Thursday, May 23, 2019

Markets tumble on US-China trade war fears

Dow sank 331, decliners over advancers 4-1 & NAZ dropped 105.  The MLP index fell a big 5+ to the 249s & the REIT index was flattish in the 382s.  Junk bond funds slid lower & Treasuries were in demand (more below).  Oil plunged 3 to the 58s on demand worries & gold rallied, up 9 to 1283.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil58.83
 -2.59 -4.2%

GC=FGold   1,283.50

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The Dow opened sharply lower as worries about the US-China trade dispute intensified & concern that ongoing elections for the European Parliament could increase the number of populists in the body.  In addition, a public clash yesterday between House Speaker Nancy Pelosi & Pres Trump dimmed prospects for a $2T infrastructure bill, something that has been expected to boost shares of industrial corps.  Auto & tech stocks, both particularly trade sensitive, fell as investors watched voting for members of the European Parliament.  Prospects that populist candidates will increase their representation in the body are believed to hearten eurosceptics & make cooperation among EU nations more difficult.  Meanwhile, the lack of a specific date for a resumption of Sino-American trade talks left traders increasingly worried about the possibility that the trade conflict between the world's 2 largest economies could last for months.  Despite recent declines in major equity indices, they remain sharply higher for the year (but off lows when Jan trading began).  The broad S&P 500 equity gauge is up 14% since Jan1 & 3% below its Apr 30 record high.  The yield on the 10-year Treasury, which moves in the opposite direction of its price, was down to 2.6%, a 52-week low, indicating a rising demand for what is seen as a safe investment.  The price of crude oil fell.  West Texas Intermediate, the US benchmark crude, changed hands for $60.38 per barrel.  China's Shanghai Composite closed down 1.4%, the Hang Seng fell 1.6% & Japan's Nikkei 225 ended off 0.6%.  Britain's FTSE 100 was decreased 1.3%, France's CAC 40 retreated 1.7% & Germany's DAX tumbled 1.8%.

Dow drops on global trade, political concerns

China's foreign ministry says the country is open to resuming trade talks with the US, but sincerity & mutual respect are needed.  Spokesman Lu Kang said that China hopes for a restart to talks that broke down earlier this month after the US hiked tariffs on $250B in Chinese imports.  Lu said, "China is open to the door of dialogue, but sincerity is indispensable to make a consultation meaningful. A mutually beneficial agreement must be based on mutual respect, equality and mutual benefit."  He reiterated China's criticism of US efforts to restrict commercial cooperation with equipment maker Huawei & other Chinese high-tech firms.  He said the USA has "seriously affected the development and cooperation of global science and technology, and has also harmed the vital interests of relevant enterprises and countries."  China is seeking to support from some of its Asian neighbors & Russia in its escalating tariff fight with the US.  Speaking at a meeting of the Shanghai Cooperation Organization in Kyrgyzstan, Foreign Minister Wang Yi said representatives of the 8-nation grouping had expressed "broad support" for China's position.  Wang reiterated China's stance that it would never accept unequal trading arrangements.  He said Beijing will match "extreme pressure" from the US with its own measures.  Beijing has already responded to Trump's tariff hikes on $250B of Chinese imports by slapping penalties on $110B of American goods. Based on last year's trade, that leaves about $45B in imports from the US.  That includes semiconductors & other critical inputs needed by fledgling Chinese tech industries.

China open to US trade talks on one condition

Secretary of State Mike Pompeo said that Huawei does indeed work with the Chinese gov, despite denials by the China-based telecom giant.  “For them to say that they don’t work with the Chinese government is false,” Pompeo said.  “The Huawai CEO on that, at least, isn’t telling the American people the truth.”  “If you’re a state-directed business and you take on subsidies direct from the Chinese government, there’s no doubt you can make real hay,” he added.  “I think the world wants systems they can trust.”  Huawei, a leader in 5G technology, has been trying to win contracts around the world, including Britain & Germany, to build the network that will make the internet exponentially faster.  Pompeo has been critical of Chinese technology companies in the past & met with British leaders earlier this month to discuss securing US intelligence against Huawei.  The Secretary of State said he's been “explaining the risks” about national security as he travels around the world to meet with gov leaders.  Last week, the White House effectively blacklisted Huawei, making it harder to continue to do business with American companies.  The Trump administration is also cracking down on what it considers unfair trade practices by China.  There's been no meeting scheduled between Treasury Secretary Steven Mnuchin and Chinese officials regrading talks to end the US-China trade war, but Pompeo said he's hoping that changes soon.

Secretary of State Pompeo: Huawei isn’t telling Americans the truth about China government ties

The yield on the 10-year Treasury note fell to its lowest level since 2017 as traders became more nervous that the US-China trade war could drag on longer than expected.  The yield on the benchmark 10-year Treasury note, which moves inversely to price, was lower at around 2.331%, its lowest level since Dec 7, 2017 & the yield on the 30-year Treasury bond was also lower at 2.764%, its lowest level since Jan 2018.  Yields extended their declines after financial data firm IHS Markit said the US manufacturing Purchasing Managers Index fell to 50.6 in May, the lowest reading since 2009.  The latest fight between DC & Beijing worsened after UK-based semiconductor designer Arm Holdings said it suspended business with Huawei to comply with the US blacklisting of the telecom company.  Other tech companies have also adjusted their businesses to comply with US stipulations.  The Trump administration’s recent criticism of Huawei came in tandem to increased tariffs between the 2 economic powerhouses & a breakdown in negotiations earlier in the month.  The US hiked the tariff rate on $200B of Chinese goods to 25% from 10% on May 10 & threatened to slap even more onerous duties on another $300B imports.  China is taking a stronger tone in its rhetoric towards the US.  Ministry of Commerce spokesperson Gao Feng said: “If the U.S. would like to keep on negotiating it should, with sincerity, adjust its wrong actions. Only then can talks continue.”

10-year yield falls to lowest level since 2017 as traders prepare for long trade battle

This is turning into an ugly day for the stock market.  The Dow plunged at the opening & the bulls have not returned to buy shares.  Trade war fears dominate the news & it looks like that condition can last for some time.  The dysfunction in DC kicked into high gear yesterday, which could be a drag on the expanding US economy.  With the bulls in hiding, the stock market is on defense.

Dow Jones Industrials

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