Interesting day for numbers


Stocks fell sharply Monday as a trade war between the world’s largest economies intensified with China retaliating against President Donald Trump’s latest move.

The Dow Jones Industrial Average plunged 850 points, while the S&P 500 dropped nearly 3.3%. The Nasdaq Composite lagged, dropping 3.9%. The Nasdaq was on track to fall for a sixth straight session, which would be its longest losing streak since late 2016. The S&P 500 also headed for a six-day losing streak. The Dow was set to fall for a fifth straight day.

The major indexes were headed for their worst day of 2019 and have also fallen more than 5% from their record highs set last month.

Trade bellwethers Caterpillar and Boeing dropped 3.6% and 3%, respectively. Semiconductor stocks like Micron Technology, Skyworks Solutions and Advanced Micro Devices fell at least 4.7%.

Apple shares slid 5.4%. Nike dropped 3.1%. Retail stocks like Etsy, Abercrombie & Fitch and Stitch Fix all fell at least 6.9%. Office Depot slid 7.8%. Party City fell 5.6%. Macy’s and Best Buy pulled back 5% and 4.8%, respectively. The SPDR S&P Retail ETF (XRT) traded 3.2% lower. FedEx dropped 5.2%.

“Now we have a trade situation that is going off the rails as the side effects multiply due to the ramping up of the use of tariffs and we are only further apart from any resolution with the Chinese,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “The policy of using tariffs as a tool to address our legitimate beefs with the Chinese has failed miserably.”

China, which has historically controlled its currency, the yuan, allowed it to fall to its lowest level against the dollar in more than a decade. The onshore yuan broke above 7 per U.S. dollar and traded at 7.05.

Trump later accused China of manipulating its currency, saying in a tweet: “This is a major violation which will greatly weaken China over time.”

China “appears to have decided that, given the increasingly dim prospects of a trade deal with the US, the boost to China’s export sector from currency depreciation is worth attracting the ire of the Trump,” Julian Evans-Pritchard, senior China economist at Capital Economics, wrote in a note. “The fact that they have now stopped defending 7.00 against the dollar suggests that they have all but abandoned hopes for a trade deal with the US.”

Multiple news outlets also reported China has asked state-owned companies to suspend U.S. agricultural imports, despite an agreement in June with Trump to resume purchases of U.S. farm products.

These moves come after Trump announced last week the U.S. would impose a 10% tariff on $300 billion worth of Chinese imports. The tariff will take effect on Sept. 1. Trump’s announcement came after Chinese and U.S. officials discussed trade earlier last week as the two countries tried to restart talks.

That tariff would target retail, along with other consumer goods from companies like Apple. The tech giant told U.S. Trade Representative Robert Lighthizer in a June letter that tariffs on this tranche of goods would hit “all of Apple’s major products,” hindering the company’s contributing to the economy.

The news pushed the S&P 500 to its worst weekly performance of the year. The S&P 500 dropped 3.1% last week. The Dow had its second-biggest weekly drop of 2019 last week, sliding 2.6%.

Investors rushed to traditional safe havens like Treasurys and gold on Monday amid the uncertainty. The benchmark 10-year Treasury yield fell to 1.74% and reached its lowest level since November 2016. Gold futures for December delivery gained 1.3% to settle at $1,476.50 per ounce.

The Cboe Volatility Index (VIX), widely considered to be the best fear gauge in the market, jumped 31.8% to 23.21.

Other than this minor thing, what’s happening?

Brief update on this silliness: (a) a 10% tariff on $300 billion is $30 billion, rounding error whether you’re talking about a $20 trillion economy or a measly $12 trillion; (b) agricultural commodities are commodities, so if one country stops buying, in many cases another will pick up the slack.

One Response to “Interesting day for numbers”

  1. feeblemind Says:

    $30 billion may well be a rounding error, but I would argue the impact is . . . well . . . dart board guess, several times as much. If one has to pay more for a product under tariffs, one has less money for other thing. Buying tariffed inputs squeezes profit margins, and so on. I am sure the Dinocrat gets the idea.

    Perhaps it still doesn’t matter? I am just an obscure peasant so what could I possibly know?

    As for ag commodities, fungibility is true to a large extent. However, buyers disrupted by a change in Chinese purchases may have to pay extra freight to obtain commodities from secondary markets. That loss will be passed back to the farmer. In addition, if China’s forced drop in demand exceeds what the rest of the market can absorb, it will have a depressing effect on process.

Leave a Reply