Friday August 23rd

23-08-2019

Dow set to drop more than 150 points after China retaliates with new tariffs

U.S. stock index futures pointed to a lower open on Friday after China said it will slap new tariffs on U.S. goods. At around 8:36 a.m. ET, Dow Jones Industrial Average futures were down 150 points, indicating a drop of 165 points at the open. S&P 500 and Nasdaq 100 futures also pointed to a lower open. Losses were muted as traders awaited a speech from the Federal Reserve chief on monetary policy. China will retaliate with new tariffs on another $75 billion worth of U.S. goods, including autos. The tariffs will range between 5% and 10% and will be implemented in two batches on Sept. 1 and Dec. 15. Shares of General Motors and Ford Motor fell in the premarket by 2.2% and 1.9%, respectively. Fiat Chrysler slid 1.5% while Tesla pulled back 1.4%. Futures were higher earlier in the session as market participants awaited a key speech from the Federal Reserve’s top official. Fed Chairman Jerome Powell is expected to address an audience of policymakers and economists at 10 a.m. ET. He faces the tough challenge of presenting a unified voice on Fed policy from the most divided U.S. central bank in years. It comes as both the Fed and Powell are under an unprecedented siege from an angry president, while a speech that fails to assure investors the U.S. central bank will continue to cut interest rates could create even more market volatility. As of Friday morning, Fed funds futures were pricing a likelihood of almost 90% for a 25 basis point rate cut at the September meeting, and between one or two further quarter-point rate cuts between then and the end of the year. The yield curve remained only slightly positive on Friday morning ahead of Powell’s speech. The spread between the 10-year Treasury yield and the 2-year rate inverted on Thursday after Fed members indicated a September rate cut was not a certainty, raising fears that the central bank would not be quick enough to save the economy from a recession. The yield curve has been a reliable recession indicator in the past. On the data front, new home sales for July will be released at around 10:00 a.m. ET. Major Asia Pacific markets rose by the close on Friday, as investors looked ahead to an important speech from U.S. Federal Reserve Chairman Jerome Powell later in the day. In Japan, the Nikkei 225 rose 0.4% to close at 20,710.91 while the Topix index added 0.23% to 1,502.25. South Korea’s Kospi closed 0.14% down to 1,948.30. Elsewhere, mainland Chinese shares traded mostly higher: the Shanghai composite gained 0.49% to close at 2,897.43, while the Shenzhen composite was flat, closing at 1,578.70. The Shenzhen component gained 0.13% to 9,362.55. Hong Kong’s Hang Seng index climbed 0.67% at 3.27 p.m. Crude prices plunged on Friday after China unveiled new tariffs on U.S. goods, dampening expectations of global economic growth. U.S. oil traded 3.2% lower, or $1.76 at $53.58 per barrel and reached its lowest level in a week. Brent oil fell 2%, or $1.19 to trade at $$58.75 per barrel. Gold eased on Friday and was set for its worst week in nearly five months, as lack of clarity from the U.S. Federal Reserve on the outlook for interest rate cuts triggered investors to cash in some gains ahead of Jerome Powell’s speech at Jackson Hole. Spot gold was down 0.2% to $1,495.80 per ounce, as of 0805 GMT. The metal has lost nearly 1.2% so far this week, on track for its biggest weekly percentage decline since March 29. U.S. gold futures also slipped 0.2% to $1,505.50 an ounce.