Early Rally Evaporates After Trump Imposes New Tariffs…..
U.S. equities finished solidly lower, erasing an early rally and adding to yesterday’s Fed-induced selloff, after President Trump imposed fresh tariffs on China, even though talks are to resume between the two nations in September. On the earnings front, General Motors and Dow member Verizon Communications posted upbeat results, while Qualcomm and Clorox disappointed with their quarterly figures. Treasury yields plunged and the U.S. dollar lost ground to pare a recent rally, while gauges on manufacturing activity in July were soft, joining disappointing reads out of the Eurozone, China and the U.K. Gold turned higher and accelerated to the upside following the announcement, and crude oil prices fell sharply.
The Dow Jones Industrial Average (DJIA) tumbled 281 points (1.1%) to 26,583, the S&P 500 Index declined 27 points (0.9%) to 2,954 and the Nasdaq Composite lost 64 points (0.8%) to 8,111. In heavy volume, 1.1 billion shares were traded on the NYSE and 2.7 billion shares changed hands on the Nasdaq. WTI crude oil plunged $4.63 to $53.95 per barrel and wholesale gasoline was down $0.11 at $1.75 per gallon. Elsewhere, the Bloomberg gold spot price jumped $28.21 to $1,441.99 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 98.34.
July manufacturing activity slows versus June…..
The July Institute for Supply Management (ISM) Manufacturing Index dipped to 51.2 from June’s 51.7 level, and versus the Bloomberg forecast of a slight increase to 52.0. A reading above 50 denotes expansion. New orders rose 0.8 points to 50.8, while growth in production and employment slowed. Prices fell 2.8 points to 45.1. The ISM said comments from the survey were evenly mixed, with some expressing less concern about U.S.-China trade turbulence, but trade remains a significant issue.
The final Markit U.S. Manufacturing PMI Index was revised higher to 50.4 for July, versus expectations of a modest upward adjustment to 50.1, but south of June’s 50.6 level. A reading above 50 denotes expansion. The release is independent and differs from ISM’s report, as it has less historic value and Markit weights its index components differently.
Weekly initial jobless claims rose by 8,000 to 215,000, versus estimates of 214,000, with the prior week’s figure being revised higher by 1,000 to 207,000. The four-week moving average declined by 1,750 to 211,500, while continuing claims increased by 22,000 to 1,699,000, north of estimates of 1,674,000.
Construction spending declined 1.3% month-over-month (m/m) in June, versus projections of a 0.3% increase, and following May’s favorably-revised 0.5% decrease. Residential spending dipped 0.5% m/m and non-residential spending fell 1.8%.
Treasuries rallied, accelerating to the upside after President Trump announced that he would impose a 10% tariff on $300 billion in Chinese goods not already subject to U.S duties effective September 1, escalating worries surrounding trade, and even though the U.S. and China are slated to meet again to resume talks in September. The yield on the 2-year note tumbled 15 basis points (bps) to 1.73%, the yield on the 10-year note fell 13 bps to 1.89%, and the 30-year bond rate declined 10 bps 2.43%. The global markets also continued to digest yesterday’s first rate cut by the Fed in over a decade and an early end to its balance sheet reduction process, as well as comments from Chairman Jerome Powell after the decision that appeared to foster uncertainty regarding if more rate cuts were in the offing for the year.
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