Lower markets after Chinese trade retaliation

Dow fell 84 (well above the lows), decliners slightly ahead of advancers & NAZ lost 14.  The MLP index declined  a very big 6+ to the 262s & the REIT index fluctuated in the 242s.  Junk bond funds were even & Treasuries rose modestly, taking the yield on the 10 year Treasury down 2 basis points to 2.92%.  Oil sank to the 64s (more below) & gold tumbled 26 to 1282.

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The next step in what some say is a brewing trade war between the US & China is the restriction on Chinese nationals buying American technology, according to US Trade Representative Robert LIghthizer.  “We hope this leads to further negotiations,” he said.  “We hope this leads to China changing its policies, at least with respect to us, and opening up their market.”  Today the Trump administration announced plans to move forward with a 25% tariff on $50B worth of Chinese goods containing “industrially significant technologies.”  Beijing vowed to respond swiftly to the actions, once more escalating trade tensions between the world's 2 largest economies.  “What we’re trying to do here is just get ourselves back to even,” Lighthizer said, adding, “What we want to do, what the president wants to do, is change the paradigm. We’re going to put in restrictions on investments so they don’t have access to our technology.”  Pres Trump has long pledged to stop China's theft of US intellectual property, which he said costs the $B each year.  The pres has also been critical of a staggering trade deficit between the 2 countries, which tops more than $370B.  In mid-May, the US & China agreed to take steps to reduce that deficit by having Beijing purchase more American-made goods.  “Our hope is that it ends there,” Lighthizer said.  “We can have negotiations, and try to remove some of these structural barriers, while at the same time opening up China.”

Next steps in US-China trade negotiations

Oil prices fell sharply as 2 of the world's biggest producers, Saudi Arabia & Russia, indicated they were prepared to increase output ahead of an OPEC meeting next week.  Crude futures fell in tandem with the US stock market. The Dow tumbled more than 200 after Pres Trump said he will soon put tariffs on $50B in Chinese exports, raising fears of a broadening trade war.  US light crude ended today's session down $1.83 (2.7%) to $65.06 & benchmark Brent crude oil was down $2.46 (3.2%) at $73.48 a barrel after falling 80¢ yesterday.  Both contracts hit 3½-year highs in May, but have since drifted lower as US crude production has risen & as OPEC, Russia & other allies look poised to increase output in their meeting on Jun 22-23.  Russian Energy Minister Alexander Novak said on Thurs after talks with Saudi Energy Minister Khalid al-Falih that both nations "in principle" supported a gradual increase in production after restricting output for 18 months.  "We in general support this ... but specifics we will discuss with the ministers in a week," Novak said, adding that one option would involve gradually raising output by 1.5M barrels per day (bpd), possibly starting from Jul 1.  Falih offered no specific guidance on what any deal in Vienna could look like, but said: "We will see where we go, but I think we'll come to an agreement that satisfies, most importantly, the market."  A rise in output at the meeting is expected.

US crude tumbles 2.7%, settling at $65.06, as the market braces for rise in OPEC output

The Empire State manufacturing survey rose 4.9 points in Jun to a reading of 25, the highest since Oct, the NY Fed said.  Any reading of the diffusion index above zero indicates improving conditions.  The forecast called for a reading of 19.1.  There were solid gains for both new orders & shipments, & the employment index jumped 10.3 points to a reading of 19.  Though down slightly on the month, the prices paid index was still a very high 52.7.  The Empire State reading was at odds with the data released today showing a downturn in industrial production.  Besides the Empire State survey referencing Jun instead of May, the NY region doesn't produce many automobiles, which was the main source of the national downturn. The Empire State index adds to other economic indicators released this week showing an economy running hot.  The Federal Reserve on Wed hiked interest rates & lifted its forecast for how many increases it will make this year.

Empire State manufacturing index climbs to best level in eight months in June

The risk of Salmonella contamination strikes again, this time it’s a well-known breakfast cereal.  Kellogg (K) is recalling 1.3M cases of its Honey Smacks cereal involving more than 30 states.  It is the latest case of US food products possibly tainted by the illness-causing bacteria.  The company said the affected products had use by dates of Jun 14 2018-June 14, 2019.  The Food & Drug Administration said it worked with Kellogg to issue the recall after preliminary evidence linked the product to more than 60 illnesses.  The US health regulator also said it is inspecting the facility that manufactures Honey Smacks.  It's the latest case where US food is linked to a Salmonella outbreak.  It causes an estimated 1.2M illnesses, 23K hospitalizations & 450 deaths in the US each year, according to the CDC.  The stock went up 47¢.

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Kellogg issues massive Honey Smacks recall over Salmonella risk

President Trump announced this AM that the US will levy a 25% tariff on $50B of Chinese goods, pledging that if China retaliates that the US will strike back.  An hour ago, China retaliated.  It didn't take long for Beijing to strike back: China responded to the US tariffs immediately & unveiled details this afternoon.  The country will impose a 25% tariff on 659 US goods worth $50B.   Agriculture goods & autos will be included & they will take effect Jul 6.  Other goods will be announced at a later date.  A few hours earlier China had made it clear that big tariffs on US goods were coming.  China’s Commerce Ministry said this AM that it “firmly objects” to the US trade sanctions & that it harms interests on both sides.  The ministry added that China will impose a tariff measure of similar size & intensity.  Trump's tariffs, meanwhile, are being levied on Chinese goods with industrially significant technologies, including goods related to China's Made in China 2025 strategic plan to dominate the emerging high-technology industries that will drive economic growth for China but hurt economic growth for the US & many other countries.  The White House also vowed to strike back if China retaliates against the $50B in tariffs.  According to the US Trade Representative the tariffs cover 1102 separate product categories, initially they were considering 1333.  Some consumer goods such as flat-panel television sets were dropped.  The first set of tariffs will apply 25% duty on 818 product lines & the 2nd set of tariffs contains 284 proposed product lines identified as benefiting from China's industrial policy.  Tariffs will be collected on the initial tranche of products starting Jul 6.

China retaliates against Trump's $50B in tariffs, slaps tariffs worth as much on US goods

Stocks took the news on new tariffs calmly, finishing above the AM lows.  There will be tariff announcements over the weekend which will drive next week's trading.  Getting little attention, is that Angela Merkel's gov in Germany is shaky because of immigration issues.  If it falls, markets will decline as was the case with Italy a few weeks ago.  The Dow recovered today with buyers returning in the PM even though uncertainties regarding tariffs are rising rapidly.

Dow Jones Industrials