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On 30 May 2019 - US stocks recover late but sentiment poor as US-China trade rhetoric heats up

Anne D Picker

Anne D Picker - Econoday

Oil prices drop, interest rates lower as market sees global slowdown.

US markets

US shares edged up late to close barely higher Thursday but sentiment was poor as US and China remained at odds over trade. Worries were fueled by a comment from a top Chinese official, who said US actions amounted to "economic terrorism," in contrast with a remark from President Trump, who said US-China talks are going well.  US Vice President Pence later weighed in with a threat to raise tariffs further on Chinese goods.

The Dow Jones industrials and the S&P 500 each rose 0.2 percent while the NASDAQ finished up 0.3 percent.

The market shrugged off revised US GDP figures confirming a strong first quarter, while US trade figures suggested a weaker second quarter. April US merchandise trade figures showed a widening trade deficit and weakness in US exports, including capital goods exports, all ominous signs for growth. The trade report got second-quarter GDP, already held down by contractions for April retail sales and industrial production, off to a slow start.

The monthly trade deficit was very deep, at $72.1 billion with exports falling 4.2 percent year-on-year and imports down by 2.7 percent.  Capital goods are the US's largest exports and these fell 6.5 percent in the month to $44.3 billion. Compared with April last year, capital goods exports are down 3.7 percent. Auto exports are also down, 7.2 percent lower to $12.9 billion and 6.7 percent below last year.

US GDP growth for Q1 was revised slightly lower to 3.1 percent from 3.2 percent previously reported, but just above the 3.0 percent expected figure. Consumer spending got a marginal upgrade while business investment and residential investment got small downgrades in the second estimate of what was a very strong first quarter for GDP.

In other economic news, Fed Vice Chair Richard Clarida said the US economy is in a "very good place" but conceded the Fed is watching the US-China trade situation closely. Bank of Canada Deputy Governor Carolyn Wilkins cited the trade dispute and its impact on the global economy as a wild card in the outlook. She called the situation was "fluid" and said a positive resolution to the trade war could be an upside risk for the outlook, in addition to the downside risk if the dispute widens.

These data reflect observations at 4:00 PM US ET. Dated Brent spot crude was down US$2.96 to $66.49 while gold was US$9.10 higher at $1,288.60. The US dollar declined against the yuan and was little changed against most other major currencies. The yield on the US Treasury 30-year bond fell 5 basis points to 2.64 percent while the yield on the 10-year note was also down 5 basis point to 2.21 percent.

European markets

European shares recovered Thursday from recent lows, led by gains in media stocks, with German shares generally outperforming. The European STOXX 600, the German DAX, the French CAC, and the UK FTSE 100 all rose by 0.5 percent. Activity was limited by holiday closures in Switzerland, Sweden, and elsewhere.

Two media firms were the top performers. Germany's Axel Springer surged by 22 percent on reports the firm was talking with KKR about going private. Another media firm, the UK's Daily Mail, rose 10 percent on a profits beat. Auto shares lagged, as the sector has been hurt by worries about pending US tariffs on European automakers. Healthcare, telecom, and utilities were weak.

Analysts attributed part of the gain to sales exhaustion, as the market has been under pressure for weeks, and closed at three-month lows Wednesday. But sentiment remained fragile, in light of ongoing trade worries, concern about the fiscal policy dispute between Italy and its European Union partners, and expectations for a hard Brexit. The market is also depressed by uncertainty linked to snap elections upcoming in Greece and Austria.

Asia Pacific Markets

Escalating threats and rising rhetoric between the US and China are raising the risk of an extended trade war and pulled down Asian stocks Thursday. Japan's Nikkei and Topix both slipped 0.3 percent as did the Shanghai composite with Hong Kong's Hang Seng down 0.4 percent. Australia's All Ordinaries lost 0.7 percent.

China's Vice Foreign Minister Zhang Hanhui described US tariff actions as "naked economic terrorism", using the word "bullying" and adding "deliberately provoked". The statement follows Wednesday's warning in China's state media that the country may hold back rare metals from the US.

Despite Thursday's declines, losses in the week have been limited, at 0.8 percent for the Nikkei, 0.9 percent for Hang Sang and with the Shanghai still up 1.9 percent on the week.

Economic data were light but did include Australian private capital expenditures which fell a quarterly 1.7 percent in the first quarter vs a 2.0 percent rise in the fourth quarter. First-quarter contraction swept components including mining and manufacturing. Despite the weakness, officials raised their forecasts for capex spending ahead.

Looking forward

Major data out of Asia will begin with unemployment, industrial production and retail sales from Japan followed by the CFLP manufacturing index from China. Industrial production and retail sales out of South Korea are also scheduled for release as is GDP from India. Germany will post retail sales and the CPI while Italy will post GDP and the CPI. GDP is also scheduled for Canada and personal income & spending together with the PCE price indexes will be posted in the US.

Global Stock Markets

 

Index

30 May 2019

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

25169.88

25347.77

0.2

 

NASDAQ

7567.72

7607.35

0.3

 

S&P 500

2788.86

2802.39

0.2

Canada

S&P/TSX Comp

16089.24

16297.46

-0.3

Europe

 

 

 

 

UK

FTSE 100

7218.16

7268.95

0.5

France

CAC

5248.91

5312.69

0.5

Germany

XETRA DAX

11902.08

12027.05

0.5

Italy

MIB

19947.92

20260.98

-0.3

Spain

Ibex 35

9157.8

9191.80

0.9

Sweden

OMX Stockholm 30

*

1565.12

*

Switzerland

SMI

*

9680.87

*

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

6489.18

6580.39

-0.7

Japan

Nikkei 225

20942.53

21260.14

-0.3

 

Topix

1531.98

1550.99

-0.3

Hong Kong

Hang Seng

27114.88

27390.81

-0.4

S. Korea

Kospi

2038.8

2048.83

0.8

Singapore

STI

3143

3165.32

-0.6

China

Shanghai Comp

2905.8

2909.91

-0.3

Taiwan

TAIEX

10382.99

10312.31

0.8

India

Sensex 30

39831.97

39749.73

0.8

*Markets closed

 

 

 

Data Source — Haver Analytics

 

 

 

Note: all releases are listed in local time.

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