 The Market Sum | Insight after the bell
By Caleb Silver, Editor in Chief Monday's Headlines 1. Global Markets Roiled on new Tariff Threats 2. What we Learned from Berkshire's Annual Meeting 3. What Soy Beans are Telling us about Tariffs Markets Closed
 U.S. Markets Recover as new Tariff Threat Fades U.S. markets were poised to drop more than 2% as markets opened today, as reverberations from President Trump's threats to raise tariffs on existing Chinese imports and add tariffs to products made their way back to the U.S. Those threats did a number on Asian and European markets, knocking 5% off of Chinese stock markets, and 2.5% off of emerging markets.
By lunchtime, though, the selling abated and U.S. markets began climbing out of a deep sell-off to finish the day near flat.
President Trump, reportedly angered by what he deems to be China's reluctance to make sufficient concessions on a trade deal, tweeted about imposing new tariffs on Sunday, shortly before Asian stock markets opened for trading.  By mid-afternoon Monday, Chinese officials said the country's trade negotiators were still planning to come to the U.S. this week to resume negotiations. The U.S. and China have reportedly been planning to sign a new trade deal by this Friday.
President Trump's tweets on Sunday may have thrown that plan into question, but the recovery in the U.S. markets today could imply otherwise.
Still, investment banks and economists were quick to point out the harm that an escalated trade war would bring with it. Those include:
Read more: Why a U.S. and China Trade Dispute is Credible Threat to Markets
Given that the S&P500 is off to its best start since 1987, investors have arguably priced in a successful resolution to the trade negotiations between the U.S. and China. The 'Sunday Surprise' from Trump may have impacted the unquantifiable market force: Investor Sentiment.
Here' how Morgan Stanley's Chief Strategist, Michael Wilson, put it in a note to clients:
"...With optimism pushing the equity market close to our bull case, negative surprises like a potential re-escalation of US-China trade tensions can have greater negative price impact than fundamentals might dictate as changes to sentiment and the fundamental outlook are reflected in the price."
Translation: The stock market was already in a pretty delicate place. A surprise on the trade deal that we thought was going along so well can do a lot more harm than we think.
Friday is four days away. A lot can happen between now and then.
Here's how the S&P500 reversed its free-fall today.   photo courtesy fortune.com
Berkshire Hathaway Meeting Wrap Tens of thousands of Berkshire Hathaway faithful gathered in Omaha last weekend to hear words of wisdom from the 88 year-old Buffett and the 95-year old Munger at the company's annual meeting. They got that, and then some. The duo took questions from investors and the media for 7 straight hours on Saturday, which is a lot more time than most CEOs devote to their investors.
Among the topics discussed:
Read our full write up here: Takeaways from Berkshire Hathaway's Annual Meeting
Charts courtesy of www.koyfin.com  Anadarko's shares continue to rise on the back of the bidding war surrounding the company. The healthcare sector also moved today.  Industrials had a rough day.  Tariff threats did not sit well on any country today, except for Nigeria. Word of the Day We've heard a lot about tariffs over the course of the U.S.-China trade negotiations. With Trump threatening to raise tariffs from 10% to 25% on this coming Friday, it's a good time to do some trade policy 101. Tariff A tariff is a tax imposed on imported goods and services. Tariffs are used to restrict imports by increasing the price of goods and services purchased from overseas and making them less attractive to consumers. A specific tariff is levied as a fixed fee based on the type of item, such as a $1,000 tariff on a vehicle. An ad-valorem tariff is levied based on the item's value, such as 10% of the value of the vehicle.
Governments may impose tariffs to raise revenue or to protect domestic industries – particularly nascent ones – from foreign competition. By making foreign-produced goods more expensive, tariffs can make domestic-produced ones more attractive. By protecting these industries, governments can also protect jobs. Tariffs can also be used as an extension of foreign policy: imposing tariffs on a trading partner's main exports is a way to exert economic leverage.  photo courtesy: www.occ.treas.gov/
Today in History May 6, 1870: Amedeo Peter Giannini is born in San Jose, Calif. In San Francisco in 1904 he founds the Bank of Italy to serve the city's burgeoning working class. The Bank of Italy later finances the Golden Gate Bridge in the depths of the Depression and lends David Selznick the money he needs to finish filming Gone With The Wind. Today, as Bank of America, it's one of the worlds biggest financial-services firms.
credit: Bank of America Chart of the Day: Reading the Soybeans  If you want to get a sense of how the U.S.-China trade war and tariff negotiations are going at a glance, one key indicator to look at would be soybean futures prices. Why is this? China remains the largest soybean importer in the world, by far. And the U.S. is not only the world's largest producer of soybeans, but is also second only to Brazil as the biggest soybean exporter. Put all of this together, and you can see how important U.S.-China trade relations are to soybean prices.
The chart above shows key points and events along the soybean futures time/price line for the past year. A key point on the chart occurs on April 4, 2018, when the Chinese government announced that it would be imposing retaliatory tariffs on U.S. goods after President Trump threatened tariffs on Chinese goods. Trading volume surged to a new long-term high on that day as prices took a sharp dive. It wasn't until May, however, that prices really began to plummet, shortly after a preliminary round of U.S-China trade talks failed to end the trade war.
More recently, soybean prices began to deteriorate once again after the March 1 deadline for a trade war 'ceasefire' came and went without a trade deal. And just over this past weekend, Trump threatened more tariffs on Chinese goods, despite recent assurances by the U.S. administration that trade talks were progressing well. As a result, the price of soybean futures gapped down to nearly an 8-month low before paring some of those losses.
Where does the price of soybeans go from here? Soybean futures have reached down to a major area of support, as shown on the chart, that aligns with the double-bottom lows of July and September 2018. By now, it has become apparent that Trump tends to use public communications (most notably, Twitter) as a negotiation tool. He uses veiled and blatant threats and posturing to get his point across in a very public way. When it comes down to it, though, Trump wants and needs a trade deal with China - just as the Chinese want one with the U.S. The likelihood of a deal being struck in the very near future, therefore, is high. If an agreement is reached, soybean prices could soon make a strong rebound off support and begin to recover from heavily oversold territory.
How can we improve the Market Sum? Tell us at marketsum@investopedia.com
Enjoy the Market Sum? Share it with a friend. Or share the link below to invite friends to sign up.
CONNECT WITH INVESTOPEDIA
Email sent to: mondemand.forex@blogger.com To update your newsletter preferences or unsubscribe, click here.
114 West 41st St, floor 8 New York NY 10036 © 2019, Investopedia, LLC. All Rights Reserved | Privacy Policy |
Monday, May 6, 2019
Tariff Tantrum Swing
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment