Tuesday September 4th

4-09-2018

Stocks set to start September with drop on increasing trade tensions with Canada, China

U.S. stock index futures fell on Tuesday as trade tensions between the U.S. and key partners increased to start off the one of the toughest parts of the year for equity investors. Around 7:50 a.m. ET, Dow Jones Industrial Average futures indicated a drop of about 76 points at the open. S&P 500 and Nasdaq 100 futures also pointed to negative start to their sessions. Last week, the U.S. and Canada failed to secure an agreement to replace the current NAFTA pact by last Friday's deadline. While a deal has been arranged with Mexico, President Donald Trump tweeted over the weekend that there was "no political necessity to keep Canada in the new NAFTA deal." Trump added that Congress shouldn't intervene in the talks, and claimed that if it did, he would "simply terminate NAFTA entirely." Trade talks with Canada are however expected to reignite this week. Also last week, a Bloomberg report suggested that the U.S. administration was on standby to inflict additional levies on $200 billion worth of Chinese goods as soon as this week. In an interview with the same media outlet, Trump warned that he would consider removing the U.S. from the World Trade Organization (WTO) if it doesn't "shape up." European equities also fell broadly as trade worries lingered. The Stoxx 600 index dropped nearly 1 percent while the German Dax pulled back 1.4 percent. Asian stocks were mixed, however, as Chinese markets rose while Japanese shares slipped. Japan's Nikkei 225 ended the trading day largely flat at 22,696.9, though the majority of its major sectors were negative. South Korea's Kospi, however, extended its gains to close 0.38 percent up at 2,315.72. In the Greater China region, markets were largely positive. Hong Kong's Hang Seng index traded up by 0.75 percent as of 3:08 p.m. Over on the mainland, the Shanghai composite closed 1.1 percent up at around 2,750.58 while the Shenzhen compositeclimbed up by 1.164 percent to end the trading day at roughly 1,465.79. Investors are also keeping an eye on emerging markets as they get pressured by rising trade fears and a strong dollar. In Turkey, the lira has lost at least 40 percent of its value in 2018 over concerns surrounding President Recep Erdogan's policies and the economy. And the Argentinian government asked the International Monetary Fund (IMF) for an early release of funds from the nation's $50 billion standby financing deal last week — a move that surprised markets and put the peso under pressure. The U.S. dollar rose 0.4 percent to 95.54 against a basket of currencies. Coming up Tuesday, manufacturing purchasing managers' index (PMI) figures are due out at 9:45 a.m. ET, followed by ISM manufacturing data and construction spending, both at 10 a.m. ET. On the earnings front, Workday and Coupa Software are due to publish results after the bell. Oil prices rose sharply on Tuesday after the evacuation of two Gulf of Mexico oil platforms in preparation for a hurricane. U.S. light crude rose $1.60 a barrel from Friday's close to a peak of $71.40, its highest since mid-July, before easing slightly to around $71.11. U.S. markets were closed on Monday for Labor Day. Benchmark Brent crude, which traded on Monday, was up $1.41 at $79.26 a barrel. Gold slipped on Tuesday as concerns over an escalating trade conflict between the United States and China battered emerging market currencies and prompted investors to seek perceived safety in the dollar. A stronger dollar makes dollar-priced gold costlier for non-U.S. investors. Spot gold was down 0.6 percent at $1,192.87 an ounce, while U.S. gold futures dropped 0.7 percent to $1,198.20 an ounce.