Wednesday July 11th

11-07-2018

Dow is set to drop 200 points as US-China trade fears intensify

U.S. stock index futures tanked ahead of Wednesday’s open, as a trade spat between the U.S. and other major economies intensified. Around 7:45 a.m. ET, Dow Jones Industrial Average futures indicated a negative open of about 200.66 points. Nasdaq 100 and the S&P 500 futures also indicated sharp losses at the start to their respective trading sessions. Trade anxieties ramped up again after President Donald Trump and his administration published late Tuesday a list of 10 percent duties on $200 billion worth of Chinese goods. The tariffs won’t come into effect immediately, but rather face a review process, with hearings taking place in mid-to-late August. "At this point I'm hoping for more science in searching for a deal and less art," said Peter Boockvar, chief investment officer at Bleakley Financial Group. "China seems to have no interest in bending ... and they will retaliate." The announcement came just days after both nations imposed $34 billion worth of tariffs on each other. Shares of Boeing and Caterpillar — two companies with high overseas revenue exposure — fell more than 1 percent each in the premarket. Chipmakers also pulled back as Nvidia, Intel and Advanced Micro Devices all dropped more than 0.7 percent. “Despite trade headlines, S&P 500 companies should deliver robust earnings on above-trend revenue growth and sharply higher margins,” said Dubravko Lakos-Bujas, head of U.S. equity strategy at J.P. Morgan, in a note Wednesday. “While weaker overseas growth, stronger USD, and trade risks warrant some caution, consensus is likely too conservative considering rising disposable income (i.e., tax savings and expanding labor market) and lower household expenses (e.g., declining cost of goods/services including utilities),” Lakos-Bujas said. “Also, sales growth should benefit from expanding labor market, rising business investment, expanding government spending, and higher oil prices.” Corporate earnings are expected to have risen 20 percent in the second quarter, according to FactSet. The earnings season got under way this week with PepsiCo reporting better-than-expected earnings on Tuesday. J.P. Morgan Chase, Citigroup and Wells Fargo are all scheduled to report later this week. "The sharp market reaction to last night’s announcement by the Trump administration ... shows how sensitive markets remain to any tariff news," said Jeffrey Kleintop, chief global investment strategist at Charles Schwab. Kleintop added that second-quarter results could "offer some insight into whether tariffs are having any actual impact on 'hard' data rather than in sentiment reflected in surveys and markets. So far, we haven’t seen any material impact." Trump is currently in Brussels attending a two-day NATO summit. During the first leg of his European trip, the U.S. incumbent has already made headlines by stating that “Germany is totally controlled by Russia,” describing how a number of “inappropriate” oil and gas deals had given Moscow too much influence over Berlin. Shares of drug makers also fell after Pfizer said it will postpone price increases after a conversation with the president. Pfizer fell 0.4 percent before the bell, while Biogen dropped 1.4 percent. Merck also declined 1.6 percent. Markets in Asia closed steeply lower on Wednesday, with most major indexes tumbling following the release of a list of an additional $200 billion in Chinese goods on which the U.S. is considering imposing tariffs. The goods on the U.S. government's list would be subject to 10 percent tariffs, according to a statement from U.S. Trade Representative Robert Lighthizer, who said his office will proceed with a public notice and comment period before the levies are officially imposed. China markets were the worst hit, with the Shanghai composite sinking 1.78 percent to close at 2,777.20. The index had closed higher for its third consecutive session on Tuesday after a recent bout of weakness took the benchmark into bear market territory — referring to a fall of at least 20 percent from recent highs — where it currently remains in. The smaller Shenzhen composite tumbled 1.96 percent at the close, while the Nasdaq-style Chinext index plunged 2.04 percent and the blue-chip CSI 300 index fell 1.74 percent. Hong Kong's Hang Seng Index fell 1.76 percent by 3:21 p.m. Meanwhile, Japan's Nikkei 225 declined 1.19 percent to close at 21,932.21 as trade-sensitive stocks, such as automakers, dropped. Elsewhere, the Kospi edged down by 0.59 percent as South Korean exporters took a hit amid broad-based declines. Global oil benchmark Brent fell more than $2 a barrel on Wednesday after U.S. President Donald Trump threatened to levy new tariffs on China and Libya announced the reopening of key oil export terminals. The specter of tariffs on a further $200 billion of Chinese goods sent commodities lower along with stock markets, as tension between the world's biggest economies intensified. Brent crude fell more than $2 a barrel before recovering slightly to trade down $1.63, or 2.1 percent, to $77.23, by 8:02 a.m. ET (1202 GMT). U.S. light crude, supported by a tight North American market, was down 79 cents, or 1.1 percent, at $73.32 a barrel. Gold prices slipped on Wednesday as U.S. threats of tariffs on an additional $200 billion of Chinese goods pushed safe-haven flows to the dollar and dashed hopes that Washington will eventually step back from the escalating row. Spot gold was 0.31 percent lower at $1,251.31 an ounce. In the previous session, bullion hit a one-week low at $1,246.81. U.S. gold futures for August delivery were 0.25 percent lower at $1,252.20.