- The Dow’s losses accelerated on Thursday as the month’s final trading session matured.
- A series of reports hinted at a darkening outlook for US-China trade negotiations, with one suggesting that Beijing no longer expects to sign a comprehensive agreement with President Trump.
- Inflation and consumer spending data both came in lower than expected, potentially confirming fears about the health of the US economy.
The Dow Jones Industrial Average stumbled on Thursday after the stock market’s euphoric trade war outlook began to unravel.
The Dow fell at the open, and the index hastened its decline over the next 90 minutes. By 10:55 am ET, the DJIA had plunged 182.52 points or 0.67% to 27,004.17.
The S&P 500 careened below the all-time high it set on Oct. 30, falling 15.36 points or 0.5% to 3,031.41.
The Nasdaq shed earlier gains to decline by 26.77 points or 0.32% to 8,277.21.
Gold spiked back above the $1,500 level, rising 1.22% to $1,514.90. Silver enjoyed a similar bounce, rising 1.39% to $18.12.
Beijing Doesn’t Expect to Sign Comprehensive Trade Deal with Trump: Report
The Dow Jones and its peers recoiled as the pile of negative trade war headlines continued to snowball.
Most concerning was a Bloomberg report that indicates Beijing has serious doubts that it will ever sign a comprehensive trade deal with the United States, at least while President Donald Trump remains in office.
Consequently, while talks might continue after the countries sign a “phase one” agreement, those future negotiations could be more about keeping up appearances than actually achieving a landmark trade deal.
Of course, not even the phase one agreement is a certainty at this point. Trump and Chinese President Xi Jinping had intended to sing that deal next month in Chile, but the four words hanging over the trade war came back to bite. The timeline is now in shambles, and in a fresh twist to this international soap opera, it was neither Washington nor Beijing’s doing.
Adding to pressures, US Secretary of State Mike Pompeo sniped at China’s Communist Party in remarks on Wednesday evening, telling a room full of conservative gala attendees that,
“Today, we’re finally realizing the degree to which the Communist Party is truly hostile to the United States and our values.”
Highlighting the White House’s complicated relationship with the authoritarian government, he later said that he was “optimistic” about trade negotiations and claimed that the two countries could find plenty of “common ground.”
Expert: China Isn’t in a Rush to Reschedule Trump-Xi Meeting
US and Chinese officials plan to hold phone conversations on Friday to discuss how to proceed. Still, without a hard deadline or the pressure of an impending meeting between Trump and Xi, it’s not clear whether discussions will maintain a sense of urgency.
Shortly before Thursday’s opening bell, Trump tweeted that negotiators are “working on selecting a new site” for the signing ceremony and that it would be “announced soon.”
China and the USA are working on selecting a new site for signing of Phase One of Trade Agreement, about 60% of total deal, after APEC in Chile was canceled do to unrelated circumstances. The new location will be announced soon. President Xi and President Trump will do signing!
— Donald J. Trump (@realDonaldTrump) October 31, 2019
However, Liu Weidong, a China-US affairs expert from the Chinese Academy of Social Sciences, told the South China Morning Post that Beijing isn’t in a rush to reschedule the signing ceremony, even though it does want to sign the limited agreement.
“China believes that the matter has not reached an urgency that they have to immediately organise a bilateral summit,” he said.
That’s notable, given that this morning’s Chinese Manufacturing PMI report printed a reading of 49.3, indicating a greater-than-expected contraction. Economists had forecast a reading of 49.9. Non-Manufacturing PMI also missed estimates, though at 52.8, it still indicated expansion.
Coupled with expectations for Friday morning’s Caixin Manufacturing PMI release, these data suggest that the trade war continues to pressure China’s economy.
Inflation & Consumer Spending Print Weaker-Than-Expected Numbers
Elsewhere on Thursday’s data front, the US Core PCE Price Index (0.0%) and personal spending number (0.2%) both came in lower than expected, potentially confirming the weakness suggested by the latest retail sales data.
Bearish economists like Gluskin Sheff’s David Rosenberg have predicted that consumer data will continue to print weaker and weaker numbers as a decline in business activity seeps into the broader economy.
Today's GDP report confirms a business sector recession. Consumer will follow with a lag — as yesterday's soft Conf Board survey revealed.
— David Rosenberg (@EconguyRosie) October 30, 2019
Personal income rose 0.3%, meeting the consensus forecast, while unemployment claims (218,000) came in roughly where economists expected.
With trade war optimism fading, and no more Federal Reserve interest rate cuts in sight, Wall Street could struggle to maintain a bullish narrative heading into the new year. However, with corporate buybacks continuing to drive the recovery, perhaps that doesn’t matter.