Bond, equity markets transmitting trade war fears: Peter Cardillo, Spartan Capital Securities
June 28, 2018
FTSE 100 preview: Index seen lower as US and Asia lose ground
July 5, 2018Stocks fell on Tuesday as tech shares dropped sharply, while lingering concerns over a trade dispute between the U.S. and other major economies rattled investors.
The Dow Jones Industrial Average declined 116 points, with Apple and Caterpillar both falling more than 1.5 percent. The S&P 500 fell 0.5 percent, with tech sliding 1.4 percent. The Nasdaq composite pulled back 0.9 percent as Micron and Facebook dropped 5.5 percent and 2.4 percent.
Equities rose earlier in the day, as energy shares jumped after West Texas Intermediate oil futures broke above $75 per barrel for the first time since November 2014. The Energy Select Sector SPDR Fund (XLE) rose more than 1.5 percent earlier in the session before closing 0.5 percent higher.
The moves Tuesday come after stocks eked out a gain on Monday, despite by concerns about a spat between the U.S. and its key trade partners. Those worries contributed to a late-session sell-off on Tuesday, however, as trade-sensitive names like Boeing and Caterpillar closed near their session lows.
Getty Images – Traders work on the floor of the New York Stock Exchange in New York City.
“In the scheme of things, trade talks are getting worse,” said Peter Cardillo, chief market economist at Spartan Capital Securities. “So any rally we have is going to be capped.”
President Donald Trump’s administration is set to activate tariffs on Chinese goods worth around $34 billion on Friday, which is widely expected to trigger a tit-for-tat response from Beijing. The Trump administration has also alienated the European Union, Canada and Mexico with its increasingly protectionist stance, which has led these countries to issue levies of their own on U.S. goods.
But Ed Yardeni, president and chief investment strategist at Yardeni Research, said in a note Tuesday: “Despite the rising risks of a full-blown trade war, animal spirits remain animated in the US. The US economy is performing well, and the stock market has been holding up remarkably well despite mounting protectionist tensions between the US and our major trading partners.”
Micron shares fell Bloomberg News reported, citing a statement from rival United Microelectronics, that a Chinese court has temporarily banned the sale of Micron chips in China.
Micron said in a statement: “Micron has not been served with the preliminary injunction referred to in the statements issued by United Microelectronics Corporation (UMC) and Fujian Jinhua Integrated Circuit Co. (Jinhua) dated July 3. Micron will not be commenting further until the company has received and reviewed documentation from the Fuzhou Intermediate People’s Court of China.”
Wall Street also looked ahead to Friday in anticipation of the latest jobs report, which is expected to be a strong one. Economists polled by Reuters expect the U.S. economy to have added 200,000 jobs in June.
