Tuesday December 3rd

3-12-2019

Dow futures drop 100 points after Trump suggests he may wait to strike a China trade deal

U.S. stock index futures dropped on Tuesday after President Donald Trump suggested he may want to delay a trade deal with China until after the 2020 presidential election. Around 7:28 a.m. ET, Dow Jones Industrial Average futures indicated a drop of 100 points at the open, after trading slightly higher earlier in the session. Futures on the S&P 500 and Nasdaq also pulled back. Caterpillar and Intel shares slid 0.8% each in the premarket. Apple lost 0.5%. “In some ways, I like the idea of waiting until after the election for the China deal, but they want to make a deal now and we will see whether or not the deal is going to be right,” Trump told reporters earlier on Tuesday. When asked if he had a deal deadline, he added: “I have no deadline, no ... In some ways, I think it is better to wait until after the election if you want to know the truth.” The two nations have been haggling over a “phase one” trade deal over the past several weeks, an effort seen by many investors as an attempt at a sort-of truce until the globe’s two largest economies can agree on a longer-term relationship. Both sides have introduced tariffs on billions of dollars’ worth of imports as the disagreement escalated over the last year; additional U.S. tariffs are set to take effect on Dec. 15. “Today’s session will hinge on the market’s interpretation of Trump’s overnight comments which concluded he has no deadline for a trade deal with China,” wrote Ian Lyngen, head of U.S. rate strategy at BMO Capital Markets. However, that doesn’t seem to be how investors are interpreting the president’s comments, Lyngen added. “There are several potential reads of these remarks; the first of which would simply be to take them at face value and assume the trade war will be a semi-permanent facet of global commerce throughout next year,” Lyngen added. “There is also the very real probability he’s simply raising the stakes as a negotiating tactic.” If stock and bonds traders took Trump’s remarks as anything more than a negotiating tool, the losses in risk markets would be far more severe and the bid for safe-haven assets like Treasurys would also be more extreme, he wrote. Tuesday’s losses would add to a steep decline from the previous session. The S&P 500 dropped 0.9% on Monday, its worst one-day performance since Oct. 8, while the Dow lost nearly 270 points. The Nasdaq closed down 1% on Monday. The previous session’s pullback was sparked by disappointing manufacturing data as well as renewed trade uncertainty between the U.S. and two South American partners. Trump announced Monday the U.S. will restore steel and aluminum tariffs on imports from Brazil and Argentina. He also suggested the move was necessary because Brazil and Argentina had been “presiding over a massive devaluation of their currencies.” However, in recent months, both countries have been seeking to strengthen their respective currencies against the dollar. The South American trade tariffs have rekindled broader concerns about a protracted dispute between the U.S. and China, with investors monitoring the prospect of a limited agreement. Washington and Beijing have imposed tariffs on billions of dollars’ worth of one another’s goods since the start of 2018, battering financial markets and souring business and consumer sentiment. Ahead of his trip to London, Trump said he was “very happy” the world’s two largest economies were holding talks to try to secure a so-called phase one agreement. The U.S. president has joined other world leaders in the U.K.’s capital city to mark the 70th anniversary of NATO. On the data front, the latest quarterly financial report will be released at 10 a.m. ET, with light vehicle sales figures for November set to follow slightly later in the session. Stocks in Asia mostly fell on Tuesday following negative trade developments overnight as U.S. President Donald Trump said that he will reinstate tariffs on U.S. steel and aluminum imports from Brazil and Argentina. Hong Kong’s Hang Seng index declined 0.17%, as of its final hour of trading. The Nikkei 225 in Japan closed 0.64% lower at 23,379.81 while the Topix index shed 0.45% to end its trading day at 1,706.73. South Korea’s Kospi slipped 0.38% to close at 2,084.07. Mainland Chinese shares bucked the overall trend regionally as they recovered from earlier losses to see gains on the day. The Shanghai composite added 0.31% to around 2,884.70 while the Shenzhen component rose 0.55% to 9,657.65. The Shenzhen composite gained 0.547% to about 1,605.33. Oil prices edged lower despite rising expectations of deeper output cuts when OPEC and its allies meet this week. Brent futures declined 13 cents to $60.79 a barrel. U.S. West Texas Intermediate crude lost 5 cents to trade at $55.91 a barrel. Gold rose to a more than one-week high on Tuesday after U.S. President Donald Trump ratcheted up trade tensions with China, Brazil and Argentina, pushing investors to safe havens, while scarce palladium held near a record peak. Spot gold rose 0.5% to $1,469.30 per ounce, after hitting a one week peak at 1,470.80 earlier in the session . U.S. gold futures were up 0.4% at $1,475.30 per ounce.