Article / 01 March 2018 at 23:29 GMT

Today's Trade: Wall St tumbles on tariff move, Asian stocks to follow

Trading Desk / Saxo Capital Markets
Australia
  • Trump's metals tariff move sent shares tumbling on Wall St
  • Losses on Wall St are likely to spill over into Asian trading
  • Oil fell amid the equities selloff and concern about rising U.S. crude output
  • Trump's tariff are likely to hit Bluescope Steel, other steel makers
By Saxo Capital Markets Australia

Overnight and early trading
  • Australia's benchmark S&P/ASX200 took an early tumble; it was down 0,67% to 5,933.40 at 1026 AEDT (2326 GMT, on Thursday evening).
  • Japanese stocks were poised to tumble, with losses in the U.S. equities session likely to spill over into Asian trading, ending a tough week for risk assets that’s rekindled concerns about what a potential trade war and a more hawkish Federal Reserve could do to global economic growth.
  • Futures signaled Japan’s Nikkei 225 Stock Average may fall about 3% when trading begins after U.S. stocks posted a third day of declines. Australian and Hong Kong futures also point lower.


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 Trump’s decision to slap tariffs on metals imports could spark trade wars, hurt global miners and industries (above), and drive a tariff duty-based surge in US inflation. Photo: Shutterstock


  • The Dow Jones Industrial Average tumbled more than 400 points, erasing its gains for the year, as investors fretted over the ramifications of new steel and aluminum tariffs announced by President Donald Trump.
  • The blue-chip index shed more than 1% along with other major indexes in a wild day of trading that saw the Dow swing roughly 743 points from its high to its low. It was the Dow’s third consecutive day of at least a 1% decline, a streak it hadn’t suffered since January 2016.
  • President Trump’s decision to slap tariffs on steel and aluminum imports further stoked investors’ fears of rising inflation, because the levies will likely push the price of goods higher. Investors also worried it could spark a trade war with foreign countries, several of which already had warned the U.S. that such an action could prompt them to retaliate.
  • As stocks fell, the Cboe Volatility Index, Wall Street’s so-called fear gauge, spiked 21%, while U.S. government bonds strengthened.
  • The Dow Jones Industrial Average declined 420 points, or 1.7%, to 24609. The S&P 500 shed 1.3%, while the Nasdaq Composite also fell 1.3%. The losses wiped out the Dow’s remaining gains for the year, putting it down 0.4% so far in 2018, while the S&P 500 is barely in the black with a gain of 0.2%. The Nasdaq remains up 4%.
  • All 11 major sectors of the S&P 500 fell, led by declines in shares of technology companies and industrial firms. Companies that use steel and aluminum to produce goods, such as car makers, were among the hardest hit stocks. Shares of Ford Motor shed 3%, while General Motors declined 4%.
  • Shares of several U.S. steel and aluminum companies, meanwhile, rose after the tariffs were unveiled, with U.S. Steel gaining 5.7% and Century Aluminum adding 7.5%.
  • U.S. government bond prices jumped, sending the yield on the benchmark 10-year Treasury note to 2.802% from 2.870% Wednesday, its biggest one-day decline since September. Yields fall as bond prices rise.
  • Stocks already were struggling earlier in the day after Federal Reserve Chairman Jerome Powell brushed back concerns during his second address to Congress that inflation is accelerating so fast the central bank would have to veer from its current pace of gradual interest-rate increases.
  • Several investors said Jerome Powell’s remarks didn’t quell their inflation concerns, and they are waiting for February’s jobs report—due next week—to see whether wages continued to pick up from January. The previous month’s report had sparked investors’ inflation fears and led to the February selloff that saw the Dow and S&P 500 tumble into correction territory for the first time in two years.
  • Adding to the inflation concerns, the labor market showed further signs of tightening Thursday, with the number of Americans filing new applications for unemployment benefits falling to their lowest level since 1969, the Labor Department said.
  • Stocks had been gaining some momentum following their February correction, but major indexes fell in recent days as traders believed Mr. Powell’s testimony before the House Financial Services Committee earlier this week suggested the Fed might be inclined to raise rates more aggressively. February was the worst month in two years for the Dow industrials and the S&P 500, as mounting losses snapped 10-month winning streaks at both indexes.
  • Low interest rates and the Fed’s easy-money policies have long been a justification for the stock market’s grind higher. Now, with rates moving, money managers are encouraging investors to rejigger their positions to avoid interest-rate sensitive stocks, while considering shares of other companies that are more likely to weather volatile economic conditions.
  • Elsewhere, the Stoxx Europe 600 fell 1.3%, its worst day since the market rout in early February.
  • Source: Bloomberg, TradingFloor.com, WSJ.com, CNBC
Local markets
  • Bank of New York Australia ADR Index is down 1.2% to 277.0, BHP Billiton ADRs are down 1.5% to $A29.50 equivalent, a 2.0% discount to last Sydney close, Rio Tinto ADRs are down 3.6% to $A67.94 equivalent, a 12.7% discount to last Sydney close
  • Gold fell to a two-month low on Thursday, extending losses for a third day after comments from Federal Reserve Chairman Jerome Powell this week shored up expectations for further increases to U.S. interest rates and held the dollar near a five-week peak. In his debut testimony before Congress on Tuesday, Powell gave an upbeat assessment of the U.S. economic outlook and indicated that the central bank would press ahead with further rate rises after three last year. Tightening monetary policy tends to weigh on gold because it increases the opportunity cost of holding non-yielding assets while boosting the dollar, in which the metal is priced. Gold is on track for a second straight week of losses, having fallen 1.3% since Friday, while the metal ended February down 2% to snap three months of gains. Gold stocks in Toronto added 0.94% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
  • Oil closed lower amid a selloff in equity markets and growing concern about increasing U.S. crude production. Futures dipped 1.1% to the lowest level in two weeks in New York on Thursday. Stock markets slumped after President Donald Trump said he’ll slap tariffs on steel and aluminum imports to protect national security. The tariffs may elevate the cost of new oil pipelines at a time of swelling domestic crude stockpiles and accelerating output by drillers. The benchmark U.S. crude, West Texas Intermediate, has retreated since rising close to $67/barrel in late January amid growing unease about surging American production. West Texas Intermediate for April delivery slipped 65 cents to settle at $60.99/b on the New York Mercantile Exchange. Total volume traded was about 18% above the 100-day average. Brent for May settlement fell 90 cents to end the session at $63.83/b on the London-based ICE Futures Europe Exchange. Front-month futures traded at a $3.03 premium to May WTI. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
  • With the announcement of the new tariffs coming after Asian markets had closed, bulks were not impacted. Steel prices in fact remain well supported as traders focused on the additional production curbs in Hebei, China, announced earlier this week. The stronger steel prices provided some support to iron ore prices, with May futures ending the session up around 1%. Spot iron ore was up 1.1% or $0.84 closing at $78.30. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
  • Industrials were rattled by reports that US President Trump would enact harsh tariffs on steel and aluminium imports. The subsequent threat of retaliations from trading partners weighed on the sector. However, the most impacted metal, aluminium, ended the session higher. The market views the imposition of tariffs and quotas on US imports as positive for prices. With the US aluminium industry still uncompetitive, these tariffs are likely to push up prices in the US. Three-month aluminium was one of two LME metals in positive territory, rising 0.7% to $2147 a tonne, helped after a Brazilian court ordered Norway's Norsk Hydro to cut output from its Alunorte alumina refinery by 50% and to halt operations at a bauxite residue disposal facility. Aluminium stock: AWC .
  • Lead prices touched their lowest in 2-1/2 months, with other industrial metals also under pressure from a stronger US dollar and general risk aversion that also hit global equities. Benchmark lead on the London Metal Exchange closed down 2.3% at $2,445 a tonne, its weakest since December 11. LME nickel slipped by 2.3% to finish at $13,475 a tonne. Zinc shed 1.2% to end at $3407 and tin added 0.6% to $21,655. LME copper dipped 0.1% to close at $6,922 a tonne, its lowest since February 13. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA.
  • Ex-Dividend: Altium, Bingo Industries, Bluescope, Bravura, Capitol Health, McPherson’s, Southern Cross Media.
  • Adairs (ADH): Non-Deal Roadshow Scheduled By Morgans for March 9.
  • BHP (BHP): Bernstein Boosts Top Iron Miners’ Export Ests. After ‘Busy Week’.
  • Bluescope Steel (BSL): Among Asian Stocks That May Move After U.S. President Donald Trump Said He Will Imposed Tariffs on Steel and Aluminum Imports.
  • Capricorn Metals (CMM): Capricorn Metals Rated New Speculative Buy at Canaccord.
  • Cimic (CIM): CIMIC Is Said to Join Bid With IFM for WestConnex: Australian.
  • Commonwealth Bank (CBA): PRICED: EU500m FRN 5Y 3mE +25; Names KPMG to Begin Separating Colonial First State Global Asset Mgmt Accounts Ahead of Planned IPO: Australian.
  • Macquarie Group (MQG): Is Said to Target Infrastructure Fund in China Push.
  • Viralytics (VLA): Merck Turns to Tumor-Killing Viruses in Immune Cancer Treatment.
Broker upgrades, downgrades
  • Bega Cheese (BGA): Upgraded to Buy at UBS; price target $A7.90.
  • Woodside (WPL): Upgraded to Neutral at JPMorgan; PT $A29.70.
  • Collection House (CLH): Upgraded to Buy at Baillieu Holst; PT $A1.55.
USDJPY and downside risk

Price action for USDJPY looks weak as safe haven rose and 3 month implied volatility spiked off 8. Last month, the Japanese government bond yield formed a monthly outside reversal candlestick and the 10 year downtrend remained intact. The range of JGB was one of the tightest ever in 2017, while the US treasury yield has been on the rise.

So further widening of the interest rate differential could somewhat restrict downside risk for USDJPY.

USDJPY chart

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JGB 10 year yield chart
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Source: Bloomberg

Three-month USDJPY volatility chart

Source: Bloomberg. Create your own charts with SaxoTrader; click here to learn more.  

– Edited by Robert Ryan

For more on forex, click here.

Today's Trade is compiled by the Sydney trading desk at Saxo Capital Markets.

Sources: AFR, SMH, CNBC, BBG, WSJ, The Australian, Reuters
 
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