April 4, 2018
Specter of Full Trade War Returns to Batter Stocks: Markets Wrap
Fears of a trade war between the world’s two largest economies returned to haunt markets on Wednesday, sending U.S. stock futures tumbling and sinking European and Asian equities. Treasuries climbed while the dollar was steady, and gold jumped. Hopes that Tuesday’s gains in U.S. equity markets would lead to a more lasting rebound foundered as contracts for the S&P 500, Nasdaq 100 and Dow all slumped alongside both the Stoxx Europe 600 Index and the MSCI Asia Pacific Index. China said it would levy 25 percent tariffs on imports of 106 U.S. products including soybeans, automobiles, chemicals and aircraft, in response to proposed American duties on its high-tech goods. Safe-haven assets including bullion and the Japanese yen rallied, while European bonds tracked the jump in Treasuries. Markets have been buffeted in recent weeks by everything from a volatility spike and a tech selloff to fears of an all-out trade war, and developments on Wednesday suggest there may be more turbulence to come. Investors are having to weigh the growing protectionist rhetoric between the U.S. and China against the chances of measures having a meaningful effect on the still-upbeat global growth picture. “Trade uncertainty is the main headwind to the market,” Charles St-Arnaud, an investment strategist at Lombard Odier Asset Management in London, said by phone. “At this juncture we need to be careful. The macro picture hasn’t changed massively yet. Growth remains robust, unless we go into a bigger trade war.”
U.K. Factories Sustain Growth After Entering `Softer’ Phase
U.K. manufacturing maintained its pace of expansion in March, though there was a sharp slowdown in new orders. IHS Markit said its monthly Purchasing Managers Index was at 55.1, up from 55 in February and better than economists had forecast. The figure is also encouraging given the disruption from the “Beast from the East” storm during the month. The report had positive and negative elements, with output and employment up, and companies reporting a “strongly positive outlook.” But new orders rose the least since June and backlogs of work fell for a third straight month. IHS Markit said the average PMI reading in the first quarter was the weakest in a year and is consistent with manufacturing growth of about 0.5 percent. That compares with a 1.3 percent surge in the final three months of 2017. “Manufacturing has entered a softer growth phase,” said Rob Dobson, director at IHS Markit. “They key question is whether growth can now be sustained, albeit at a lower level, in the coming months. On that front the news is generally positive.”
China Strikes at U.S. Farming as Soybeans Enter Trade War
Soybeans have finally entered the U.S.-China trade war. China’s Ministry of Commerce on Wednesday said it plans to impose 25 percent duties on imports of the commodity in addition to other U.S. agricultural produce including wheat, corn, cotton, sorghum, tobacco and beef. They’re among 106 products ranging from aircraft to chemicals targeted by Beijing in retaliation against proposed American duties on its high-tech goods. The announcement ended weeks of speculation over whether Xi Jinping’s government would go as far as targeting a commodity that it buys in such huge volumes from the U.S. Beijing finally pulled the trigger after Donald Trump’s administration earlier in the day proposed $50 billion of levies on a slew of Chinese goods from gas turbines to lithium batteries. “China’s response carries both economic and political weight as agricultural states are major supporting regions for Trump,” said Monica Tu, an analyst at Shanghai JC Intelligence Co. “The tariffs on U.S. imports including soybeans is China’s response that matches the scale of proposed U.S. tariffs.” The prospect of Beijing targeting soybeans was the topic of so much speculation because there’s so much at stake for both sides in a trade that was worth about $14 billion last year. The Asian nation is the world’s largest importer, and is America’s biggest buyer of the oilseed. Its purchases have climbed to a record as expansion in large-scale livestock farming and a shortage of protein-rich feed grains boost soymeal consumption.