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On 6 May 2019 - US stocks rally to trim loss; Asia sinks on US-China trade, Shanghai drops 5.6%

Anne D Picker

Anne D Picker - Econoday

Occidental raises bid for Anadarko.

US markets

Sharp losses early in Monday's session were trimmed by the close with the Dow, down 1.6 percent at the opening, closing with a 0.3 percent loss. Both the S&P and Nasdaq fell 0.5 percent. There was limited movement into Treasuries, with the 10-year yield down a moderate 3 basis points to 2.50 percent, and the dollar index little changed.

US President Trump stressed again on Monday what he first tweeted on Sunday, that China speed up its trade negotiations with the US. On Sunday Trump said tariffs on $200 billion of Chinese goods would be raised from 10 percent to 25 percent on Friday and threatened to impose 25 percent tariffs on a further $325 billion of goods if trade talks don't improve. On Monday, Trump cited the need for a substantial reduction in the US-China trade deficit.

U.S.-China trade talks are due to resume this week in Washington; whether Chinese Vice Premier Liu He will attend as scheduled has yet to be confirmed.

Anadarko Petroleum rose sharply after Occidental Petroleum raised the cash component of its acquisition bid. Occidental was also up sharply as was Chevron which has already agreed to acquire Anadarko.

Food distributor Sysco rose sharply on quarterly results as did food producer Tyson Foods which posted a rise in beef sales. Travel site Expedia fell sharply on an analyst downgrade.

These data reflect observations at 4:00 PM US ET. Dated Brent spot crude was up US$1.10 to $71.52 while gold was US$1.30 higher at $1,280.40. The US dollar rose sharply against the yuan and the pound and also posted gains vs the Australian and Canadian dollar while weakening modestly versus the yen. The dollar was little changed against the euro. The yield on the US Treasury 30-year bond fell 1 basis point to 2.91 percent while the yield on the 10-year note fell 3 basis points to 2.50 percent.

European markets

European shares fell sharply Monday in reaction to the sudden heating up over the weekend of US-China trade tensions. The CAC lost a 1.2 percent with the Dax down 1.0 percent. The UK was shut for a bank holiday.

The reappearance of trade tensions, following President Trump's move over the week to increase tariffs on Chinese goods, proved a surprise for the markets which had been discounting an amicable outcome. European markets had closed before the late session rally in the US.

Eurozone retail sales held up better than expected in March. An unchanged reading followed February's 0.5 percent rise with negative base effects cutting annual growth from 3.0 to 1.9 percent, the first decline since last December. Regionally, sales in both Germany and France declined, down 0.2 and 0.1 percent respectively, with Spain up 0.3 percent for a third successive gain.

Data on April included the month's final PMI data for the Eurozone which came in at a subdued 51.5 and 1 tenth lower than March in what, based on the PMIs, was one of the slowest months for business activity since 2014.

Telenor jumped on news that the Norwegian telecom is in talks to form a joint venture in Asia. In company news related to the US takeover bid for Anadarko Petroleum, France's Total said it has agreed to buy Anadarko's assets in Algeria for $8.8 billion provided Occidental succeeds in its bid for Anadarko.

Asia Pacific Markets

Asian equities plunged Monday with Chinese shares hit hardest on Donald Trump's latest tariff threats against China. The Shanghai Composite lost a very heavy 5.6 percent.

Markets in Asia had apparently priced in a favorable conclusion to US-China talks, but Trump's Sunday tweet forced traders to consider a grimmer scenario, and spurred a widespread flight from risk assets.

Trump said the trade talks were going "too slowly" and that he would raise tariffs on $200 billion in Chinese goods to 25 percent from 10 percent on Friday. The tweet spurred worries the talks would not even resume this week.

Markets recovered from their worst levels on reports China still intended to send its delegation to Washington to resume the talks, and rumors of Chinese state support for stocks, but markets suffered heavy, broad-based declines. There was some comfort in news the People's Bank of China was cutting reserve requirements for small- and medium-sized banks.

Singapore was a big loser, down 3.0 percent, reflecting its dependence on global trade. Financial stocks dropped with DBS Group off 4 percent. Hong Kong's Hang Seng index lost 2.9 percent with tech shares suffering most. ZTE, the Chinese telecom firm, dropped 9 percent on worries over the US-China trade dispute. Australia's All Ordinaries lost 0.9 percent.

Financials fell, led by Westpac which lost 2 percent after reporting that earnings dropped in the first half. Australian mining and energy stocks were notable losers. Japanese and Korea markets were on holiday.

In economic news, PMI data were better. The Caixin China general services business activity index rose from 54.4 in March to 54.5 in April, its highest level since January 2018, with the manufacturing PMI survey, published last week, showing a drop in its headline index from 50.8 to 50.2. Together these resulted in the composite index moderating only slightly from 52.9 on March, its highest level since June 2018, to 52.7 in April. Service sector respondents reported a slightly weaker increase in new orders in April but the strongest growth in new export orders since this series was introduced in late 2014

Looking forward

Tuesday's data open with PMI manufacturing for Japan and merchandise trade and retail sales out of Australia. A policy announcement follows by the Reserve Bank of Australia. German manufacturing orders and French merchandise trade data will head Europe's schedule with job openings in the JOLTS report out in the US.

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Data Source — Haver Analytics




Note: all releases are listed in local time.

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