Dow 26583 minus 280
S@p500 2953 minus 27
Nasdaq8111 minus 64
FTSE7584minus 2
DAX 12253 plus 63
SPI futures minus 7 (but will be lots lower)
GOLD $1444 plus $17.76
Stocks fell sharply Thursday afternoon Thursday after President Donald Trump said the U.S. would impose an additional 10% tariff on Chinese imports to the U.S., even though the trade talks between the two countries are due to resume September.
President Donald Trump said the U.S. will impose 10% tariffs on $300 billion of Chinese goods beginning Sept. 1. In a tweet, the president said trade talks with Beijing are continuing after U.S. officials returned from negotiations in China. The 10% levies will apply to $300 billion of Chinese goods coming into the U.S. It doesn’t include $250 billion of goods already subject to tariffs, the president said. How are the benchmarks faring?
The Dow Jones Industrial Average DJIA, -1.05% was down 270 points, or 1.0%, to 26,580, while S&P 500 index SPX, -0.90% lost 28 points, or 0.9% to 2,953. The Nasdaq Composite index COMP, -0.79% was down 68 points, or 0.8%, to 8,106.
What’s driving the market?
The unexpected move by President Trump to ratchet up his trade war with China by imposing tariffs on most of the remaining U.S. imports not already subject to levies reversed Thursday mornings gains when investors were betting the Federal Reserve would cut interest rates again in September given weakening economic data.
Shares of Caterpillar CAT, -3.71%, Deere DE, -2.68%, Nike NKE, -3.38% , FedexFDX, -4.23% and Apple AAPL, -2.16% which are exposed to international trade with China all dropped sharply.
The CBOE Volatility Index VIX, +10.24% , a popular gauge of stock-market volatility known by its ticker symbol VIX, jumped to a nearly two-month high Thursday as stocks sold off in the wake of President Donald Trump’s announcement of new tariffs on $300 billion of Chinese goods. The VIX rose more than 13% to trade above 18.0 for the first time since June 4. Volatility has been subdued, with the VIX trading below its long-run average around 19.
‘I think everyone loses in a trade war,” Gary Cohn, Trump’s former top economic advisor, told the BBC in an interview Thursday. “When you build plant equipment, you’re buying steel, you’re buying aluminium, you’re buying imported products and then we put tariffs on those, so literally the tax incentive we gave you with one hand was taken away with the other hand,” the former Goldman Sachs president said.
Earlier, for U.S. stocks the old adage that “bad news is good news” appeared to hold Thursday, after the Fed disappointed markets with its “insurance rate cut” on Wednesday which pushed up the U.S. dollar overnight, and pressured U.S. Treasury yields lower, along with commodity prices.
The stronger U.S. dollar was seen impacting earnings of companies with international operations and lower U.S. Treasury yields supported stock market valuations.
“The minimal size of the cut, the dissents (by two FOMC members), and Powell’s press conference disappointed markets, and undercut our expectation,” Morgan Stanley economist Ellen Zentner said in a note. “We expect a follow-up cut of 25bp this year, and we judge October as the most likely timing”. Read:Fed’s hawkish rate cut could be good for the stock market in the long run, analysts say
The prospect of further Fed rate cuts was enhanced also by data showing a further weakening in the U.S. manufacturing sector.
In the U.S., the Institute for Supply Management said its manufacturing index slipped to 51.2% in July, the lowest reading since August 2016. Meanwhile the IHS Markit U.S. manufacturing index fell to its lowest since September 2009 at 50.4%. Of further concern, the employment subindexes showed employment contracting for the first time since June 2013.
“US manufacturing has entered into its sharpest downturn since 2009, suggesting the goods-producing sector is on course to act as a significant drag on the economy in the third quarter,” IHS Markit chief economist, Chris Williamson said.
Separate data Thursday also showed a weekly climb in jobless claims and a fall in June construction spending.
Friday brings the U.S. Labor Department’s monthly payrolls and unemployment data for markets to consider. Economists surveyed by MarketWatch, on average, look for July nonfarm payrolls to rise 171,000, while the unemployment rate is forecast to decline to 3.6% from 3.7%. Average hourly earnings are forecast to show a 0.2% rise.
Meanwhile investors were also digesting more second quarter corporate earnings reports. Following Thursday morning‘s batch of earnings, just over 71% of S&P 500 companies have now reported. According to FactSet, results from actual earnings blended with estimates for comapnies still to report, projects earnings will fall 1.4%.
what we can expect
futures point to a modest drop on open, but that's misleading, iron ore plunged $4.45 overnight, so expect a sea of red
