Friday May 10th

10-05-2019

Dow futures fall 120 points after Trump tweets 'no need to rush' on China trade deal

Wall Street is set to open lower on Friday as President Donald Trump said there's "absolutely no need to rush" on a trade agreement with China and tariffs will make the United States "much stronger." Futures on the Dow Jones Industrial Average fell about 120 points Friday morning, implying a lower open of about 113 points. The S&P 500 and Nasdaq were also set to open lower. Trump signaled in a Twitter post Friday morning he could stick with China tariffs for a long period of time. The comments came after he slapped higher tariffs — from 10% to 25% — on $200 billion worth of Chinese goods. Tariffs will make our Country MUCH STRONGER, not weaker. Just sit back and watch! In the meantime, China should not renegotiate deals with the U.S. at the last minute. This is not the Obama Administration, or the Administration of Sleepy Joe, who let China get away with “murder!” There's still hope that the U.S. and China could hatch a deal, however. Some market participants believe the new tariffs are not applied to Chinese exports that are already in transit before the deadline, which provides some additional time for the two sides to reach an agreement. "A 'grace period' was included on these tariff increases, so that goods currently in transit to the U.S. from China aren't subject to the new 25% tariffs, just the old 10% tariff," Tom Essaye, founder of Sevens Report, said in a note on Friday. "That grace period was not included in previous rounds of tariffs and is likely an olive branch of sorts to the Chinese side. Given shipping times, goods sent from China today will take two weeks or so to reach the U.S., so if a trade deal is stuck in that time frame, the pain of the 25% tariffs will never be felt," he added. Trade negotiations are set to continue in Washington on Friday. Chinese Vice Premier Liu He is meeting with Trump's trade team without the title "special envoy" for President Xi Jinping, a role he has held in previous talks, suggesting he may have diminished authority to make concessions that could be key to striking a deal. Trump said Thursday tariffs are an "excellent" alternative to a trade deal with China. "We continue to expect the two sides to reach a trade deal eventually, but this is unlikely to happen in the short term as the war is not painful enough for either side," Zhiwei Zhang, Deutsche Bank's chief Asia economist said in a note on Friday. "China is not likely to give in quickly. The damage to China's economic growth is around -0.2% on an annualized basis, which is manageable." Stocks extended this week's deep sell-off as the Dow has fallen more than 650 points this week, while the S&P 500 has lost about 2.5% following the president's Sunday tweet threatening tariff hikes. Shares of Ford rallied more than 2% in premarket Friday, providing some support for the market, after Bank of America Merrill Lynch upgraded the equity to buy from neutral, citing a strong utility vehicle and truck lineup over the next few years. The Cboe Volatility Index, a measure of the 30-day implied volatility of the S&P 500 that's commonly known as Wall Street's "fear gauge," hit its highest level since Jan. 4 on Thursday. U.S. consumer prices rose in April but underlying inflation remained muted, suggesting the Federal Reserve could keep interest rates unchanged for a while. The Labor Department said on Friday its Consumer Price Index increased 0.3% last month, lifted by rising gasoline, rents, and health-care costs. The CPI gained 0.4% in March. In the 12 months through April, the CPI increased 2.0% after advancing 1.9% in March. Economists polled by Reuters had forecast the CPI increasing 0.4% in April and advancing percent 2.1% year-on-year. Stocks in China rallied on Friday, after the U.S. carried out its threat and raised tariffs on Chinese goods at midnight. Mainland Chinese stocks bounced following an earlier wobble. The Shanghai composite rose 3.1% to about 2,939.21 and the Shenzhen component soared 4.03% to 9,235.39. The Shenzhen composite also jumped 3.833% to close at around 1,568.62. Meanwhile, Hong Kong's Hang Seng index added around 1%, as of its final hour of trading. Elsewhere in Asia, however, the picture was mixed. The Nikkei 225in Japan fell 0.27% to close at 21,344.92, the Topix also declined fractionally to finish its trading day at 1,549.42. In South Korea, the Kospi was 0.29% higher to close at 2,108.04. Oil prices rose on Friday even as the start of U.S. President Donald Trump's tariff hike on $200 billion of Chinese goods kept tensions high in the trade dispute between the world's two biggest economies. Brent crude oil was up 45 cents at $70.84 a barrel by 0917 GMT, having touched a peak of $71.23. U.S. West Texas Intermediate (WTI) crude futures were up 43 cents at $62.13, having earlier hit $62.49. Gold edged higher on Friday and was en route for a weekly gain, supported by trade concerns after the United States hiked tariffs on Chinese goods in the middle of crucial trade talks between the two countries. Spot gold was up 0.1% at $1,285.03 per ounce at 1001 GMT and is up about 0.5% so far this week. U.S. gold futures were steady at $1,285.60 an ounce.