MARKET ANALYSIS: Investors May Shrug Off Escalation Of US-China Trade War

WASHINGTON (Alliance News) - The major US index futures are pointing to a higher opening on ...

Alliance News 18 September, 2018 | 1:54PM
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WASHINGTON (Alliance News) - The major US index futures are pointing to a higher opening on Tuesday, with stocks likely to move back to the upside following the pullback seen in the previous session.

The upward momentum on Wall Street comes despite an escalation of the trade war between the US and China, as President Donald Trump announced new tariffs on approximately USD200 billion worth of Chinese imports.

The markets may benefit from news the tariffs will initially be set at 10% compared to the 25% previously floated by the administration.

However, the tariffs are set to rise to 25% on January 1st, and Trump said the US would impose tariffs on another USD267 billion worth of Chinese imports if China takes retaliatory action.

A statement from China's Commerce Ministry shrugged off the threat and pledged to retaliate in order to safeguard Chinese rights and interests and the global free trade order.

"The US insists on increasing tariffs, which brings new uncertainty to the consultations between the two sides," a Commerce Ministry spokesperson said.

The spokesperson added, "It is hoped that the US will recognize the possible negative consequences of such actions and take convincing means to correct them in a timely manner."

Stocks moved mostly lower over the course of the trading session on Monday, giving back ground after moving notably higher last week. The major averages all moved to the downside, with the tech-heavy Nasdaq showing a particularly steep drop.

The major averages climbed off their worst levels going into the close but remained firmly negative. The Dow fell 92.55 points or 0.4% to 26,062.12, the Nasdaq plunged 114.25 points or 1.4% to 7,895.79 and the S&P 500 slid 16.18 points or 0.6% to 2,888.80.

Lingering trade concerns weighed on the markets throughout the day, with stocks seeing further downside after President Donald Trump said an announcement on trade with China would be made after the close of trading.

"You're going to see on China today right after close of business, we'll be announcing something," Trump told reporters at the White House. "It will be a lot of money coming into the coffers of the US."

In a post on Twitter, Trump claimed tariffs have put the US in a very strong bargaining position and called subsequent cost increases "almost unnoticeable."

China has pledged to retaliate to any new tariffs imposed by the US, with reports suggesting the communist country could go beyond raising tariffs on US imports and restrict exports of goods critical to US manufacturing.

On the US economic front, the New York Federal Reserve released a report showing a bigger than expected slowdown in the pace of growth in regional manufacturing activity in the month of September.

The New York Fed said its general business conditions index fell to 19.0 in September from 25.6 in August, although a positive reading continues to indicate growth in regional manufacturing activity. The index had been expected to dip to 23.0.

Retail stocks showed a significant move to the downside on the day, dragging the Dow Jones Retail Index down by 1.7%. With the drop, the index moved lower for the third consecutive session.

Considerable weakness also emerged among telecom stocks, as reflected by the 1.5% loss posted by the NYSE Arca Telecom Index. The index pulled back after ending last Friday's trading at a four-year closing high.

Brokerage, biotechnology, and semiconductor stocks also saw notable weakness on the day, while gold stocks bucked the downtrend amid an increase by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are jumping USD0.95 to USD69.86 barrel after slipping USD0.08 to USD68.91 a barrel on Monday. Meanwhile, after climbing USD4.70 to USD1,205.80 an ounce in the previous session, gold futures are edging down USD0.50 to USD1,205.30 an ounce.

On the currency front, the US dollar is trading at 112.20 yen compared to the 111.85 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at USD1.1703 compared to yesterday's USD1.1683.

Asia

Asian stocks reversed early losses to finish mostly higher on Tuesday despite President Donald Trump imposing tariffs on another USD200 billion worth of Chinese goods, as widely expected.

Investors braced for Beijing's response to the new tariffs even as Trump threatened duties on about USD267 billion more if China hits back against the latest US action.

China's Shanghai Composite Index soared 48.16 points or 1.8% to 2,699.95 as investors shrugged off the new 10% US tariff on Chinese goods. Hong Kong's Hang Seng Index climbed 151.81 points or 0.6% to 27,084.66.

Japanese shares rallied as traders returned to their desks after a long holiday weekend. The Nikkei 225 Index jumped 325.87 points or 1.4% to 23,420.54, the highest close since February 1st. The broader Topix Index surged up 31.27 points or 1.8% to 1,759.88, the largest gain in six months.

The strength in the Japanese markets came amid expectations Prime Minister Shinzo Abe will win a third term as head of his political party on Thursday.

Insurer Dai-ichi Life Holdings rallied 4.2% and MS&AD Insurance soared 4% after US Treasury yields hit a five-month high.

Meanwhile, Murata Manufacturing dropped 1.4% and Alps Electric lost 2.1% after Apple (AAPL) said the new round of tariffs would hit a wide range of products.

Australian markets fell modestly as falling gold and copper prices on concerns over the US-China trade dispute pulled down mining stocks.

The benchmark S&P/ASX 200 Index dropped 23.50 points or 0.4% to 6,161.50, and the broader All Ordinaries Index ended down 24.40 points or 0.4% at 6,269.50.

Mining heavyweights BHP Billiton and Rio Tinto ended mixed, while gold miners Newcrest, Evolution, Regis Resources and St Barbara lost 1-2%.

Energy stocks also closed lower as oil prices dipped on concerns over the outlook for demand. Woodside Petroleum, Santos, Oil Search and Origin Energy tumbled 1-3%.

Financials bucked the downtrend, with banks Commonwealth and NAB rising around 0.2%.

On the economic front, minutes from the Reserve Bank of Australia's September 4th meeting revealed that board members expect the country to see economic growth at a satisfactory pace.

Separately, a government report showed that house prices in Australia were down 0.7% sequentially in the second quarter, in line with expectations and unchanged from the three months prior.

Europe

European stocks rose on Tuesday as investors took the US announcement of a 10% tariff on about USD200 billion in imports from China in stride.

The tariffs will be set at 10% until the year-end, but would increase to 25% from January 1st. President Donald Trump also warned that he would pursue tariffs on approximately USD267 billion of additional imports if China takes retaliatory action.

China said that the US has not been "sincere" and it has no choice but to retaliate. The statement, however, gave no timeline or details of the proposed action.

While the UK's FTSE 100 Index is just above the unchanged line, the German DAX Index and the French CAC 40 Index are up by 0.2% and 0.3%, respectively.

Osram Licht shares have jumped in Frankfurt. The lighting manufacturer announced that it is very well positioned strategically and financially for the technologies and trends of the future.

Chemical group Clariant has also soared after announcing a new partnership with SABIC in the area of high performance materials.

British online supermarket Ocado has also rallied after sales in its latest quarter increased 11.5%, in line with the group's guidance for the full-year.

BBA Aviation has spiked after announcing the acquisition of Firstmark Corp., an aerospace-focused aftermarket service provider, for a consideration of USD97 million.

On the other hand, British American Tobacco shares have fallen after Morgan Stanley initiated coverage on the stock with an equalweight rating.

German electronic commerce company Zalando has also slumped. The company cut its 2018 outlook, citing the extended and unusually hot summer period and a delayed switch to the fall/winter season.

US Economic Reports

At 10 am ET, the National Association of Home Builders is scheduled to release its report on homebuilder confidence in the month of September. The housing market index is expected to dip to 66 in September after edging down to 67 in August.

Stocks In Focus

Shares of Oracle (ORCL) are moving notably lower in pre-market trading after the business software giant reported fiscal first quarter earnings that exceeded analyst estimates but on weaker than expected revenues.

Delivery giant FedEx (FDX) may also move to the downside after reporting weaker than expected fiscal first quarter earnings. However, the company did raise its full-year earnings guidance.

Shares of AutoZone (AZO) are also seeing pre-market weakness after the auto parts retailer reported better than expected fiscal fourth quarter earnings but revenues that came in below estimates.

On the other hand, shares of Union Pacific (UNP) are moving significantly higher in pre-market trading after the railroad operator announced a new operating plan that implements Precision Scheduled Railroading principles.

Copyright RTT News/dpa-AFX

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