MARKET ANALYSIS: Renewed Trade War Concerns May Lead To Sell-Off On Wall Street

4th Apr 2018 13:48

WASHINGTON (Alliance News) - The major US index futures are pointing to a sharply lower opening on Wednesday, with stocks likely to move back to the downside following the rebound seen in the previous session.

News that China has issued a list of 106 US products that will be subject to additional tariffs is likely to weigh on Wall Street.

The Chinese Ministry of Commerce said it plans to impose a 25% tariff on USD50 billion worth of US exports, including aircraft, cars, soybeans, and whiskey.

The announcement by China came shortly after the US Trade Representative published a proposed list of products imported from China that could be subject to additional tariffs.

The publication of the list comes after President Donald Trump announced last month that he planned to impose about USD50 billion in tariffs on Chinese goods over intellectual-property violations.

The USTR said the sectors subject to the proposed tariffs include industries such as aerospace, information and communication technology, robotics, and machinery.

While critics have complained the administration's policies risk starting a trade war, Trump argued in a post on Twitter that the war had already been lost.

"We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the US," Trump tweeted.

He added, "Now we have a Trade Deficit of USD500 Billion a year, with Intellectual Property Theft of another USD300 Billion. We cannot let this continue!"

The trade war concerns may overshadow the release of a report from payroll processor ADP showing stronger than expected private sector job growth in the month of March.

Following the sell-off seen on Monday, stocks showed a strong move back to the upside during trading on Tuesday. The major averages initially showed a lack of direction but climbed firmly into positive territory as the day progressed.

The major averages held on to notable gains going into the final hour of trading. The Dow soared 389.17 points or 1.7% to 24,033.36, the Nasdaq jumped 71.16 points or 1% to 6,941.28 and the S&P 500 surged up 32.57 points or 1.3% to 2,614.45.

Bargain hunting contributed to the strength on Wall Street, with traders picking up stocks at reduced levels after the sharp decline seen on Monday.

Concerns about a potential trade war contributed to the steep losses in the previous session, which pulled the Nasdaq and the S&P 500 down to their lowest closing levels in almost two months.

The markets also benefited from significant rebounds by some technology stocks, including electric car maker Tesla (TSLA).

After ending the previous session at its lowest closing level in a year, Tesla jumped by 6% as the company missed first quarter production targets but said it does not require an equity or debt raise this year.

Shares of Amazon (AMZN) also moved back to the upside on the day even though President Donald Trump continued to attack the online retail giant.

Meanwhile, traders were also looking ahead to the release of the Labor Department's closely watched monthly employment report on Friday.

Reports on private sector employment, service sector activity, factory orders, and international trade may also attract attention in the coming days.

Energy stocks showed a significant move to the upside on the day, benefiting from a rebound by the price of crude oil. Reflecting the strength in the energy sector, the Philadelphia Oil Service Index surged up by 2.3% and the NYSE Arca Oil Index jumped by 2.1%.

Considerable strength was also visible among semiconductor stocks, which regained ground following recent weakness. The Philadelphia Semiconductor Index advanced by 2%, bouncing off its lowest closing level in almost two months.

Tobacco, transportation, chemical, and banking stocks also saw notable strength, while gold stocks pulled back along with the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are tumbling USD1.01 to USD62.50 a barrel after climbing USD0.50 to USD63.51 a barrel on Tuesday. Meanwhile, after sliding USD9.60 to USD1,337.30 an ounce in the previous session, gold futures are jumping USD13.20 to USD1,350.50 an ounce.

On the currency front, the US dollar is trading at 106.16 yen compared to the 106.61 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at USD1.2283 compared to yesterday's USD1.2270.

Asia

Asian stocks ended mixed on Wednesday as investors braced for China's countermeasures against US tariffs on Chinese products worth about USD50 billion.

Beijing has vowed to impose measures of the "same strength" against US goods, fueling fears that an escalating trade war could hurt global growth.

Traders also awaited cues from Friday's US employment report as well as a slew of US reports on private sector employment, service sector activity, factory orders and international trade due this week.

China's Shanghai Composite Index gave up initial gains to end down 4.79 points or 0.2% at 3,131.84 ahead of the Tomb-sweeping holiday break. Hong Kong's Hang Seng Index plunged 661.41 points or 2.2% to 29,518.69.

Meanwhile, Japanese shares ended higher in choppy trading as gains by automakers offset declines by technology shares. The Nikkei 225 Index swung between gains and losses before finishing 26.26 points or 0.1% higher at 21,319.55. The broader Topix index closed up 0.1% at 1,706.13.

Honda Motor rose 1.3%, Mazda Motor added 1.4% and Mitsubishi Motors gained 2.1% after reporting strong US sales figures.

On the other hand, tech stocks continued to come under selling pressure, with Advantest, Tokyo Electron and TDK losing 2-3%.

In economic news, Japan's service sector continued to expand in March, albeit at a slower pace, the latest survey from Nikkei revealed with a services PMI score of 50.9, down from 51.7 in February.

Australian shares recouped early losses to end modestly higher, snapping a three-session losing streak. The benchmark S&P/ASX 200 Index ended up 9.50 points or 0.2% at 5,761.40, while the broader All Ordinaries Index finished marginally higher at 5,863.70.

Banks Commonwealth, NAB and Westpac rose between 0.3% and 0.8% as the Aussie dollar moved higher after the release of encouraging retail sales figures.

Retail sales advanced a seasonally adjusted 0.6% sequentially in February, beating expectations for a 0.3% gain. However, separate reports on consumer confidence and building approvals disappointed investors.

Mining giants BHP Billiton and Rio Tinto ended roughly flat, while gold miner Newcrest dropped 1.5%. Biotechnology company CSL advanced 1.2%.

Europe

European stocks have moved mostly lower on Wednesday as the dollar has slipped versus the euro amid persisting worries about a global trade war.

China issued a list of 106 US products that will be subject to additional tariffs in response to US President Donald Trump's plans to slap tariffs on USD50 billion in Chinese goods.

While the German DAX Index has slumped by 1.3%, the French CAC 40 Index is down by 0.9% and the UK's FTSE 100 Index is down by 0.5%.

Steinhoff International Holdings NV has slumped. While reviewing the value of its assets following an accounting scandal, the embattled retailer said that a European real estate portfolio may be worth about half previous estimates.

LafargeHolcim has also moved lower after the company announced that Thomas Schmidheiny, who owns 11.4% of the Franco-Swiss firm, has decided not to stand for re-election as a board director at the company's upcoming AGM.

WPP has moved to the downside after the British advertising group said it is investigating allegations of personal misconduct against its chief executive Martin Sorrell.

In economic news, Eurozone inflation accelerated in March, largely on food prices, flash data from Eurostat showed. Inflation rose to 1.4% in March from 1.1% in February, staying below the European Central Bank's target of "below, but close to 2%."

Another report showed that the euro area unemployment rate declined in February to the lowest since late 2008. The jobless rate fell to 8.5% in February from 8.6% in January. This was the lowest since December 2008 and in line with expectations.

UK construction activity unexpectedly contracted in March following five months of marginal growth, survey data from IHS Markit showed.

US Economic Reports

Private sector employment in the US increased by more than expected in the month of March, according to a report released by payroll processor ADP.

ADP said employment surged up by 241,000 jobs in March after jumping by an upwardly revised 246,000 jobs in February.

Economists had expected an increase of about 205,000 jobs compared to the addition of 235,000 jobs originally reported for the previous month.

St. Louis Federal Reserve President James Bullard is due to speak at the Arkansas Bankers Association & Arkansas State Bank Department's "Day with the Commissioner" in Little Rock, Arkansas, at 9:45 am ET.

At 10 am ET, the Institute for Supply Management is scheduled to release its report on activity in the service sector in the month of March.

The ISM's non-manufacturing index is expected to edge down to 59.0 in March from 59.5 in February, although a reading above 50 would still indicate growth in the service sector.

The Commerce Department is also due to release its report on new orders for manufactured goods in the month of February at 10 am ET. Factory orders are expected to jump by 1.7%.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended March 30th.

Crude oil inventories are expected to increase by 1.7 million barrels after climbing by 1.6 million barrels in the previous week.

Cleveland Fed President Loretta Mester is due to deliver a speech on diversity in economics at Central State University's Leaders, Executives, Entrepreneurs and Directors Program in Wilberforce, Ohio, at 11 am ET.

Stocks In Focus

Shares of Dave & Buster's (PLAY) are moving sharply lower in pre-market trading after the restaurant chain reported better than expected fiscal fourth quarter earnings but provided disappointing revenue guidance for the current year.

Cloud software company Cloudera (CLDR) is also seeing significant pre-market weakness after reporting fiscal fourth quarter results that beat estimates but forecast considerably slower growth.

Shares of Whirlpool (WHR) may also come under pressure after Goldman Sachs downgraded its rating on the appliance maker's stock to Sell from Neutral.

On the other hand, shares of Lennar (LEN) may move to the upside after the homebuilder reported first quarter results that exceeded analyst estimates on both the top and bottom lines.