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On 8 May 2019 - US-China trade holds down stocks; US and Europe steady, Asia sells off

Anne D Picker

Anne D Picker - Econoday

Reports say China back peddled on deal; Trump 'happy' with tariffs.

US markets

President Trump is welcoming the approaching increases in tariffs on Chinese goods as a modest rally in US stocks fizzled at the close. The Dow posted a fractional gain but ended at session lows. The S&P slipped 0.2 percent and the Nasdaq 0.3 percent.

Reports emerged Wednesday that China dramatically stepped back from a deal last week, scratching what were tentative agreements that included proposed changes in Chinese law. Chinese Vice Premier Liu He, the country's lead negotiator, will be in Washington on Thursday and Friday.

Trump tweeted that China is "now coming to the US to make a deal" but that in any case he is "very happy" with the prospect of higher tariffs filling the Treasury's coffers. Tariffs on $200 billion of Chinese goods are set to rise to 25 percent from 10 percent on Friday morning.

Iran also made Wednesday headlines, saying it will resume uranium enrichment in reaction to US sanctions. The US military said yesterday that B-52 bombers are among the forces being sent to the Middle East in response.

Economic news included data out of China that showed a sharp April drop in Chinese exports to the US. Comparable US data are set for release on Thursday. In data released Wednesday, US mortgage applications for home purchases moved higher in the latest week as mortgage rates remain very favorable for the housing sector, averaging 4.41 percent on average for conventional 30-year fixed loans.

Chip-maker Qorvo rose sharply on better-than-expected quarterly earnings as did video-game maker Electronic Arts. TripAdvisor fell sharply on disappointing sales.

These data reflect observations at 4:00 PM US ET. Dated Brent spot crude was up US$0.36 to $70.23 while gold was US$3.40 lower at $1,281.50. The US dollar weakened against the pound and yen, was little changed against the Canadian dollar and the euro, and firmed against the Australian dollar, the Swiss franc, and the yuan. The yield on the US Treasury 30-year bond rose 3 basis points to 2.89 percent while the yield on the 10-year note also rose 3 basis points to 2.48 percent.

European markets

Supported by a rally in US shares, European stocks ended higher to mixed despite rising US-China trade tensions. Results were led by a 0.7 percent gain for the DAX and included a 0.4 percent rise for the CAC and a 0.1 percent increase for the FTSE. Italy's MIB and Spain's Ibex both edged 0.1 percent lower.

UK broadcaster ITV also fell sharply after blaming this year's Easter shift and political uncertainty on soft first-quarter advertising revenue. A rise in insurance claims pulled down first-quarter profits at German reinsurer Munich Re which posted a steep decline in the session. But Siemens rose sharply and lifted other industrial shares after the German giant posted better-than-expected quarterly results.

Industrial production in Germany proved surprisingly firm in March. A 0.5 percent monthly rise contrasted sharply with market expectations for a decline though unfavorable base effects still reduced annual growth from 0.1 percent to minus 0.8 percent. Yet the monthly gain was broad-based with consumer goods up a sizeable 1.1 percent and intermediates 0.4 percent. Capital goods were flat, construction advanced 1.0 percent, energy 0.3 percent, and manufacturing showed a 0.4 percent gain.

Asia Pacific Markets

Hit by worries over US-China trade, Asian stocks fell Wednesday following sharp declines Tuesday on Wall Street. The Shanghai Composite lost 1.1 percent, the Hong Kong Hang Seng fell 1.2 percent, and Japan's Nikkei 225 dropped 1.5 percent. New Zealand was the sole gainer, up 0.4 percent after the Reserve Bank of New Zealand cut its benchmark rate by 25 basis points as expected.

US and Chinese trade negotiators were scheduled to reconvene Thursday in Washington but were facing Donald Trump's threat to impose 25 percent tariffs on $200 billion in Chinese goods on Friday morning, along with other punitive measures. Trump administration officials appeared adamant that the tariffs would proceed against China which they said has back tracked on prior commitments in the bilateral talks. Chinese officials have threatened to respond in kind.

In economic news, China's trade surplus narrowed sharply from US$32.67 billion in March to US$13.84 billion in April. Exports fell 2.7 percent on the year in April after increasing 14.2 percent in March, while year-on-year growth in imports rebounded from a fall of 7.6 percent to an increase of 4.0 percent.

Weakness in headline exports growth was broad-based across major trading partners. Exports to the US fell 13.2 percent on the year in April after increasing 3.7 percent in March, while year-on-year growth in exports to the European Union slowed from 23.8 percent to 6.2 percent. Exports to Japan also weakened, down 16.4 percent on the year after increasing 9.6 percent previously.

The Reserve Bank of New Zealand cut its policy rate by 25 basis points to a new record low of 1.50 percent, in line with expectations. This rate had been on hold since a 25 basis point cut in late 2016 but officials had advised at their previous meeting in March that the next move in rates would likely be lower. The RBNZ statement noted that global economic growth has weakened since mid-2018 and that domestic growth has also slowed. Although officials consider employment to be near its maximum sustainable level, they expect labour market tightness to moderate over 2019 and, as a result, project inflationary pressures to remain subdued.

Looking forward

Consumer and producer prices out of China will lead Thursday's data out of Asia. No major releases are scheduled for Europe with trade data and producer prices set for release in the US. Canada will also post trade data.

Global Stock Markets

 

Index

May 8 2019

Daily Change

% Change Daily

North America

United States

Dow

25967.33

2.24

0.0

 

NASDAQ

7943.32

-20.44

-0.3

 

S&P 500

2879.42

-4.63

-0.2

Canada

S&P/TSX Comp

16397.4

39.65

0.2

Europe

UK

FTSE 100

7271

10.53

0.1

France

CAC

5417.59

21.84

0.4

Germany

XETRA DAX

12179.93

87.19

0.7

Italy

MIB

21203.86

-15.28

-0.1

Spain

Ibex 35

9227

-8.10

-0.1

Sweden

OMX Stockholm 30

1623.37

5.52

0.3

Switzerland

SMI

9621.96

44.58

0.5

Asia/Pacific

Australia

All Ordinaries

6351.76

-31.73

-0.5

Japan

Nikkei 225

21602.59

-321.13

-1.5

 

Topix

1572.33

-27.51

-1.7

Hong Kong

Hang Seng

29003.2

-359.82

-1.2

S. Korea

Kospi

2168.01

-8.98

-0.4

Singapore

STI

3283.84

-28.68

-0.9

China

Shanghai Comp

2893.76

-32.63

-1.1

Taiwan

TAIEX

10923.71

-63.43

-0.6

India

Sensex 30

37789.13

-487.50

-1.3

*Markets closed
Data Source: Haver Analytics

Note: all releases are listed in local time.

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