Friday, US financial markets suffered a trade-related happening on concern The Trump Administration may move to limit US investment in China, a move sure to raise tensions.
The S&P 500 turned lower after it was reported that officials are discussing ways to restrict portfolio flows into the world’s 2nd-largest economy.
The index bounced around in the mins after the headlines before extending declines, and Chinese firms traded in the US were under pressure as investors assessed a move that would have repercussions for billions of dollars in investment pegged to major indexes.
What participants are saying: “This is not little stuff. This is huge. The cost of tariffs on the economy, the impact on growth around the world when you do not have trade flowing, the potential impact of China getting really mad and looking at us and saying ‘You know those Treasury bonds you’re issuing? We don’t want so much of that anymore,’”
There are a lot more potential downside than there is upside when this is all resolved.”
And: “Just like we saw in the previous lead-up to high-level talks in the past, the White House is trying to increase their negotiating chip count with a fresh threat that could cripple Chinese companies. The limitation of American pension funds access to Chinese markets would see massive portfolio swings that spells disaster for the tech sector. This threat is harsh reminder that we could very easily see trade talks fall apart next month.”
The news opens up a new front in the US-China trade dispute. Looks likely to weigh on RMB Yuan and neighboring currencies, and support safe havens, especially JPY.
This is a negotiating tactic for the White House to use in the upcoming trade talks. It’s hard to imagine exactly how such a policy could be enacted without hurting existing investors. So, investors should monitor the price action in US-listed Chinese companies as proxies for measuring the propensity of enacting this potential new regulation.
Friday, the major US stock market indexes finished at: DJIA -70.87 to 26820.25, NAS Comp -91.03 to 7939.63, S&P 500 -15.83 to 2961.83
Volume: Trade on the NYSE came in at 2.13-B/shares exchanged
- NAS Comp +19.7% YTD
- S&P 500 +18.2% YTD
- DJIA +15.0% YTD
- Russell 2000 +12.8% YTD
Note: The S&P 500 briefly fell below its 50-Day MA to 2949, then buyers stepped in to bring the benchmark index back above the Key technical level. Relative strength in S&P 500 financials sector (+0.2%) supported the rebound attempt, while the energy sector returned to its unchanged mark.
HeffX-LTN’s overall technical outlook for the major US stock market indexes is Neutral with a Bullish bias for the week ended 27 September 2019.
Have a terrific weekend