Monday May 13th

13-05-2019

Dow futures point to 500-point drop at the open after China retaliates with tariff hikes

U.S. stock futures pointed to sharp losses on Monday after China decided to raise tariffs on some U.S. goods as the ongoing trade war between the world’s largest economies intensifies. As of 9:02 a.m. ET, Dow Jones Industrial Average futures dropped 530 points, indicating a loss of 500 points at the open. S&P 500 futures pointed to a loss of 1.9% while Nasdaq 100 futures indicated a drop of 2.4%. China will hike tariffs on $60 billion worth of U.S. imports, starting on June 1. The goods targeted include a broad range of agricultural products. This comes after President Donald Trump raised tariffs on Chinese imports last week. China said in a statement that the U.S.′ decision jeopardized the interests of both countries and does not meet the “general expectations of the international community,” according to a Google translation. Trade bellwether Caterpillar fell more than 4% while Apple dropped 3.8%. Boeing shares also declined more than 3% amid speculation the airplane maker could be singled out by China in the trade war. Asian markets fell broadly. The Nikkei 225 index declined 0.7% Monday while the Shanghai Composite pulled back 1.2%. In South Korea, the Kospi fell 1.38% to close at 2,079.01. European stocks also dropped. The Stoxx 600 index fell 1.1% while the German Dax dipped 1.5%. Trump tweeted on Monday that China will be “hurt very badly if you don’t make a trade deal, ” noting that companies would be forced to leave the country without an agreement. Trump also said that China had a “great deal” almost completed but they “backed out.” “In the immediate term, we would be watching to see if China retaliates against last Friday’s tariff increase. The performance of the equity markets would also be critical. Thus far, the selloffs in China and the US indices have been minor. A more serious decline could prompt more urgency by both sides to reach a deal,” strategists at Singapore’s DBS Group Research wrote in a note. Trump said on Saturday that China should act now to make an agreement — or it would risk facing a worse deal if negotiations continue into a possible second term after the 2020 presidential election. The president claimed China was “beaten so badly” in recent trade negotiations that Beijing wanted to wait until after the 2020 election in the hope a Democrat would win the White House and offer them a better deal. Trump also tweeted on Monday that China has “taken so advantage of the U.S. for so many years, that they are way ahead (Our Presidents did not do the job). Therefore, China should not retaliate-will only get worse!” Despite the tension between the world’s two largest economies, White House economic advisor Larry Kudlow said Sunday that Trump and Chinese President Xi Jinping are likely to meet at the June G-20 summit in Japan. Kudlow said the chances of such as meeting “were pretty good” but added that there are “no concrete, definite plans” for when U.S. and Chinese negotiators will meet again. U.S. equities fell sharply last week after Trump threatened to hike tariffs on China. Trump followed through on his threat, raising levies from 10% to 25% on $200 billion worth of Chinese goods. The S&P 500 and Nasdaq fell 2.2% and 3% last week, respectively, their worst weekly performances since December. The Dow had its worst week since March, dropping 2.1%. Although some of those losses were mitigated on Friday after stocks staged a massive comeback. That positive sentiment was boosted by the U.S. president saying in a Friday afternoon Twitter post that the latest round of trade talks with China’s delegation — which concluded after tariffs had already been increased — had been “candid and constructive.” “No one wins from a trade war, although China stands to lose more,” said Chen Zhao, chief global strategist at Alpine Macro, in a note to clients. “Trump’s objective is to get a good deal from China, and as such the new tariffs announced last week may simply be a pressure tactic forcing Beijing to accept American demands. For China, the economic cost of losing the American market is simply too high.” “The odds of a China-U.S. trade accord remain significant, even though tariffs are being raised,” he added. Oil futures rose on Monday on increasing concerns about supply disruptions in the Middle East even as investors and traders fretted over global economic growth prospects amid a standoff in the Sino-U.S. trade talks. Brent crude futures were at $71.71 a barrel, up $1.09 or 1.5%. U.S. West Texas Intermediate (WTI) futures were at $62.46 per barrel, up 80 cents or 1.3%. Gold prices fell on Monday as an escalating trade conflict between Washington and Beijing weighed on the yuan, denting demand in the world’s biggest consumer of the metal, China. Spot gold was down 0.2% at $1,283.63 an ounce. U.S. gold futures slipped 0.3% to $1,284.20.