A three-day world stock market rally threatened to stall yesterday as investors fretted over the impact of tariffs on corporate earnings and awaited a US-EU meeting that could inflame a trade war.
Disappointing results from Boeing Co and General Motors Co held back Wall Street a day after the benchmark S&P 500 hit a five-month high, with US President Donald Trump and European Commission chief Jean Claude-Juncker set to meet at 5.45pm GMT.
Market participants’ focus returned to what may happen with tariffs after EU Trade Commissioner Cecilia Malmstrom told a Swedish newspaper the bloc was preparing $20 billion of levies on US goods if Washington imposed them on imported cars.
“We have seen a lot of complacency over this trade war, so the question is, unless we see a very negative outcome (from the EU-US meeting), are we going to see a marked reaction?” said Rabobank strategist Bas Van Geffen. “It is an odd one where two key trade partners, but also two key allies, are now fighting each other.”
In the busiest reporting week for S&P 500 companies, a European Central Bank meeting and US GDP figures still to come this week, there is scope for volatility.
Trade tensions are already hurting shares. General Motors fell 7.42 per cent after the automaker cut its 2018 earnings forecast, citing rising steel and aluminum costs due to US tariffs.
Sales of new US single-family homes fell to an eight-month low in June and data for May was revised sharply lower, the latest indications that the housing market was slowing down.
The PHLX housing index fell nearly two per cent, while the overall US stock market was mixed.
The Dow Jones fell 51.61 points to 25,190.33, the S&P 500 gained 4.23 points, to 2,824.63, and the Nasdaq Composite added 30.91 points, to 7,871.68.
MSCI’s gauge of stocks across the globe gained 0.11 per cent.
The dollar index fell 0.05 per cent, further scaling down from its July 19 peak for the year, when Trump implied it was too strong.
Richard Bernstein of Richard Bernstein Advisors, said tariffs and a weak-dollar policy only exacerbated pressure on company profits. “I’m very surprised that analysts have not factored any of this in – that people are shocked that tariffs are inflationary,” said Bernstein.
Bond investors have been whipsawed by speculation the Bank of Japan could start unwinding stimulus and that bets the gap between short- and long-term bond yields might widen if Trump pressures the Federal Reserve to ease off rate hikes.