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On 9 May 2019 - US stocks pare losses on late trade hopes; Europe and Asia sink

Anne D Picker

Anne D Picker - Econoday

Trump cites 'beautiful letter' from Xi; trade talks continue.

US markets

Stocks fell sharply but ended well off their lows on late word from President Trump that a trade deal with China is still a possibility. The Dow, down as much as 1.7 percent at mid-session, fell 0.5 percent while the S&P lost 0.3 percent and the Nasdaq 0.4 percent.

As negotiations resume between the two countries, Trump said he received a "very beautiful letter" from Xi Jinping and indicated that a deal is still possible and that he will be meeting with China's president soon. Overnight on Wednesday, Trump blamed China for breaking the deal.

In the day's economic data, the trade deficit with China totaled only $20.8 billion in April for a 5-year low. This total is unadjusted and is subject to substantial seasonal and calendar effects but the trend is clearly down. Year-to-date, the deficit with China is at $80.0 billion vs $91.1 billion at this time last year.

In other data, initial jobless claims came in at 228,000 in the latest week which, however, is sharply higher than the below 200,000 historic lows in early April and poses an initial and unfavorable indication for the May employment report. Producer prices were also released and proved generally subdued.

Exporters with exposure to China ended mostly lower including Apple and Caterpillar. Tractor Supply rose after the retail chain raised its dividend and announced a share buyback program.

These data reflect observations at 4:00 PM US ET. Dated Brent spot crude was down US$0.12 to $70.22 while gold was US$3.70 higher at $1,285.10. The US dollar slipped against the Swiss franc, yen, and the euro; it was little changed against the Australian and Canadian dollars as well as the pound, and rose sharply against the yuan. The yield on the US Treasury 30-year bond fell 2 basis points to 2.87 percent while the yield on the 10-year note fell 4 basis points to 2.45 percent.

European markets

Losses in European shares deepened sharply Thursday including a 1.9 percent tumble for the CAC and a 1.7 percent decline for the DAX. The CAC has fallen 4.2 percent so far this week with the Dax down 3.5 percent. The FTSE fell 0.9 percent on Thursday for a weekly loss of 2.3 percent.

European shares tracked Asian shares lower on US-China tariff concerns and had already closed when US shares began to rally off lows after President Trump said he plans to meet with Chinese President Xi Jingping. Brexit news reappeared in the session on reports that Prime Minister Theresa May intends to reintroduce to parliament her negotiated plan, already repeatedly defeated, for leaving the European Union.

There were no major economic reports posted in the session. In company news, Luxembourg steel maker AcrelorMittal fell sharply after lowered forecasts citing lower steel prices and lower demand in Europe. Defense contractor Rheinmetall of Germany rose sharply on quarterly earnings, while Wm Morrison Supermarkets slipped after the UK chain posted a quarterly decline in same-store sales.

Asia Pacific Markets

Asian shares extended their weeklong selloff Thursday on worries over the US-China trade dispute. Cyclicals and companies most exposed to trade with China were hit hardest but declines were across the board. Australian equities managed modest gains on positive earnings news and oil price gains, and continued to outperform other regional markets for the week.

Anxiety is focused on US-China trade talks underway Thursday in Washington which are raising concern for the global economy. Markets were rattled anew late Wednesday when President Trump told a political rally that Chinese negotiators "broke the deal," and, "they can't do that, so they'll be paying." 

The Shanghai composite dropped 1.5 percent to an 11-week low. Hong Kong's Hang Seng fell 2.4 percent. Japan's Nikkei 225 fell 0.9 percent and Singapore's Straits Times index fell 0.4 percent. For the week since Friday, May 3, declines were as follows: Shanghai down 7.4 percent, Hang Seng 5.9 percent, KOSPI 4.3 percent, Mumbai 3.5 percent, Nikkei 3.8 percent, and the wider Japan Topix lost 4.2 percent. Australia's All Ordinaries were down only 0.8 percent for the week.

On Thursday, Australia's All Ordinaries rose 0.4 percent. Shares were buoyed when Qantas Airways projected record earnings, and as telecom provider Telstra rallied after regulators blocked a merger of its competitors. An ongoing oil price rally has supported energy shares, led Thursday by Woodside Petroleum.

Losses in China were tempered somewhat by domestic inflation news, which suggested a recovery in demand. China's headline producer price index increased by 0.9 percent on the year in April, up from 0.4 percent in March and above the consensus forecast of 0.6 percent. The index advanced 0.3 percent on the month after rising 0.1 percent previously. 
China's headline consumer price index increased by 2.5 percent on the year in April, up from 2.3 percent in March but just below the consensus forecast of 2.6 percent. The index advanced 0.1 percent on the month after falling 0.4 percent previously.

Looking forward

Household spending from Japan will open Friday's session followed by home loans from Australia and industrial production from India. In Europe, merchandise trade for Germany will be posted followed by industrial production from both France and Italy. GDP data out of the UK will follow with the UK also posting industrial production and merchandise trade. The labour force survey will be reported in Canada with US data headed by the CPI.

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Data Source - Haver Analytics

Note: all releases are listed in local time.

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