stage reaching 2.62. 

Analysts believe the positive reaction to the auction might reflect the market’s expectation for more rate cuts before the end of the year.

Bleakley Advisory Group CIO Peter Boockvar said: “Too early to say for June and July but it’s certainly a message and belief where interest rates are likely going in the next few years on the short end. In this case, that means lower.” 

In other data, producer prices in the US went up by 0.1% last month, while the NFIB’s small-business optimism index reached 105, which is a seven-month high.

US stock exchanges gain after Fed hints at rate cut

  • Dow Jones, S&P 500, Nasdaq all note gains
  • Tech shares recover from Monday’s sell-offs
  • Uncertainty remains over tariffs on Mexican imports

After US Federal Reserve Chairman Jerome Powell indicated that the country’s central bank was considering the possibility of reducing interest rates yesterday, all of the main stock exchanges started rising. 

Referring to the uncertainty surrounding the current trade negotiations, Powell said: “We do not know how or when these issues will be resolved.” 

He added that with a robust labor market and inflation close to their 2% target, they were closely watching the implications of the latest developments for the United States economy and will take any steps necessary to “sustain the expansion.”

The Dow Jones Industrial Average and the S&P 500 gained 2%. The Nasdaq Composite Index did even better, with a gain of 2.65%. In all three cases, these were the largest single-day gains since the beginning of the year. The S&P 500 is still 5% lower than the recent high it reached on May 1, however.

Technology shares, including Alphabet, Facebook and Apple, recovered strongly yesterday after Monday’s bruising sell-off. Tesla stood out from the crowd with a gain of 8%.

President Donald Trump announced last week that the US will charge a 5% tariff on all products imported from Mexico starting June 10. This will be increased every month until it reaches 25% in October unless Mexico meets the White House’s list of demands.

Wall Street economists and strategists predict that if Trump goes ahead with the tariffs, it will hurt US economic growth, cause inflation to soar, and severely harm the motoring industry, which heavily depends on factories in Mexico. They believe the burden will eventually be carried by American consumers.

Yesterday, Bank of America Merrill Lynch reduced its global growth outlook for next year and said: “The latest escalation of the trade war has prompted us to change our baseline view.” 

Stock markets are getting smaller, perhaps permanently, says Citigroup

  • Citigroup says stock markets in the US and UK are shrinking
  • Reasons include buybacks, mergers, acquisitions, drops in IPOs, and Capex
  • Analyst Robert Buckland sees this as a rational response to changing financing costs

The US stock market has shrunk by around 2.3% since last year in a trend that has been underway for eight years. This is according to Citigroup strategists under the leadership of Robert Buckland. In the United Kingdom, the stock market is now 3% smaller than it was last year.

This “de-equitization” is being caused by several factors.

Buybacks: Buckland said that last year, 3% of the US stock market was redeemed. This happens because equity costs around 6.7% a year and debt currently costs only 4.1% in the US. In the UK, debt is 4.6% cheaper than equity. 

Mergers and acquisitions: When one company borrows $10 million to buy another one, it reduces the total number of stocks available to the public. 

Fewer IPOs: With an abundance of venture capital on the market, private companies find it easy to get funding without having to launch on the stock market. This is responsible for the drop in Initial Public Offerings seen in recent years.

Capex: In the past, major firms often issued stocks to fund large capital projects, such as new mines or plants. Global economic instability has caused a drop in these projects, and when they do occur, they are often funded via internal cash or debt.

It is often asked whether stock markets have become permanently less appealing, particularly in the presence of cheaper and less cumbersome alternatives.

Buckland responded by saying that stock markets are shrinking because businesses can find cheaper funding elsewhere, with venture capitalists and private equity investors offering alternatives to these markets.

He concluded: “But we do see it is a rational capitalist response to major divergence in the cost of debt and equity.”

Markets deliver strong performance after US grants Huawei temporary reprieve

  • Markets end higher on a wide front after US grants Huawei temporary reprieve
  • Dow Jones up 197.43 points, Nasdaq Composite up 1.1%, S&P 500 rises 0.9%
  • Huawei suppliers in particular note benefits 

US stock markets ended higher yesterday after news that the country has temporarily eased restrictions on Huawei.

A strong performance from Intel helped the Dow Jones Industrial Average climb 197.43 points to close at 25,877.33. The Nasdaq Composite ended 1.1% higher at 7,785.72, while the S&P 500 was boosted by a 1.2% increase in tech shares to end 0.9% higher at 2,864.36.

Markets also benefited from a 1.7% rise in Boeing stocks.

The U.S. Commerce Department announced on Monday night that Huawei will be allowed to buy American-made products to continue delivering software updates and maintain existing networks until August 19. 

The stocks of Huawei suppliers such as Xilinx (+4.6%) and Micron Technologies (+3%) benefited from the news. Qualcomm stocks also ended 1.5% up, while Lam Research and Nvidia gained 1.8% and 2.2% respectively.

In China, share prices also strengthened on a wide front. The Shanghai Composite ended 1.2% higher, and the Shenzhen A Shares index closed 1.8% up. In Europe, the Stoxx 600 gained 0.5%.

Despite these improvements, the Dow Jones and S&P 500 are still down well over 2% since the beginning of May, and the Nasdaq has lost 3.8%. 

According to Pence Wealth Management Chief Investment Officer Dryden Pence, the market will stay in a narrow range until the trade conflict has been resolved, at which point stock prices should start to increase.

He added: “It’s hard for the market to go a lot higher until we get some resolution on trade. But it’s hard for the market to go a lot lower because the fundamentals are there.” 

General Motors beats earnings forecasts with light sales

  • Adjusted earnings exceeded Wall Street forecasts by 30 cents
  • Revenue reported at $34.9 billion
  • Shares dropped by 2.6%

The biggest automaker in the U.S. saw its shares fall this week after earnings beat industry forecasts but revenues fell short of predictions by more than a million dollars. The good news was that General Motors’ adjusted earnings for the first quarter exceeded Wall Street forecasts by 30 cents, hitting $1.41 a share. 

The Detroit-based automobile manufacturer’s report saw its earnings over the period reach $2.2 billion, which represents $1.41 per share on an adjusted basis. Earnings of $1.11 per share had been forecast by analysts, so the result was a good win for the company.

However, the total revenue figures came in at $34.9 billion against an expected figure of $35.56 billion, and core activity automotive revenue also missed targets, with a total of $31.26 billion being reported.

In the wake of the news, General Motors stock dropped by 2.6% to reach $38.97.

In the domestic market, strong sales for U.S. pickup trucks buoyed the traditional bottom line, with the company reporting that transaction prices for the new full-sized crew cab pickup trucks saw an increase of $5,800 over the previous models. The most popular GM pickups also saw a sales hike of 20% year on year.

Overseas auto sales saw nearly 814,000 GM vehicles being delivered in China in the first quarter on the back of the Monza and Chevrolet Onix models being successfully launched in the region. However, overall vehicle sales fell by 10% in total, with U.S. sales alone dropping 7% in the quarter.

In other areas of operations, General Motors saw the benefit of a revaluation of the stock it holds in Lyft, the ride-hailing Uber rival.