Trade War Bites Wall St

Trade War Bites Wall St

U.S. stocks ended lower on Monday as market sentiment was dented by fears of escalating trade tensions between Washington and its major trade partners.

The conflicting signals on trade policy from the Trump administration reflect deep divisions among policymakers over how hard to push China on demands for changes in trade, technology transfers, and industrial policies.

U.S. Treasury Secretary Mnuchin has been reluctant to back steep tariffs on Chinese goods, fearing the impact on global supply chains. Goods assembled and exported in one country often depend on components manufactured in another, after being designed in yet a third country, making the national trade deficit focused on by President Trump an unreliable guide.

The Dow Jones Industrial Average fell 328.09 points, or 1.33 percent, to 24,252.80. The S&P 500 was down 37.81 points, or 1.37 percent, to 2,717.07. The Nasdaq Composite Index fell 160.81 points, or 2.09 percent, to 7,532.01.

The Dow dropped more than 490 points at the day’s lowest, with Intel and Caterpillar among the worst performers on the index. Shares of Intel and Caterpillar slide 3.41 percent and 2.40 percent, respectively, at market closing. The blue-chip index reported nine negative results during the past ten trading sessions.

More than half of the 11 primary S&P 500 sectors closed lower. The Nasdaq Composite was mainly dragged by the decline of Micron Technology and Netflix stocks. Shares of both companies sank more than 6 percent.

Investors also digested a batch of economic data.

The Chicago Fed National Activity Index (CFNAI) was negative 0.15 in May, down from positive 0.42 in April, indicating slower economic growth in May, according to the Federal Reserve Bank of Chicago Monday.

The CFNAI is a monthly index designed to gauge overall economic activity and related inflationary pressure. A zero value CFNAI indicates the national economy expanding at its average historical trend rate of growth, negative values indicate below average growth, and positive values above average growth.

Meanwhile, sales of U.S. single-family houses in May were at a seasonally adjusted annual rate of 689,000, the Commerce Department said on Monday. The reading is 6.7 percent above the revised April rate of 646,000, beating the market consensus.

Growing trade tensions driven by the US raising tariffs on foreign goods may lead to America’s isolation by the world’s emerging economies, according to an Indian economist.

India and China, with the support of Russia, could team up under the pressure of US tariffs, according to Dr. Bhanumurthy, professor at the New Delhi–based National Institute of Public Finance and Policy.

“One can also read something in PM Modi’s recent so-called informal visits to China and Russia,” the economist told Sputnik International. “The recent developments during the G-7 meeting in Canada also suggest that the US appears to be getting isolated and in that case, the trilateral situation between Russia, India and China could be a win-win situation for not only these three countries but also other BRICS countries that are struggling with US tariff hikes.”

Earlier this year, US President Donald Trump imposed an import tax of 25 percent on steel and 10 percent on aluminum from several countries, including Russia, China and India. All the three opened WTO disputes over the move they see as protectionist. Moreover, Russia and India have approved mirror tariffs that are set to cover their losses due to the US levies.

Earlier this month, more than a thousand categories of Chinese products were hit by 25 percent export tariffs. Beijing immediately retaliated with a 25-percent tariff on 545 US products worth $50 billion. The step triggered another wave of threats from Trump.

Dr. N.R. Bhanumurthy urged parties to revive the regional trade agreements which have been neglected for some time. Apart from BRICS, India is a member of the South Asian Association for Regional Cooperation (SAARC) that includes Afghanistan, Bangladesh, Bhutan, Nepal, the Maldives, Pakistan and Sri Lanka.

“As we have seen in the past that globalization has led to the gains to all the countries, during the reversal we might have to face exactly the opposite of this,” the professor said. “One should not be surprised that the current president in the US is clearly looking for large-scale protectionism especially during the run-up to the next elections.”

The economist also said that further protectionist steps against India could have an adverse impact on its growth, as the country’s corporations heavily depend on exports and imports.

“Trade used to contribute nearly 20-25 percent of GDP especially during the high growth period in the mid-2000s,” N.R. Bhanumurthy said. “The service sector, especially the IT sector, would take a big hit. We have seen how some of the software giants promised the US that they would recruit locally for their global operations.”

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S. Jack Heffernan Ph.D. Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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