- Dow Jones falls as US-China tensions escalate.
- US ISM Manufacturing data weighed on the stock market with another decline.
- Donald Trump has announced fresh tariffs on Brazilian and Argentinian steel imports despite an existing agreement to the contrary.
The Dow endured a 200 point hammering to start the week. Diplomatic relations between the US and China soured, and ISM manufacturing slumped further into recession. A big loss in the Dow Jones’ most heavily weighted stock also pressured the stock market.
The medium-term outlook for the Dow looks to be worsening as Trump’s move to break trade agreements with Argentina and Brazil could limit China’s appetite to negotiate a trade deal.
Dow Jones Succumbs to Trade Woes & Weak Data
Less than an hour before the closing bell, the Dow Jones Industrial Average had declined by 219.34 points or 0.78% to 27,832.07.
Among the three major US stock market indexes, the Nasdaq was the worst-performing, posting a 1% loss, while the S&P 500 lost around 0.7%.
Despite the weakness in stocks, the price of gold was 0.3% lower, while crude oil was able to rally over 1.5%.
Skepticism around the ECB’s willingness to ease monetary policy further sparked a decent rally in the euro. This sent European stock markets sharply lower. Some of this weakness spilled into the Dow at the open of trade.
US ISM manufacturing PMI fell yet again, suggesting that a firm stock market and talk of “progress” in trade negotiations are doing little to prop up this flagging sector. Given the importance of the data in assessing the trade war, it should be noted that China’s Caixin manufacturing PMI beat expectations on Sunday (as did the eurozone’s today).
China Pressures Dow with Retaliatory Measures
It was unsurprising to see the Dow Jones under pressure on Monday as US-China relations dominated headlines.
At the heart of the Dow’s troubles was the fallout from Trump’s decision to sign the controversial Hong Kong bill into law. China retaliated quickly to these sanctions, and Trump noted today that these events are definitely not helping trade talks.
The silver lining for the Dow Jones is that Beijing has tailored its response to avoid trade issues. By opting to focus on sanctioning NGOs and Navy warships, Xi Jinping likely hopes to keep talks heading in the right direction.
Stock Market at Risk as New Tariffs Erode US Credibility
Adding fresh uncertainty to the trade outlook, Trump announced he would be adding tariffs on steel imports from Argentina and Brazil.
In a remarkably frank take from ING’s Timme Spakman, the economist warns that the president’s decision to go after these trade partners have wide-reaching adverse effects on US credibility.
The move by Trump signals that trade deals with the US are of limited value. A definitive exemption from tariffs was only granted to Argentina and Brazil last year after they agreed to limit their steel exports to the US. Clearly, such agreements can be discarded when the political winds shift. Earlier this year, President Trump threatened to impose tariffs on Mexico unless it tackled the issue of illegal immigration. That decision also took the market by surprise given that the US and Mexico had only recently concluded negotiations on a USMCA trade deal.
Ultimately, a Dow-spooking escalation in the US-China trade war now seems very plausible. Spakman questions whether Xi will even trust Trump to act in good faith,
Dow 30: Boeing Plummets & Apple Struggles
A sea of red in the Dow 30 saw two of the most important stocks in the index taking a sizeable hit.
Apple (AAPL) was down 0.8% as trade tensions continued to raise the possibility that December’s planned tariffs might not be removed after all. This weakness is notable considering that electronics sales were through the roof over Thanksgiving, with a particularly bumper showing for smartphones.
Boeing (BA) stock was a massive anchor on the Dow Jones, and the aerospace manufacturer fell more than 2.15% at its lows. China tensions and the 737 Max are both fundamentals that are trending in the wrong direction for BA.
American Express was the worst-performing stock in the Dow 30 with a miserable 2.2% loss. Only McDonald’s, Exxon Mobil, and Nike were able to post convincing gains for most of the trading session.