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Trade War Fears Re-Enter the Mix
15-Jun-18 16:30 ET
Dow -84.83 at 25090.48, Nasdaq -14.66 at 7746.39, S&P -3.07 at 2779.42

https://www.briefing.com/investor/markets/stock-market-update/2018/6/15/trade-war-fears-reenter-the-mix.htm

[BRIEFING.COM] Trade war fears weighed at the start of Friday's session, but stocks rebounded intraday, leaving the major averages just modestly lower. The S&P 500 was down as much as 0.7%, but ended with a loss of just 0.1%. The Nasdaq slipped 0.2%, retreating from Thursday's record high, while the Dow lost 0.3%.

President Trump confirmed before the open that he's approved a 25% tariff on $50 billion worth of Chinese goods and warned of additional tariffs should China retaliate. Unfazed by the threat, Beijing announced that it will impose a 25% tariff on $34 billion worth of U.S. goods starting on July 6, which is when the U.S. plans to impose its tariffs. Beijing also noted that a tariff on another $16 billion worth of U.S. goods could be imposed at a later date and said any previously negotiated agreements, including China's offer to buy nearly $70 billion of U.S. goods, will be invalid.

The S&P 500 sectors ended Friday pretty evenly split between green and red. Five groups advanced, led by the countercyclical consumer staples (+1.3%), utilities (+0.7%), and telecom services (+1.2%) spaces, while six groups declined. The energy space (-2.1%) finished at the back of the pack by a wide margin as crude prices tumbled.

West Texas Intermediate crude futures dropped 2.7% to $65.06 per barrel, their worst close since hitting a two-month low on June 6. Crude traders have their eyes on next week's OPEC/non-OPEC meeting where oil producers are expected to raise their production targets in order to combat falling output from Venezuela and Iran.

In addition to energy, the top-weighted technology sector (-0.5%) also underperformed, with mega caps Apple (AAPL 188.84, -1.96) and Microsoft (MSFT 100.13, -1.29) dropping 1.0% and 1.3%, respectively. Adobe Systems (ADBE 251.82, -6.28) also struggled, losing 2.4%, despite beating quarterly earnings estimates.

Elsewhere, AT&T (T 33.15, +0.63) completed its acquisition of Time Warner after the Department of Justice decided against applying for a delay of Tuesday's ruling, and shares of General Motors (GM 43.91, +0.34) spiked intraday following a Bloomberg report that the company is having early discussions with banks about strategic options for its self-driving car unit Cruise Automation.

U.S. Treasuries were fairly volatile on Friday, with the yield on the 10-yr Treasury note drifting between 2.89% and 2.94%. The benchmark yield eventually settled two basis points below its Thursday close at 2.92%, while the yield on the 2-yr Treasury note lost three basis points, dropping to 2.55%.

Overseas, the Bank of Japan kept its key interest rate unchanged, as expected, but downgraded its view on inflation.

Reviewing Friday's economic data, which included the Industrial Production and Capacity Utilization report for May, the preliminary reading of the University of Michigan Consumer Sentiment Index for June, and the Empire Manufacturing report for June:

Industrial Production slipped 0.1% in May (Briefing.com consensus +0.2%), while the April increase was revised to 0.9% (from +0.7%). Meanwhile, Capacity Utilization ticked down to 77.9% (Briefing.com consensus 78.1%) from a revised reading of 78.1% in April (from 78.0%).
The key takeaway from the report is that the decline in overall production was driven by weakness in manufacturing production.
The preliminary reading of the University of Michigan Consumer Sentiment Index for June rose to 99.3 (Briefing.com consensus 99.0) from 98.0 in May.
The key takeaway from the report is that the Expectations Index declined to its lowest level since the start of the year due to less favorable prospects for the overall economy, which were tied in part to higher inflation expectations.
The Empire Manufacturing Survey for June climbed to 25.0 (Briefing.com consensus 20.0) from the prior month's unrevised reading of 20.1.

Looking ahead, investors will receive just one economic report, the NAHB Housing Market Index for June, on Monday.

Nasdaq Composite +12.2% YTD
Russell 2000 +9.7% YTD
S&P 500 +4.0% YTD
Dow Jones Industrial Average +1.5% YTD

Week In Review: Little Changed Following Headline-Heavy Week

There was a steady stream of noteworthy news this week, but none of the headlines moved the S&P 500 in a significant way. The benchmark index ended the week almost exactly flat, adding less than one point. The tech-heavy Nasdaq outperformed, adding 1.3%, while the Dow lagged, losing 0.9%.

This week's story really began over the weekend when the annual Group of Seven meeting, which was held in Quebec, ended on an uncharacteristically contentious note. President Trump was prepared to sign the customary joint statement, but changed his mind following what the White House deemed as "inappropriate" comments from Canadian Prime Minister Justin Trudeau.

The world then turned its attention to Singapore, where President Trump met with North Korean leader Kim Jong Un on Tuesday in a historic summit that marked the first ever meeting between a sitting U.S. president and a North Korean leader. The meeting ended with a joint statement in which North Korea reaffirmed its commitment to completely denuclearize and the U.S. promised "security guarantees" -- including the suspension of military exercises on the Korean Peninsula. The two nations will engage in follow-up negations to work out the specific details.

Monetary policy took center stage midweek when the U.S. Federal Reserve released its latest policy directive. The Fed decided to raise interest rates for the second time this year, increasing the fed funds target range by a quarter point to 1.75% to 2.00%, and upped its interest-rate forecast to include a total of four rate increases this year -- up from three in March. The market had expected the rate hike, but the updated forecast took some by surprise.

Overseas, the European Central Bank released its latest policy directive on Thursday. As expected, the ECB left its key policy rate unchanged and announced a plan to end its asset purchase program. The ECB in September will cut its monthly purchases in half, from EUR30 billion to EUR15 billion, and then end purchases altogether three months later -- although it will continue to reinvest the principal from maturing securities. As for interest rates, the ECB said they will remain at their present levels "at least through the summer of 2019." That statement was credited with sending the euro down more than 1.0% against the U.S. dollar.

The Bank of Japan also conducted a policy meeting this week, but made no changes to its key interest rate. However, the BoJ did downgrade its view on inflation, further highlighting the difference between the BoJ, which is struggling to end its crisis-era stimulus, and the Fed, which continues to progress on a path to normalization.

Back in the States, media names were in focus after a federal judge on Tuesday ruled in favor of AT&T (T) in its drawn-out legal battle with the Justice Department. The ruling allowed AT&T to move forward with its acquisition of Time Warner (TWX), which it closed on Thursday, and set the stage for more merger activity in the future. Comcast (CMCSA), for instance, outdid Disney's (DIS) all-stock bid for the bulk of 21st Century Fox's (FOXA) assets following the ruling, offering $65 billion in cash.

In politics, trade war fears were reignited on Friday after President Trump confirmed that he's approved a 25% tariff on $50 billion worth of Chinese goods. China responded swiftly, announcing that it'll impose a 25% tariff on $34 billion worth of U.S. goods on July 6, the same day the U.S. tariffs are scheduled to take effect.